<PAGE> 1
AIM TAX-FREE
INTERMEDIATE FUND
------------------------------------------------------------------
AIM Tax-Free Intermediate Fund seeks to generate as high a level of
tax-exempt income as is consistent with preservation of capital.
AIM--Registered Trademark--
PROSPECTUS
JUNE 1, 2000
This prospectus contains important
information about Class A shares of
the fund. Please read it before
investing and keep it for future
reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information in
this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 2
------------------------------
AIM TAX-FREE INTERMEDIATE FUND
------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- - - - - - - - - - - - - - - - - - - - - - - - - -
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 2
- - - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- - - - - - - - - - - - - - - - - - - - - - - - - -
Fee Table 3
Expense Example 3
FUND MANAGEMENT 4
- - - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 4
Advisor Compensation 4
Portfolio Managers 4
OTHER INFORMATION 4
- - - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 4
Dividends and Distributions 4
Special Tax Information Regarding the Fund 4
FINANCIAL HIGHLIGHTS 5
- - - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
- - - - - - - - - - - - - - - - - - - - - - - - - -
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-8
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
- - - - - - - - - - - - - - - - - - - - - - - - - -
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La
Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest with
DISCIPLINE are registered service marks and AIM Bank Connection and AIM
Internet Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 3
------------------------------
AIM TAX-FREE INTERMEDIATE FUND
------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
--------------------------------------------------------------------------------
The fund's investment objective is to generate as high a level of tax-exempt
income as is consistent with preservation of capital. The investment objective
of the fund may be changed by the Board of Trustees without shareholder
approval.
The fund seeks to meet its objective by investing in high-quality,
intermediate-term municipal securities having a maturity of ten and one-half
years or less.
The fund normally invests at least 80% of its assets in securities that (1)
pay interest which is excluded from gross income for federal income tax
purposes, and (2) do not produce income that will be considered to be an item of
preference for purposes of the alternative minimum tax. Municipal securities
include debt obligations of varying maturities issued to obtain funds for
various public purposes by or on behalf of states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies, authorities and instrumentalities. Municipal lease
obligations, synthetic municipal securities and industrial development bonds are
treated as municipal securities. Any percentage limitations with respect to
assets of the fund are applied at the time of purchase.
The fund may purchase municipal securities that meet certain quality criteria
at the time of purchase, including: (1) securities rated within the three
highest ratings by Moody's Investors Service, Inc., Standard & Poor's Ratings
Services or any other nationally recognized statistical rating organization
(NRSRO); (2) securities rated within the two highest ratings for short-term
municipal obligations by Moody's or S&P or any other NRSRO; (3) securities
guaranteed as to payment of principal and interest by the U.S. Government; (4)
securities fully collateralized by an escrow of U.S. Government or other
high-quality securities; or (5) unrated securities, if (a) other municipal
securities of the same issuer are rated A or better by a NRSRO, or (b) deemed by
the portfolio managers to be of comparable quality. The fund will invest only in
municipal securities that have maturities of ten and one-half years or less and
will maintain a dollar-weighted average portfolio maturity of between three and
seven and one-half years.
The fund may invest (1) less than 25% of its total assets in securities of
issuers located in the same state; (2) less than 25% of its total assets in
industrial development bonds; (3) less than 25% of its total assets in
securities, the interest on which is paid from revenues of similar type
projects; and (4) up to 100% of its assets in securities in category three, if
the principal and interest on the securities is guaranteed.
The portfolio managers focus on securities that they believe have favorable
prospects for current income, consistent with their concern for preservation of
capital. The portfolio managers consider whether to sell a particular security
when any of those factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily hold
all or a portion of its assets in cash, money market instruments, affiliated
money market funds, bonds or other debt securities. As a result, the fund may
not achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
--------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. Interest rate increases will cause the
price of a debt security to decrease. The longer a debt security's duration, the
more sensitive it is to this risk. A municipality may default or otherwise be
unable to honor a financial obligation. Revenue bonds are not backed by the
taxing power of the issuing municipality.
The value of, payment of interest and repayment of principal by, and the
ability of the fund to sell, a municipal security may also be affected by
constitutional amendments, legislative enactments, executive orders,
administrative regulations and voter initiatives as well as the economies of the
regions in which the fund invests.
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.
1
<PAGE> 4
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AIM TAX-FREE INTERMEDIATE FUND
------------------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance is not necessarily an
indication of its future performance.
ANNUAL TOTAL RETURNS*
--------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
[GRAPH]
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
----------- ------
<S> <C>
1990........................................ 6.60%
1991........................................ 9.85%
1992........................................ 7.98%
1993........................................ 9.03%
1994........................................ -1.43%
1995........................................ 10.21%
1996........................................ 3.82%
1997........................................ 7.27%
1998........................................ 5.47%
1999........................................ .09%
</TABLE>
* The fund's Class A shares' year-to-date total return as of March 31, 2000
was 1.45%.
During the periods shown in the bar chart, the highest quarterly return was
3.96% (quarter ended March 31, 1995) and the lowest quarterly return was -2.56%
(quarter ended March 31, 1994).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(for the periods ended SINCE INCEPTION
December 31, 1999) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A -.88% 5.12% 5.72% 5.82% 05/11/87
Lehman Bros. Municipal Bond Index(1) -2.06% 6.91% 6.89% 7.43%(2) 4/30/87(2)
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Municipal Bond Index is a broad based, total return
index comprised of 8000 investment-grade, fixed-rate bonds with maturities
of more than two years.
(2) The average annual total return given is since the date closest to the
inception date of Class A shares.
2
<PAGE> 5
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AIM TAX-FREE INTERMEDIATE FUND
------------------------------
FEE TABLE AND EXPENSE EXAMPLE
--------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A
---------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed
on Purchases
(as a percentage of offering price) 1.00%
Maximum Deferred Sales Charge (Load)
(as a percentage of original
purchase price or redemption
proceeds, whichever is less) None
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets) CLASS A
---------------------------------------------------
<S> <C>
Management Fees 0.30%
Distribution and/or
Service (12b-1) Fees None
Other Expenses 0.16
Total Annual Fund Operating Expenses 0.46
---------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual returns and
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
<S> <C> <C> <C> <C>
Class A $147 $246 $355 $673
----------------------------------------------
</TABLE>
3
<PAGE> 6
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AIM TAX-FREE INTERMEDIATE FUND
------------------------------
FUND MANAGEMENT
--------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 120
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended March 31, 1999, the advisor received compensation
of 0.30% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio, all of whom are officers of A I M Capital Management,
Inc., a wholly owned subsidiary of the advisor, are
- Richard A. Berry, Senior Portfolio Manager, who has been responsible for the
fund since 1987 and has been associated with the advisor and/or its affiliates
since 1987.
- Stephen D. Turman, Portfolio Manager, who has been responsible for the fund
since 1988 and has been associated with the advisor and/or its affiliates
since 1985.
OTHER INFORMATION
--------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Tax-Free Intermediate Fund are subject to the
maximum 1.00% initial sales charge as listed under the heading "CATEGORY III
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
SPECIAL TAX INFORMATION REGARDING
THE FUND
In addition to the general tax information set forth under the heading
"Shareholder Information--Taxes" in this prospectus, the following information
describes the tax impact of certain dividends you may receive from the fund.
You will not be required to include the "exempt-interest" portion of dividends
paid by the fund in your gross income for federal income tax purposes. You will
be required to report the receipt of exempt-interest dividends and other
tax-exempt interest on your federal income tax returns. Exempt-interest
dividends from the fund may be subject to state and local 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, and may have other collateral
federal income tax consequences for you. The fund may invest in municipal
securities the interest on which constitutes an item of tax preference and could
give rise to a federal alternative minimum tax liability for you, and may invest
up to 20% of its net assets in such securities and other taxable securities. The
fund will try to avoid investments that result in taxable dividends.
To the extent that dividends paid by the fund are derived from taxable
investments or realized capital gains, they will be taxable as ordinary income
or long-term capital gains. The percentage of dividends that constitutes
exempt-interest dividends will be determined annually. This percentage may
differ from the actual percentage of exempt interest received by the fund for
the particular days in which you hold 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 fund
to pay exempt-interest dividends might be adversely affected.
4
<PAGE> 7
------------------------------
AIM TAX-FREE INTERMEDIATE FUND
------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The data for the six-month period ended September 30, 1999 is unaudited. The
information for the fiscal year ended March 31, 1999, 1998, 1997, 1996 and 1995
has been audited by KPMG LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
FOR THE PERIOD
APRIL 1, 1999
THROUGH
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.13 $ 11.05 $ 10.73 $ 10.79 $ 10.67 $ 10.62
Income from investment operations:
Net investment income 0.24 0.49 0.50 0.50 0.52 0.49
Net gains (losses) on securities (both realized
and unrealized) (0.30) 0.08 0.32 (0.04) 0.12 0.04
Total from investment operations (0.06) 0.57 0.82 0.46 0.64 0.53
Less distributions:
Dividends from net investment income (0.25) (0.49) (0.50) (0.52) (0.52) (0.48)
Total distributions (0.25) (0.49) (0.50) (0.52) (0.52) (0.48)
Net asset value, end of period $ 10.82 $ 11.13 $ 11.05 $ 10.73 $ 10.79 $ 10.67
Total return(a) (0.58)% 5.27% 7.79% 4.33% 6.06% 5.17%
---------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) $384,414 $244,499 $200,969 $173,342 $83,066 $82,355
Ratio of expenses (exclusive of interest) to
average net assets 0.44%(b) 0.46% 0.45% 0.56% 0.65% 0.59%
Ratio of net investment income to average net
assets 4.25%(b) 4.43% 4.56% 4.63% 4.81% 4.65%
Portfolio turnover rate 13% 32% 22% 26% 32% 75%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average net assets of $322,466,939.
5
<PAGE> 8
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
- Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
eight years after the end of shares
the month in which shares
were purchased along with a
pro rata portion of its
reinvested dividends and
distributions(1)
- Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of
that fund seven years after the end of the month in which shares were
purchased. If you exchange those shares for Class B shares of another
AIM Fund, the shares into which you exchanged will not convert to
Class A shares until eight years after the end of the month in which
you purchased your original shares.
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
A-1 MCF--03/00
<PAGE> 9
-------------
THE AIM FUNDS
-------------
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
-------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
-------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
-------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- on shares purchased by reinvesting dividends and distributions;
- when exchanging shares among certain AIM Funds;
- when using the reinstatement privilege; and
- when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- if you redeem Class B shares you held for more than six years;
- if you redeem Class C shares you held for more than one year;
- if you redeem shares acquired through reinvestment of dividends and
distributions; and
- on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--03/00 A-2
<PAGE> 10
--------------
THE AIM FUNDS
--------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM Mid
Cap Opportunities Fund and AIM Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
----------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
<TABLE>
<CAPTION>
PURCHASE OPTIONS
---------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank Connection
methods described above. form to the transfer agent. Once
the transfer agent has received the
form, call the transfer agent to
place your purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. The
maximum purchase amount per
transaction is $100,000. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
----------------------------------------------------------------------------------------------------------
</TABLE>
A-3 MCF--03/00
<PAGE> 11
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THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted
to establish a retirement plan. You may use AIM Funds-sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the
AIM Funds-sponsored retirement plan assesses an annual maintenance fee of $10.
Contact your financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. However, if
you acquired Class A shares of AIM Developing Markets Fund in connection with
the reorganization of AIM Eastern Europe Fund, you will be charged a redemption
fee of 2% of the net asset value of those shares, which will be paid to AIM
Developing Markets Fund, if you redeem your shares within the first year after
the reorganization. Your broker or financial consultant may charge service fees
for handling redemption transactions. Your shares also may be subject to a
contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on Class B
shares or Class C shares acquired by exchange from AIM Cash Reserve Shares of
AIM Money Market Fund at the time of the exchange into Class B shares or Class C
shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--03/00 A-4
<PAGE> 12
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
By AIM Internet
Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $50,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet.
The transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
</TABLE>
-------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
A-5 MCF--03/00
<PAGE> 13
--------------
THE AIM FUNDS
--------------
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
MCF--03/00 A-6
<PAGE> 14
--------------
THE AIM FUNDS
--------------
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- Exchanges must be made between accounts with identical registration
information;
- The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- Shares must have been held for at least one day prior to the exchange;
- If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
-------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
------------------------------------------------------------------------------
A-7 MCF--03/00
<PAGE> 15
--------------
THE AIM FUNDS
--------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. 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.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges, the value of those funds' assets may change on days when
you will not be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good form. An AIM Fund may postpone the right of redemption
only under unusual circumstances, as allowed by the Securities and Exchange
Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--03/00 A-8
<PAGE> 16
------------------------------
AIM TAX-FREE INTERMEDIATE FUND
------------------------------
OBTAINING ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
---------------------------------------------------------
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database, on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
[email protected]. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
----------------------------------
AIM Tax-Free Intermediate Fund
SEC 1940 Act file number: 811-7890
----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com TFI-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
<PAGE> 17
STATEMENT OF
ADDITIONAL INFORMATION
AIM TAX-EXEMPT FUNDS
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: JUNE 1, 2000
RELATING TO THE AIM TAX-EXEMPT CASH FUND PROSPECTUS DATED JUNE 1, 2000,
THE AIM TAX-FREE INTERMEDIATE FUND PROSPECTUS DATED JUNE 1, 2000,
THE AIM TAX-EXEMPT BOND FUND OF CONNECTICUT PROSPECTUS DATED JUNE 1, 2000,
AND THE AIM HIGH INCOME MUNICIPAL FUND PROSPECTUS DATED JUNE 1, 2000
<PAGE> 18
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION.............................................................................................1
GENERAL INFORMATION ABOUT THE TRUST......................................................................1
The Trust and its Shares........................................................................1
PERFORMANCE INFORMATION..................................................................................3
Yield Calculations..............................................................................4
Total Return Calculations.......................................................................5
Historical Portfolio Results....................................................................6
PORTFOLIO TRANSACTIONS AND BROKERAGE.....................................................................8
General Brokerage Policy........................................................................8
Allocation of Portfolio Transactions............................................................9
Section 28(e) Standards.........................................................................9
Portfolio Turnover.............................................................................10
INVESTMENT STRATEGIES AND RISKS.........................................................................11
Investment Program.............................................................................11
Municipal Securities...........................................................................11
Maturities.....................................................................................13
Quality Standards..............................................................................13
Money Market Instruments: AIM Tax-Exempt Cash Fund Only.......................................15
Investment in Non-Investment Grade Securities: AIM Tax-Exempt Bond Fund of Connecticut and
AIM High Income Municipal Fund Only...................................................15
Defaulted Securities...........................................................................17
When-Issued or Delayed Delivery Securities.....................................................17
Municipal Forward Contracts....................................................................18
Illiquid Securities............................................................................18
Variable or Floating Rate Instruments..........................................................18
Concentration of Investments...................................................................19
Risk Factors in Concentrating in Connecticut Municipal Obligations.............................19
Non-Diversified Portfolio......................................................................19
Margin Transactions............................................................................20
Short Sales....................................................................................20
Diversification Requirements - AIM Tax-Exempt Cash Fund........................................20
Synthetic Municipal Instruments................................................................20
Standby Commitments............................................................................21
Indexed Securities.............................................................................21
Zero-Coupon and Pay-in-Kind Securities.........................................................22
Insurance......................................................................................22
Lending of Portfolio Securities................................................................22
Interfund Loans................................................................................22
Other Considerations...........................................................................22
Investment in Other Investment Companies.......................................................23
Temporary Defensive Investments................................................................23
Options and Futures............................................................................23
Covered Call Options: AIM High Income Municipal Fund, AIM Tax-Exempt Bond Fund of
Connecticut and AIM Tax-Free Intermediate Fund Only..........................23
Put Options: AIM High Income Municipal Fund Only.....................................24
Combined Option Positions: AIM High Income Municipal Fund Only........................24
Futures Contracts: All Funds.........................................................24
</TABLE>
ii
<PAGE> 19
<TABLE>
<S> <C> <C>
Options on Futures Contracts: All Funds.....................................25
AIM Tax-Exempt Cash Fund..............................................................25
Risks as to Futures Contracts and Related Options............................25
INVESTMENT RESTRICTIONS........................................................................26
Fundamental Restrictions..............................................................26
Non-Fundamental Restrictions..........................................................27
MANAGEMENT.....................................................................................28
Trustees and Officers.................................................................28
Remuneration of Trustees.....................................................32
AIM Funds Retirement Plan for Eligible Directors/Trustees....................33
Deferred Compensation Agreements.............................................34
INVESTMENT ADVISORY AND OTHER SERVICES.........................................................34
Distribution Plans....................................................................37
The Distributor.......................................................................42
SALES CHARGES AND DEALER CONCESSIONS...........................................................44
REDUCTIONS IN INITIAL SALES CHARGES............................................................47
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS....................................................50
HOW TO PURCHASE AND REDEEM SHARES..............................................................52
Backup Withholding....................................................................53
DETERMINATION OF NET ASSET VALUE...............................................................54
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.......................................................56
Dividends and Distributions...........................................................56
Tax Matters...........................................................................56
SHAREHOLDER INFORMATION........................................................................60
MISCELLANEOUS INFORMATION......................................................................63
Shareholder Inquiries.................................................................63
Audit Reports.........................................................................63
Legal Matters.........................................................................63
Custodian and Transfer Agent..........................................................63
Control Persons and Principal Holders of Securities...................................64
RATINGS OF SECURITIES..........................................................................67
FINANCIAL STATEMENTS...........................................................................FS
</TABLE>
iii
<PAGE> 20
INTRODUCTION
AIM Tax-Exempt Funds (the "Trust") 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 four Prospectuses (the
"Prospectuses"), one of which is dated June 1, 2000 and relates to the Class A
shares of AIM TAX-EXEMPT CASH FUND, one of which is dated June 1, 2000 and
relates to the Class A shares of AIM TAX-FREE INTERMEDIATE FUND, one of which is
dated June 1, 2000 and relates to the Class A shares of AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT, and one of which is dated June 1, 2000 and relates to the Class
A, Class B and Class C shares of 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 Trust'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 TRUST
The Trust and its Shares
The Trust currently is organized under an Agreement and Declaration of
Trust, dated December 6, 1999 (the "Trust Agreement"). The Trust was previously
organized as AIM Tax-Exempt Funds, Inc. ("ATEF"), a Maryland corporation,
pursuant to an Agreement and Plan of Reorganization, the Funds were reorganized
on June 1, 2000 as portfolios of the Trust which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act") as a diversified
open-end series management investment company. Pursuant to the Agreement and
Plan of Reorganization, the Funds succeeded to the assets and assumed the
liabilities of the series portfolios with corresponding names (the "Predecessor
Funds") of ATEF. All historical financial and other information contained in
this Statement of Additional Information for periods prior to June 1, 2000
relating to the Funds (or a class thereof) is that of the Predecessor Funds (or
the corresponding class thereof).
Under the Trust Agreement, the Board of Trustees is authorized to
create new series of shares without the necessity of a vote of shareholders of
the Trust. Currently, the Trust has four separate series portfolios, AIM
TAX-EXEMPT CASH FUND, AIM TAX-FREE INTERMEDIATE FUND (named the Intermediate
Portfolio prior to September 25, 1997), 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).
On October 15, 1993, pursuant to an Agreement and Plan of
Reorganization between ATEF and AIM Funds Group, a Massachusetts business trust,
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 ATEF and Tax-Free Investments Co., a Maryland corporation
("TFIC"), ATEF'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
"TFIC Predecessor Funds"). All historical
1
<PAGE> 21
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 TFIC Predecessor Funds.
Shares of beneficial interest of the Trust are redeemable at their net
asset value (subject, in certain circumstances, to a contingent deferred sales
charge) at the option of the shareholder or at the option of the Trust in
certain circumstances. Class A shares of AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT 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 caption "Redeeming Shares."
The assets received by the Trust from the issue or sale of shares of
each of its series of shares, and all income, earnings, profits 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 Trust's books of account, and are to be charged
with the expenses with respect to such Fund and its respective classes. Any
general expenses of the Trust not readily identifiable as belonging to a
particular Fund are allocated by or under the direction of the Board of
Trustees, primarily on the basis of relative net assets, or other relevant
factors.
Each share of each Fund represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by the
Board of Trustees. Each class represents interests in the same portfolio of
investments but, as further described in the Prospectuses, each such class is
subject to differing sales charges and expenses, which differences will result
in differing net asset values and dividends and distributions. Upon any
liquidation of the Trust, shareholders of each class are entitled to share pro
rata in the net assets belonging to the applicable Fund allocable to such class
available for distribution after satisfaction of outstanding liabilities of the
Fund allocable to such class.
The Trust is not required to hold annual or regular meetings of
shareholders. Meetings of shareholders of a Fund will be held from time to time
to consider matters requiring a vote of such shareholders in accordance with the
requirements of the 1940 Act, state law or the provisions of the Trust
Agreement. It is not expected that shareholder meetings will be held annually.
Each class of shares of the same Fund represents interests in that
Fund's assets and has 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.
Class B shares automatically convert to Class A shares at the end of
the month which is eight years after the date of purchase. A pro rata portion of
shares from reinvested dividends and distributions convert at the same time. No
other shares have conversion rights. Because Class B shares convert into Class A
shares, the holders of Class B shares (as well as the holders of Class A shares)
of each Fund must approve any material increase in fees payable with respect to
that Fund under the Class A and C Plan or a new class of shares into which the
Class B shares will convert must be created which will be identical in all
material respects to the Class A shares prior to the material increase in fees.
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 Trust 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
2
<PAGE> 22
are fully paid and nonassessable, have no preemptive or subscription rights, and
are fully transferable. Shares do not have cumulative voting rights, which means
that in situations in which shareholders elect trustees, holders of more than
50% of the shares voting for the election of trustees can elect all of the
trustees of the Trust, and the holders of less than 50% of the shares voting for
the election of trustees will not be able to elect any trustees.
The Trust Agreement provides that the trustees of the Trust shall hold
office during the existence of the Trust, except as follows: (a) any trustee may
resign or retire; (b) any trustee may be removed by a vote of at least
two-thirds of the outstanding shares of the Trust, or at any time by written
instrument signed by at least two-thirds of the trustees and specifying when
such removal becomes effective; or (c) any trustee who has died or become
incapacitated and is unable to serve may be retired by a written instrument
signed by a majority of the trustees and specifying the date of his or her
retirement.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations, however, there is a remote possibility that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a Fund would be unable to meet its obligations
and wherein the complaining party was held not to be bound by the disclaimer.
The Trust Agreement further provides that the trustees and officers
will not be liable for any act, omission or obligation of the Trust or any
trustee or officer. However, nothing in the Trust Agreement protects a trustee
or officer against any liability to the Trust or to the shareholders to which a
trustee or officer would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office with the Trust. The Trust Agreement provides for
indemnification by the Trust of the trustees, officers, employees and agents of
the Trust, if it is determined that such person acted in good faith and
reasonably believed: (1) in the case of conduct in his or her official capacity
for the Trust, that his or her conduct was in the Trust's best interests, (2) in
all other cases, that his or her conduct was at least not opposed to the Trust's
best interests and (3) in a criminal proceeding, that he or she had no reason to
believe that his or her conduct was unlawful. The Trust Agreement also
authorizes the purchase of liability insurance on behalf of trustees and
officers.
PERFORMANCE INFORMATION
The performance of each Fund may be quoted in advertising in terms of
yield or total return. Both types of performance are based on historical results
and are not intended to indicate future performance. All advertisements for each
Fund will disclose the maximum sales charge, if any, imposed on purchases of
that Fund's shares. If any advertised performance data does not reflect the
maximum sales charge, such advertisement will disclose that the sales charge has
not been deducted in computing the performance data, and that, if reflected, the
maximum sales charge would reduce the performance quoted. Further information
regarding each Fund's performance is contained in that Fund's annual report to
shareholders, which is available upon request and without charge.
3
<PAGE> 23
YIELD CALCULATIONS
AIM TAX-FREE INTERMEDIATE FUND, AIM HIGH INCOME MUNICIPAL FUND AND AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT
Yield is computed in accordance with standardized formulas described in
this Statement of Additional Information and can be expected to fluctuate from
time to time and is not necessarily indicative of future results. Accordingly,
yield information may not provide a basis for comparison with investments which
pay a fixed rate of interest for a stated period of time. Yield reflects
investment income net of expenses over the relevant period attributable to a
Fund share, expressed as an annualized percentage of the maximum offering price
per share for AIM HIGH INCOME MUNICIPAL FUND, AIM TAX-FREE INTERMEDIATE FUND and
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, and net asset value per share for AIM
TAX-EXEMPT CASH FUND.
Yield is a function of the type and quality of a Fund's investments,
the maturity of the securities held in a Fund's portfolio and the operating
expense ratio of the Fund. A shareholder's investment in a Fund is not insured
or guaranteed. These factors should be carefully considered by the investor
before making an investment in a Fund. A tax-equivalent yield is calculated in
the same manner as the standard yield with an adjustment for a stated, assumed
tax rate. The Funds may also demonstrate the effect of such tax-equivalent
adjustments generally by comparing various yield levels with their corresponding
tax-equivalent yields, given a stated tax rate.
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 September 30, 1999, were 4.50% and 4.63%,
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 September 30,
1999 were 5.59%, 5.07% and 5.07%, respectively.
Income calculated for purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions from the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.
4
<PAGE> 24
AIM TAX-EXEMPT CASH FUND
The standard formula for calculating annualized yield for AIM
TAX-EXEMPT CASH Fund is as follows:
Y = (V(1)-- V(0)) x 365
------------- ---
V(0) 7
Where Y = annualized yield.
V(0) = the value of a hypothetical pre-existing
account in the Fund having a balance of
one share at the beginning of a stated
seven-day period.
V(1) = the value of such an account at the end
of the stated period.
The standard formula for calculating effective annualized yield for the
Fund is as follows:
EY = (Y + 1)(365/7) - 1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
For purposes of the annualized yield and effective annualized yield,
the net change in the value of the hypothetical AIM TAX-EXEMPT CASH FUND account
reflects the value of additional shares purchased with dividends from the
original shares and any such additional shares, and all fees charged, other than
non-recurring account or sales charges, to all shareholder accounts in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains or losses or unrealized appreciation and
depreciation 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. Cumulative total return reflects the performance of a Fund over a stated
period of time. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical investment in a Fund over a stated
period of time, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period. While average annual total returns are
a convenient means of comparing investment alternatives, investors should
realize that a Fund's performance is not constant over time, but changes from
year to year, and that average annual total return does not represent the actual
year-to-year performance of a Fund.
In addition to average annual total return, a Fund may quote unaveraged
or cumulative total return reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, and/or a series of redemptions, over
any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in tables, graphs or similar illustrations. Total returns may be
quoted with or without taking any applicable maximum sales charge 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.
5
<PAGE> 25
HISTORICAL PORTFOLIO RESULTS
From time to time, A I M Advisors, Inc. ("AIM") or its affiliates may
waive all or a portion of their fees and/or assume certain expenses of any Fund.
Voluntary fee waivers or reductions or commitments to assume expenses may be
rescinded at any time without further notice to investors. During periods of
voluntary fee waivers or reductions or commitments to assume expenses, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions or reimbursement of expenses set
forth in the Fee Table in a Prospectus may not be terminated or amended to the
Funds' detriment during the period stated in the agreement between AIM and the
Fund. Fee waivers or reductions or commitments to reduce expenses will have the
effect of increasing that Fund's yield and total return.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results. A Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in any Fund.
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 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 September 30, 1999, were 3.25% and 3.30%,
respectively. Assuming a tax rate of 39.6%, these yields for the Class A shares
of the Fund on a tax-equivalent basis were 5.38% and 5.46%, respectively.
The annual average total returns of the Class A shares of the Fund for
the one, five and ten-year periods ended September 30, 1999, were 2.78%, 2.93%
and 3.08%, respectively. The cumulative total returns of the Class A shares of
the Fund for the one, five and ten-year periods ended September 30, 1999, were
2.78%, 15.54% and 35.46%, respectively.
6
<PAGE> 26
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 September 30, 1999, and the
period from May 11, 1987 (date operations commenced) through September 30, 1999:
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 9/30/99 1.00% 1.00%
Five years ended 9/30/99 5.24% 29.09%
Ten years ended 9/30/99 6.24% 83.18%
5/11/87 through 9/30/99 6.04% 106.86%
</TABLE>
The 30-day yield of the Fund's Class A shares as of September 30, 1999,
was 4.14%, with a corresponding tax-equivalent yield of 6.84%, 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 September 30, 1999, and the
period from October 3, 1989 (date operations commenced) through September 30,
1999:
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 9/30/99 .01% .01%
Five years ended 9/30/99 5.24% 29.10%
10/03/89 through 9/30/99 6.46% 86.89%
</TABLE>
The 30-day yield of the Fund's Class A shares as of September 30, 1999,
was 3.69%, with a corresponding Connecticut individual's tax-equivalent yield of
6.40%, assuming a federal tax rate of 39.6%, and a state tax rate of 4.5%.
AIM HIGH INCOME MUNICIPAL FUND
The following chart shows total returns of the Class A shares of the
Fund for the one-year period ended September 30, 1999, and the period from
January 2, 1998 (date operations commenced) through September 30, 1999:
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 9/30/99 -2.50% -2.50%
1/02/98 through 9/30/99 1.86% 3.26%
</TABLE>
7
<PAGE> 27
The following chart shows total returns of the Class B shares of the
Fund for the one-year period ended September 30, 1999, and the period from
January 2, 1998 (date operations commenced) through September 30, 1999:
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 9/30/99 -3.33% -3.33%
1/02/98 through 9/30/99 1.01% 1.77%
</TABLE>
The following chart shows total returns of the Class C shares of the
Fund for the one-year period ended September 30, 1999, and the period from
January 2, 1998 (date operations commenced) through September 30, 1999:
<TABLE>
<CAPTION>
Average
Period Annual Return Cumulative Return
------ ------------- -----------------
<S> <C> <C>
One year ended 9/30/99 -3.33% -3.33%
1/02/98 through 9/30/99 1.00% 1.75%
</TABLE>
The 30-day yields of the Fund's Class A, Class B and Class C shares as
of September 30, 1999, were 5.81%, 5.34% and 5.34%, respectively, with the
corresponding tax-equivalent yields of 9.62%, 8.84% and 8.84% respectively,
assuming a tax rate of 39.6%.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
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, 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.
8
<PAGE> 28
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 an AIM Fund, 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 or account and may invest in
affiliated money market funds, provided the Funds follow procedures adopted by
the Board of Directors/Trustees of the various AIM Funds, including the Trust.
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 Trust are
prohibited from dealing with the Trust 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 Trust from purchasing a security being
publicly underwritten by a syndicate of which certain persons affiliated with
the Trust 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 Trust 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 Trust's Board of Trustees and a determination is made that
the placement fee or other remuneration paid by the issuer to a person
affiliated with the Trust is fair and reasonable in relation to the fees charged
by others performing similar services. During the fiscal years ended March 31,
1999, 1998 and 1997, 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 numerous 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, 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
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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 Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker- dealers may communicate such information electronically, orally, in
written form or on computer software. 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 ended March 31, 1999, 1998 and 1997 of each
of AIM TAX-EXEMPT CASH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND.
PORTFOLIO TURNOVER
Ordinarily, AIM TAX-FREE INTERMEDIATE FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND do 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 Funds' investment objectives, regardless of the
holding period of that security. A higher rate of portfolio turnover may result
in higher transaction costs. Also, the extent that higher portfolio turnover
results in a higher rate of net realized capital gains to the Funds, the portion
of the Funds' distributions constituting taxable capital gain may increase. It
is expected that total portfolio turnover in any year will be less than 100%.
The portfolio turnover rate of AIM TAX-FREE INTERMEDIATE FUND, AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND is shown under
"Financial Highlights" in the applicable Prospectus.
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INVESTMENT STRATEGIES AND RISKS
INVESTMENT PROGRAM
Information concerning each Fund's non-fundamental investment objective
is set forth in the Prospectuses under the heading "Investment Objective and
Strategies." There can be no assurance that any Fund will achieve its objective.
The principal features of each Fund's investment program and the principal risks
associated with that investment program are discussed in the Prospectuses under
the heading "Investment Objective and Strategies" and "Principal Risks of
Investing in the Fund."
Set forth in this section is a description of each Fund's investment
policies, strategies and practices. The investment objective(s) of each Fund are
non-fundamental policies and may be changed by the Board of Trustees without
shareholder approval. Each Fund's investment policies, strategies and practices
are also non-fundamental. The Board of Trustees of the Trust reserves the right
to change any of these non-fundamental investment policies, strategies or
practices without shareholder approval. However, shareholders will be notified
before any material change in the investment policies becomes effective. Each
Fund has adopted certain investment restrictions, some of which are fundamental
and cannot be changed without shareholder approval. See "Investment
Restrictions" in this Statement of Additional Information. Individuals
considering the purchase of shares of any Fund should recognize that there are
risks in the ownership of any security.
Any percentage limitations with respect to assets of a Fund will be
applied at the time of purchase. A later change in percentage resulting from
changes in asset values will not be considered a violation of the percentage
limitations. The percentage limitations applicable to borrowings will be applied
in accordance with applicable provisions of the 1940 Act and the rules and
regulations promulgated thereunder which specifically limit each Fund's
borrowing abilities.
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, banks and corporations,
short-term fixed income securities, 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 of states, territories
or possessions of the United States and District of Columbia and their political
subdivisions, agencies and instrumentalities, issued to obtain funds
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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 principal and interest payments for industrial development bonds
or pollution control bonds are often the sole responsibility of the industrial
user and therefore may not be backed by the taxing power of the issuing
municipality. The interest paid on such bonds may be exempt from federal
income tax, although current federal tax laws place substantial limitations on
the purposes and size of such issues. Such obligations are considered to be
Municipal Securities provided that the interest paid thereon, in the opinion
of bond counsel, qualifies as exempt from federal income tax. However,
interest on Municipal Securities may give rise to a federal alternative
minimum tax liability and may have other collateral federal income tax
consequences. See "Dividends, Distributions and Tax Matters - Tax Matters."
The two major classifications of Municipal Securities are bonds and
notes. Bonds may be further classified as "general obligation" or "revenue"
issues. General obligation bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities, and in some cases, from the proceeds of a special excise
or other specific revenue source, but not from the general taxing power.
Tax-exempt industrial development bonds are in most cases revenue bonds and do
not generally carry the pledge of the credit of the issuing municipality. Notes
are short-term instruments which usually mature in less than two years. Most
notes are general obligations of the issuing municipalities or agencies and are
sold in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Funds' assets may consist of any combination of general
obligation bonds, revenue bonds, industrial revenue bonds and notes. The
percentage of such Municipal Securities held by a Fund will vary from time to
time.
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. Interest payments on qualifying municipal leases are
exempt from federal income taxes. The Funds may purchase these obligations
directly, or they may purchase participation interests in such obligations.
Municipal leases are generally subject to greater risks than general obligation
or revenue bonds. State laws set forth requirements that states or
municipalities must meet in order to issue municipal obligations, and such
obligations may contain a covenant by the issuer to budget for, appropriate, and
make payments due under the obligation. However, certain municipal lease
obligations may contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal leases
are secured by the underlying capital asset, it may be difficult to dispose of
such assets in the event of non-appropriation or other default. The Trust's
Board of Trustees 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.
Municipal Securities also include the following securities:
BOND ANTICIPATION NOTES usually are general obligations of state and
local governmental issuers which are sold to obtain interim financing for
projects that will eventually be funded through the sale of long- term debt
obligations or bonds.
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TAX ANTICIPATION NOTES are issued by state and local governments to
finance the current operations of such governments. Repayment is generally to be
derived from specific future tax revenues. Tax anticipation notes are usually
general obligations of the issuer.
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
REVENUE ANTICIPATION NOTES are issued by governments or governmental
bodies with the expectation that future revenues from a designated source will
be used to repay the notes. In general, they also constitute general obligations
of the issuer.
TAX-EXEMPT COMMERCIAL PAPER (MUNICIPAL PAPER) is identical to taxable
commercial paper, except that tax-exempt commercial paper is issued by states,
municipalities and their agencies.
The Funds also may purchase participation interests or custodial
receipts from financial institutions. These participation interests give the
purchaser an undivided interest in one or more underlying Municipal Securities.
The 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 Trust. 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.
MATURITIES
AIM TAX-EXEMPT CASH FUND will attempt to maintain a constant net asset
value per share of $1.00 and, to this end, values its assets by the amortized
cost method and rounds the per share net asset value of its shares in compliance
with applicable rules and regulations. Accordingly, the Fund invests only in
securities having remaining maturities of 397 days or less and maintains a
dollar weighted average portfolio maturity of 90 days or less. The maturity of a
security held by the Fund is determined in compliance with applicable rules and
regulations. Certain securities bearing interest at rates that are adjusted
prior to the stated maturity of the instrument or that are subject to redemption
or repurchase agreements are deemed to have maturities shorter than their stated
maturities.
AIM TAX-FREE INTERMEDIATE FUND may invest only in Municipal Securities
which have maturities of ten and one-half years or less, and will maintain a
dollar weighted average maturity of more than three years and not more than
seven and one-half years. For purposes of this limitation, the maturity of an
instrument will be considered to be the earlier of:
(a) the stated maturity of the instrument; or
(b) the date, if any, on which the issuer has agreed to redeem or
purchase the instrument; or
(c) in the case of a variable rate instrument, the next date on which
the coupon rate is to be adjusted.
AIM HIGH INCOME MUNICIPAL 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.
QUALITY STANDARDS
AIM TAX-FREE INTERMEDIATE FUND. The following quality standards apply at the
time a security is purchased. Information concerning the ratings criteria of
Moody's, S&P, and Fitch Investors Service, Inc. ("Fitch") appears herein under
the caption "Ratings of Securities."
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The Fund may purchase Municipal Securities which meet any of the following
quality criteria:
(a) They are rated within the three highest ratings for municipal
obligations by Moody's (Aaa, Aa or A) or S&P (AAA, AA or A), or have received a
comparable rating from another NRSRO; or
(b) They are rated within the two highest ratings for short-term
municipal obligations by Moody's (MIG 1/VMIG 1/P-1 or MIG 2/VMIG 2/P-2), or S&P
(SP-1/A-1 or SP-2/A-2), or have received a comparable rating from another NRSRO;
or
(c) They are guaranteed as to payment of principal and interest by the
U. S. Government; or
(d) They are fully collateralized by an escrow of U.S. Government or
other high quality securities; or
(e) They are not rated, if other Municipal Securities of the same
issuer are rated A or better by Moody's or S&P, or have received a comparable
rating from another NRSRO; or
(f) They are not rated, but are determined by AIM to be of comparable
quality to the rated obligations in which the Fund may invest.
Since the Fund invests in securities backed by insurance companies and
other financial institutions, changes in the financial condition of these
institutions could cause losses to the Fund and affect its share price.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT. At least 80% of the municipal bonds
purchased by the Fund will be rated within the four highest rating categories,
or will be obligations of issuers having an issue of outstanding municipal bonds
rated within the four highest rating categories, of any NRSRO. A description of
municipal bond ratings is contained herein under the caption "Ratings of
Securities."
The Fund will maintain less than 35% of its net assets in bonds and
other Municipal Securities rated below Baa/BBB by Moody's or S&P, respectively,
or a comparable rating of any other NRSRO. During the last fiscal year, the Fund
did not invest in any such securities, and the Fund expects to invest less than
5% of its net assets in such securities during the current fiscal year. See
"Ratings of Securities" for information regarding bond rating categories. Up to
20% of the Fund's net assets may be invested in unrated municipal bonds and
other Municipal Securities if in the judgment of AIM, after considering
available information as to the creditworthiness of the issuer and its ability
to meet its future debt obligations, such investments are similar in quality to
those bonds and other Municipal Securities rated within the four highest NRSRO
rating categories mentioned above. For purposes of the foregoing percentage
limitations, municipal bonds (i) which have been collateralized with U.S.
Government securities held in escrow until the municipal securities refunding
date or final maturity, but (ii) which have not been re-rated by a NRSRO, will
be treated by the Fund as the equivalent of Aaa/AAA rated securities.
Securities held by the Fund that are rated below Baa/BBB by Moody's or
S&P, respectively, may be subject to certain risk factors to which other
securities are not subject to the same degree. An economic downturn tends to
disrupt the market for high yield bonds and adversely affect their values. Such
an economic downturn may be expected to result in increased price volatility of
high yield bonds and an increase in issuers' defaults on such bonds.
AIM TAX-EXEMPT CASH FUND. The 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
Trust's Board of Trustees has determined present minimal credit risk. Generally,
"Eligible Securities" are securities that are rated in one of the two highest
rating categories by two NRSROs, or if rated by only one NRSRO, are rated in one
of the two highest rating categories by that NRSRO, or if unrated, are
determined by AIM (under the supervision of and pursuant to guidelines
established by the Board of Trustees) to be of comparable quality to a rated
security that meets such quality standards. Eligible securities also include
securities issued by a registered investment company that is a money market fund
and U.S.
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government securities. Since AIM TAX-EXEMPT CASH FUND invests in
securities backed by banks and other financial institutions, changes in the
credit quality of these institutions could cause losses to the Fund and affect
its share price.
MONEY MARKET INSTRUMENTS: AIM TAX-EXEMPT CASH FUND ONLY
U.S. Government Obligations consist of marketable securities and
instruments issued or guaranteed by the U.S. 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 U.S. 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 U.S. Government, and other are not.
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.
INVESTMENT IN NON-INVESTMENT GRADE SECURITIES: AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT AND AIM HIGH INCOME MUNICIPAL FUND ONLY
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. In pursuit of its investment objective AIM HIGH INCOME
MUNICIPAL FUND will usually maintain, under normal market conditions, at least
80% of its net assets in a diversified portfolio of Municipal Securities which
are rated Baa/BBB or lower by Moody's or S&P or another NRSRO (or which are
unrated but are determined by AIM to be of comparable quality to such
securities), and the interest of which is exempt from federal income taxes
(including the alternative minimum tax). Such non-investment grade debt
securities are typically considered high risk securities and are commonly
referred to as "junk bonds."
Although non-investment grade debt 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: (i)
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; (ii) greater sensitivity of highly leveraged
issuers to adverse economic changes and individual issuer developments; and
(iii) liquidity may be affected by adverse publicity and changing investor
perceptions about these securities in general and/or a particular issuer's
credit quality.
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As with any other asset held by AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
or AIM HIGH INCOME MUNICIPAL FUND, any reduction in market value of such
securities as a result of the above factors would be reflected in each Funds'
net asset value. In addition, because AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
and AIM HIGH INCOME MUNICIPAL FUND invest in non-investment grade securities
they may incur additional expenses to the extent they are required to seek
recovery upon a default in the payment of principal and interest on their
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, increasing 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 Trust's Board or Trustees.
Judgment may therefore play a greater role in valuing non-investment grade
securities.
In the event AIM TAX-EXEMPT BOND FUND OF CONNECTICUT and AIM HIGH
INCOME MUNICIPAL FUND experience an unexpected level of net redemptions, the
Funds could be forced to sell their non-investment grade securities without
regard to their investment merits, thereby decreasing the asset base upon which
the Funds' expenses can be spread and possibly reducing the Funds' rate of
return. Prices of junk bonds have been found to be less sensitive to
fluctuations in interest rates, and more sensitive to adverse economic changes
and individual corporate developments than those of higher-rated debt
securities.
During the fiscal year ended March 31, 1999, 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, 1999, AIM HIGH INCOME MUNICIPAL FUND invested 94.97% of its net assets
in securities which were (i) rated below investment grade, or (ii) unrated and
determined by AIM to be of comparable quality to securities rated below
investment grade. The Fund expects to invest a significant portion of its net
assets in Municipal Securities which are non-investment grade or unrated and
determined by AIM to be of comparable quality to securities rated below
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 Trustees 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. Such
adverse economic changes may be expected to result in increased price
volatility for junk bonds and of the value of shares of AIM TAX-EXEMPT BOND
FUND OF CONNECTICUT and AIM HIGH INCOME MUNICIPAL FUND, and increased issuer
defaults on junk bonds.
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DEFAULTED SECURITIES
AIM HIGH INCOME MUNICIPAL FUND may invest up to 10% of its total assets
in defaulted securities. In order to enforce its rights in defaulted securities,
AIM HIGH INCOME MUNICIPAL 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 AIM HIGH INCOME
MUNICIPAL FUND'S operating expenses and adversely affect its net assets 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 AIM HIGH INCOME MUNICIPAL FUND in defaulted securities will
also be considered illiquid securities subject to the limitations described
herein, unless AIM determines that such defaulted securities are liquid under
guidelines adopted by the Board of Trustees.
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 "delayed delivery"
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 below the value of the commitment, 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.
Investments in when-issued or delayed delivery securities may increase
a Fund's exposure to market fluctuations and may increase the possibility that a
Fund will incur short-term losses if the Fund engages in
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portfolio transactions in order to honor a when-issued or delayed delivery
commitment. 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. The Funds will employ
techniques designed to reduce such risks.
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.
MUNICIPAL FORWARD CONTRACTS
AIM HIGH INCOME MUNICIPAL 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 Trustees. The
Fund will not invest more than 5% of the value of its total assets in municipal
forward contracts.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets (10% of the net assets
of AIM TAX-EXEMPT CASH FUND) in securities that are illiquid. Illiquid
securities include securities that cannot be disposed of promptly (within seven
days) in the normal course of business at a price at which they are valued.
Illiquid securities may include securities that are subject to restrictions on
resale because they have not been registered under the Securities Act of 1933.
Restricted securities may, in certain circumstances, be resold pursuant to Rule
144A, and thus may or may not constitute illiquid securities. Limitations on the
resale of restricted securities may have an adverse effect on their
marketability, which may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale, and the risk of substantial delays in effecting such
registrations. The Board of Trustees is responsible for developing and
establishing guidelines and procedures for determining the liquidity of Rule
144A restricted securities on behalf of the Funds and monitoring AIM's
implementation of the guidelines and procedures.
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.
AIM HIGH INCOME MUNICIPAL 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.
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CONCENTRATION OF INVESTMENTS
As non-fundamental policies, each of AIM TAX-EXEMPT CASH FUND and AIM
TAX-FREE INTERMEDIATE FUND will each not: invest 25% or more of its assets in
(1) securities whose issuers are located in the same state; (2) securities the
interest upon which is paid from revenues of similar type projects; and (3)
industrial development bonds.
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT: (1) will invest 25% or more of
its assets in securities whose issuers are located in the State of Connecticut;
(2) may invest 25% or more of its assets in securities the interest upon which
is paid from revenues of similar type projects; and (3) will not invest 25% or
more of its assets in industrial development bonds.
The policy described in (2) above for each of AIM TAX-EXEMPT CASH FUND,
AIM TAX-FREE INTERMEDIATE FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT does
not apply if the securities are subject to a guarantee. For securities subject
to a guarantee, these Funds do not intend to purchase any such security if,
after giving effect to the purchase, 25% or more of the Fund's 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 the limitations set forth in the preceding
sentence.
AIM HIGH INCOME MUNICIPAL FUND may invest 25% or more of the value of
its total assets in municipal securities issued by entities having similar
characteristics, such as (a) securities the issuers of which are located in the
same geographic area or where issuers' interest obligations are paid from
revenues of similar projects, or (b) industrial development revenue bonds,
including pollution control revenue bonds, housing finance agency bonds or
hospital bonds. The Fund may not, however, invest 25% or more of the value 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 AIM HIGH
INCOME MUNICIPAL 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 25% or more 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.
RISK FACTORS IN CONCENTRATING IN CONNECTICUT MUNICIPAL OBLIGATIONS
Since AIM TAX-EXEMPT BOND FUND OF CONNECTICUT invests primarily in
obligations of the State of Connecticut, the marketability and market value of
these obligations may be affected by the regional economy, certain Connecticut
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives. The ability of the Fund to
achieve its objective is affected by the ability of municipal issuers to meet
their payment obligations. Problems which may arise in the foregoing areas and
which are not resolved could adversely affect the various Connecticut issuers'
abilities to meet their financial obligations.
NON-DIVERSIFIED PORTFOLIO
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT is a non-diversified portfolio,
which means that it may invest a greater proportion of its assets in the
securities of a smaller number of issuers and therefore may be subject to
greater market and credit risk than a more broadly diversified portfolio. The
Fund is subject to the issuer diversification requirements of the Internal
Revenue Code of 1986, as amended, that are applicable to regulated investment
companies. To qualify as a regulated investment company, the Fund must diversify
its holdings so that, at the end of each fiscal quarter: (i) at least 50% of the
market value of the Fund's assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies and
other securities, with such other securities limited, with respect to any one
issuer, to an amount not greater than 5% of the Fund's total assets and not more
than 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the Fund's total assets is invested in the securities (other than
U.S.
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Government securities or securities of other regulated investment companies) of
any one issuer, or of two or more issuers which the Fund controls and which are
determined to be engaged in the same, similar or related trades or businesses.
MARGIN TRANSACTIONS
AIM HIGH INCOME MUNICIPAL FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AND AIM TAX-FREE INTERMEDIATE FUND will not purchase any security on margin,
except that each may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities. The payment by any of
those Funds of initial or variation margin in connection with futures or related
options transactions will not be considered the purchase of a security on
margin. AIM TAX-EXEMPT CASH FUND will not purchase any security on margin,
except that it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities.
SHORT SALES
AIM HIGH INCOME MUNICIPAL FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AND AIM TAX-FREE INTERMEDIATE FUND will not make short sales of securities or
maintain a short position unless at all times when a short position is open, the
fund owns an equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issue as, and equal in amount to, the securities sold short. In no
event will any Fund deposit or pledge more than 10% of its total assets as
collateral for such short sales at any one time. AIM TAX-EXEMPT CASH FUND will
not make short sales of securities or maintain short positions.
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.)
SYNTHETIC MUNICIPAL INSTRUMENTS
AIM believes that certain synthetic municipal instruments provide
opportunities for mutual funds to invest in high credit quality securities
providing attractive returns, even in market conditions where the supply of
short-term tax-exempt instruments may be limited. AIM TAX-EXEMPT CASH FUND may
invest in synthetic municipal instruments the value of and return on which are
derived from underlying securities. Synthetic
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municipal instruments comprise a large percentage of tax-exempt securities
eligible for purchase by tax- exempt money market funds. The types of synthetic
municipal instruments in which the Fund may invest include tender option bonds
and variable rate trust certificates. Both types of instruments involve the
deposit into a trust or custodial account of one or more long-term tax-exempt
bonds or notes ("Underlying Bonds"), and the sale of certificates evidencing
interests in the trust or custodial account to investors such as the Fund. The
trustee or custodian receives the long-term fixed rate interest payments on the
Underlying Bonds, and pays certificate holders short-term floating or variable
interest rates which are reset periodically. A "tender option bond" provides a
certificate holder with the conditional right to sell 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.
All synthetic municipal instruments must meet the minimum quality
standards for AIM TAX-EXEMPT CASH FUND'S investments and must present minimal
credit risks. In selecting synthetic municipal instruments for the Fund, AIM
considers the creditworthiness of the issuer of the Underlying Bond, the Sponsor
and the party providing certificate holders with a conditional right to sell
their certificates at stated times and prices (a demand feature). Typically, a
certificate holder cannot exercise the demand feature upon the occurrence of
certain conditions, such as where the issuer of the Underlying Bond defaults on
interest payments. Moreover, because synthetic municipal instruments involve a
trust or custodial account and a third party conditional demand feature, they
involve complexities and potential risks that may not be present where a
municipal security is owned directly.
The tax-exempt character of the interest paid to certificate holders is
based on the assumption that the holders have an ownership interest in the
Underlying Bonds; however, the Internal Revenue Service has not issued a ruling
addressing this issue. In the event the Internal Revenue Service issues an
adverse ruling or successfully litigates this issue, it is possible that the
interest paid to AIM TAX-EXEMPT CASH FUND on certain synthetic municipal
instruments would be deemed to be taxable. AIM TAX-EXEMPT CASH FUND relies on
opinions of special tax counsel on this ownership question and opinions of bond
counsel regarding the tax- exempt character of interest paid on the Underlying
Bonds.
STANDBY COMMITMENTS
AIM HIGH INCOME MUNICIPAL 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 AIM HIGH INCOME
MUNICIPAL FUND obtains standby commitments in order to evaluate those risks.
INDEXED SECURITIES
AIM HIGH INCOME MUNICIPAL 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.
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ZERO-COUPON AND PAY-IN-KIND SECURITIES
AIM HIGH INCOME MUNICIPAL 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, as
amended (the "Code") and to avoid certain excise taxes, AIM HIGH INCOME
MUNICIPAL 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.
INSURANCE
AIM HIGH INCOME MUNICIPAL 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.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Funds may lend
their portfolio securities (principally to broker-dealers) to the extent of
one-third of their respective total assets. Such loans would be callable at any
time and would be continuously secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. The Funds would continue to receive the income on loaned
securities and would, at the same time, earn interest on the loan collateral or
on the investment of the loan collateral if it were cash. Any cash collateral
pursuant to these loans would be invested in short-term money market
instruments, or affiliated money market funds. Where voting or consent rights
with respect to loaned securities pass to the borrower, the Funds will follow
the policy of calling the loan, in whole or in part as may be appropriate, to
permit the exercise of such voting or consent rights if the matters involved are
expected to have a material effect on the Funds' investment in the loaned
securities. Lending securities entails a risk of loss to the Funds if and to the
extent that the market value of the securities loaned were to increase and the
lender did not increase the collateral accordingly.
INTERFUND LOANS
Each Fund may lend up to 33 1/3% of its total assets to another AIM
Fund, on such terms and conditions as the SEC may require in an exemptive order.
An application for exemptive relief has been filed with the SEC on behalf of the
Funds and others. Each Fund may also borrow from another AIM Fund to satisfy
redemption requests or to cover unanticipated cash shortfalls due to a delay in
the delivery of cash to the Fund's custodian or improper delivery instructions
by a broker effectuating a transaction.
OTHER CONSIDERATIONS
The ability of AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE INTERMEDIATE
FUND to achieve each of their investment objectives depends upon the continuing
ability of the issuers or guarantors of Municipal Securities held by the Funds
to meet their obligations for the payment of interest and principal when due.
The securities in which such Funds invest may not yield as high a level of
current income as longer term or lower grade securities, which generally have
less liquidity and greater fluctuation in value.
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AIM TAX-FREE INTERMEDIATE FUND will seek to avoid the purchase of
"private activity bonds" the interest on which could give rise to an alternative
minimum tax liability for individuals and other noncorporate shareholders.
There is a risk that some or all of the interest received by a Fund
from Municipal Securities might become taxable as a result of tax law changes or
determinations of the Internal Revenue Service.
INVESTMENT IN OTHER INVESTMENT COMPANIES
Each of the Funds may invest in other investment companies to the
extent permitted by the 1940 Act, and rules and regulations thereunder, and if
applicable, exemptive orders granted by the SEC. The following restrictions
apply to investments in other investment companies other than Affiliated Money
Market Funds (defined below): (i) a Fund may not purchase more than 3% of the
total outstanding voting stock of another investment company; (ii) a Fund may
not invest more than 5% of its total assets in securities issued by another
investment company; and (iii) a Fund may not invest more than 10% of its total
assets in securities issued by other investment companies other than Affiliated
Money Market Funds. With respect to a Fund's purchase of shares of another
investment company, including Affiliated Money Market Funds, the Fund will
indirectly bear its proportionate share of the advisory fees and other operating
expenses of such investment company. The Funds have obtained an exemptive order
from the SEC allowing them to invest uninvested cash balances and cash
collateral received in connection with securities lending in money market funds
that have AIM or an affiliate of AIM as an investment advisor (the "Affiliated
Money Market Funds"), provided that investments in Affiliated Money Market Funds
do not exceed 25% of the total assets of such Fund.
TEMPORARY DEFENSIVE INVESTMENTS
In anticipation of or in response to adverse market conditions, for
cash management purposes, or for defensive purposes, each of the Funds may
temporarily hold all or a portion of its assets in cash, money market
instruments, bonds, or other debt securities. Each of the Funds may also invest
up to 25% of its total assets in Affiliated Money Market Funds for these
purposes. For a description of the various rating categories of corporate bonds
and commercial paper in which the Funds may invest, see "Ratings of Securities"
in this Statement of Additional Information.
OPTIONS AND FUTURES
COVERED CALL OPTIONS: AIM HIGH INCOME MUNICIPAL FUND, AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT AND AIM TAX-FREE INTERMEDIATE FUND ONLY. The Fund may write call
options on fixed income securities, but only on a covered basis; that is, the
Fund will own the underlying security. Call options are "covered" by the Fund
when it owns the underlying securities. 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 up to a stated expiration date or, in the case of certain
options, on such date. 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
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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.
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 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.
PUT OPTIONS: AIM HIGH INCOME MUNICIPAL FUND ONLY. The Fund may write (sell) put
options on fixed income 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. 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.
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. 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. The Fund, for
hedging purposes, may write straddles (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: ALL FUNDS. AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE
INTERMEDIATE FUND do not currently intend to engage in transactions involving
futures contracts. AIM HIGH INCOME MUNICIPAL 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. AIM TAX-EXEMPT BOND FUND OF CONNECTICUT may
purchase and sell interest rate futures contracts or purchase options thereon to
hedge its portfolio against changes in interest rates. 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, 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
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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.
No Fund may purchase or sell futures contracts, purchase or sell
related options, or purchase or sell options on securities indexes if,
immediately thereafter, the sum of the amount of initial margin deposits and
premiums on open positions with respect to futures contracts, related options
and options on securities indexes would exceed 5% of the market value of a
Fund's total assets. AIM TAX-EXEMPT BOND FUND OF CONNECTICUT will not hedge more
than 20% of its assets at one time.
OPTIONS ON FUTURES Contracts: ALL FUNDS. AIM TAX-EXEMPT CASH FUND and AIM
TAX-FREE INTERMEDIATE FUND do not currently intend to engage in transactions
involving options on futures contracts. 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.
AIM TAX-EXEMPT CASH FUND. AIM TAX-EXEMPT CASH FUND will not invest in puts,
call, straddles, spreads or any combination thereof.
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 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
25
<PAGE> 45
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. There is no assurance that a Fund
will use hedging transactions. For example, if a Fund determines that the cost
of hedging will exceed the potential benefit to the Fund, the Fund will not
enter into such transaction.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
Each Fund is subject to the following investment restrictions, which
may be changed only by a vote of a majority of such Fund's outstanding shares,
except AIM TAX-EXEMPT BOND FUND OF CONNECTICUT is not subject to restriction
(1). Fundamental restrictions may be changed only by a vote 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 maximum or minimum percentage of securities or
assets shall not be considered to be violated unless an excess over or a
deficiency under the percentage occurs immediately after, and is caused by, an
acquisition or disposition of securities or utilization of assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The
Fund will not purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions"). In complying with this
restriction, however, the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act laws, interpretations and
exemptions. (This restriction is not applicable to AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT.)
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
26
<PAGE> 46
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the Securities
Act of 1933.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) of its investments in the securities of issuers
primarily engaged in the same industry. This restriction does not limit the
Fund's investments in (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, (ii) tax-exempt obligations
issued by governments or political subdivisions of governments, or (iii) with
respect to AIM TAX-EXEMPT CASH FUND, bank instruments. In complying with this
restriction, the Fund will not consider a bank-issued guaranty or financial
guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or investing in securities that are secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to
persons who control or are under common control with the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from, among other things, purchasing debt
obligations, entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans, including
assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide the Funds with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though each of the Funds has this flexibility, the Board of
Trustees has adopted non-fundamental restrictions for each of the Funds relating
to certain of these restrictions which the advisor must follow in managing the
Funds. Any changes to these non-fundamental restrictions, which are set forth
below, require the approval of the Board of Trustees.
NON-FUNDAMENTAL RESTRICTIONS
The following restrictions apply to each of the Funds, except AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT is not subject to restriction (1). They may
be changed for any Fund without approval of that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets (and
for AIM TAX-EXEMPT CASH FUND, with respect to 100% of its total assets),
purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities),
if, as a result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, except as permitted by Rule 2a-7 under the
1940 Act, or (ii) the Fund would hold more than 10% of the outstanding voting
securities of that issuer. The Fund may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the 1940 Act and (ii)
invest its assets in securities of other money market funds and lend money to
other investment companies or their series portfolios that have AIM or an
affiliate of AIM as an investment advisor (an "AIM Advised Fund"),
27
<PAGE> 47
subject to the terms and conditions of any exemptive orders issued by the SEC.
(This restriction is not applicable to AIM TAX-EXEMPT BOND FUND OF CONNECTICUT.)
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers or other investment companies or an AIM Advised Fund. The Fund
may not borrow for leveraging, but may borrow for temporary or emergency
purposes, in anticipation of or in response to adverse market conditions, or for
cash management purposes. The Fund may not purchase additional securities when
any borrowings from banks exceed 5% of the Fund's total assets.
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 331/3% of its total assets and may lend money to
another AIM Advised Fund, on such terms and conditions as the SEC may require in
an exemptive order.
(5) Notwithstanding the fundamental restriction with regard to
investing all assets in an open-end fund, the Fund may not invest all of its
assets in the securities of a single open-end management investment company with
the same fundamental investment objectives, policies and restrictions as the
Fund.
For purposes of the fundamental investment restriction regarding issuer
diversification for AIM TAX-FREE INTERMEDIATE FUND, AIM HIGH INCOME MUNICIPAL
FUND and AIM TAX-EXEMPT CASH FUND, the Fund will regard each state and political
subdivision, agency or instrumentality, and each multi-state agency of which
such state is a member, as a separate issuer.
MANAGEMENT
The overall management of the business and affairs of the Funds are
vested in the Trust's Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust, on behalf of the Funds, and persons or
companies furnishing services to the Funds. The day-to-day operations of each
Fund are delegated to the officers of the Trust and to AIM, subject always to
the objective, restrictions and policies of the applicable Fund and to the
general supervision of the Board of Trustees. Certain trustees and officers of
the Trust are affiliated with AIM and A I M Management Group inc. ("AIM
Management"), the parent corporation of AIM.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations
during at least the last five years are set forth below. Unless otherwise
indicated, the address of each trustee and officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173. All of the Trust's executive officers hold
similar offices with some or all of the other AIM Funds.
28
<PAGE> 48
<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 (81) Trustee and Director and Chairman A I M Management
Chairman 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 Executive Vice
Chairman and Director, AMVESCAP PLC.
--------------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (56) Trustee 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 (75) Trustee Formerly, Director, Cortland Trust Inc.
Six Blythewood Road (investment company), CF & I Steel Corp.,
Baltimore, MD 21210 Monumental Life Insurance Company and
Monumental General Insurance Company;
and Chairman of the Board of Equitable
Bancorporation.
--------------------------------------------------------------------------------------------------------------
EDWARD K. DUNN, JR. (64) Trustee Chairman of the Board of Directors,
2 Hopkins Plaza, 8th Floor Mercantile Mortgage Corp. Formerly, Vice
Baltimore, MD 21201 Chairman of the Board of Directors, President
and Chief Operating Officer, Mercantile - Safe
Deposit & Trust Co.; and President,
Mercantile Bankshares.
--------------------------------------------------------------------------------------------------------------
JACK FIELDS (48) Trustee Chief Executive Officer, Texana Global Inc.
Jetero Plaza, Suite E (foreign trading company) and Twenty First
8810 Will Clayton Parkway Century Group, Inc. (governmental affairs
Humble, TX 77338 company). Formerly, Member of the U.S.
House of Representatives.
--------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (63) Trustee Partner, Kramer Levin Naftalis & Frankel LLP
919 Third Avenue (law firm).
New York, NY 10022
--------------------------------------------------------------------------------------------------------------
</TABLE>
--------
* A trustee who is an "interested person" of the Trust as
defined in the 1940 Act.
** A trustee who is an "interested person" of AIM and the Trust
as defined in the 1940 Act.
29
<PAGE> 49
<TABLE>
<CAPTION>
==============================================================================================================
POSITIONS HELD PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE WITH REGISTRANT PAST 5 YEARS
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trustee and Principal Occupation During At Least The
*ROBERT H. GRAHAM (53) President Director, President and Chief Executive
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; and
Director and Chief Executive Officer,
Managed Products, AMVESCAP PLC.
--------------------------------------------------------------------------------------------------------------
PREMA MATHAI-DAVIS (49) Trustee Chief Executive Officer, YWCA of the USA.
350 Fifth Avenue, Suite 301
New York, NY 10118
--------------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (57) Trustee Partner, Pennock & Cooper (law firm).
6363 Woodway, Suite 825
Houston, TX 77057
--------------------------------------------------------------------------------------------------------------
LOUIS S. SKLAR (60) Trustee Executive Vice President, Development and
The Williams Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
--------------------------------------------------------------------------------------------------------------
GARY T. CRUM (52) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Executive
Vice President, A I M Management Group
Inc.; Director and Senior Vice President,
A I M Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC.
--------------------------------------------------------------------------------------------------------------
CAROL F. RELIHAN (45) Senior Vice Director, Senior Vice President, General
President and Counsel and Secretary, A I M Advisors, Inc.;
Secretary Senior 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.
==============================================================================================================
</TABLE>
--------
* A trustee who is an "interested person" of AIM and the the
Trust as defined in the 1940 Act.
30
<PAGE> 50
<TABLE>
<CAPTION>
==============================================================================================================
POSITIONS HELD PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE WITH REGISTRANT PAST 5 YEARS
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vice President and Principal Occupation During At Least The
DANA R. SUTTON (41) Treasurer Vice President and Fund Controller,
A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
--------------------------------------------------------------------------------------------------------------
STUART W. COCO (44) Vice President Senior Vice President, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
--------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (56) 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.
--------------------------------------------------------------------------------------------------------------
KAREN DUNN KELLEY (39) 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 Trustees are the Audit
Committee, the Investments Committee, and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn
(Chairman), Fields, Frischling, Pennock and Sklar and Dr. Mathai-Davis. The
Audit Committee is responsible for: (i) considering management's recommendations
of independent accountants for each Fund and evaluating such accountants'
performance, costs and financial stability; (ii) with AIM, reviewing and
coordinating audit plans prepared by the Funds' independent accountants and
management's internal audit staff; and (iii) reviewing financial statements
contained in periodic reports to shareholders with the Funds' independent
accountants and management.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly, Dunn, Fields, Frischling, Pennock and Sklar (Chairman) and Dr.
Mathai-Davis. The Investments Committee is responsible for: (i) overseeing AIM's
investment-related compliance systems and procedures to ensure their continued
adequacy; and (ii) considering and acting, on an interim basis between meetings
of the full Board, on investment-related matters requiring Board consideration,
including dividends and distributions, brokerage policies and pricing matters.
The members of the Nominating and Compensation Committee are Messrs.
Crockett (Chairman), Daly, Dunn, Fields, Pennock and Sklar and Dr. Mathai-Davis.
The Nominating and Compensation Committee is responsible for: (i) considering
and nominating individuals to stand for election as independent trustees as long
as the Trust maintains a distribution plan pursuant to Rule 12b-1 under the 1940
Act; (ii) reviewing from time to time the compensation payable to the
independent trustees; and (iii) making recommendations to the Board regarding
matters related to compensation, including deferred compensation plans and
retirement plans for the independent trustees.
31
<PAGE> 51
The Nominating and Compensation Committee will consider nominees
recommended by a shareholder to serve as trustees, provided (i) that such person
is a shareholder of record at the time he or she submits such names and is
entitled to vote at the meeting of shareholders at which trustees will be
elected, and (ii) that the Nominating and Compensation Committee or the Board,
as applicable, shall make the final determination of persons to be nominated.
All of the Trust's trustees also serve as directors or trustees of some
or all of the other investment companies managed or advised by AIM. All of the
Trust's executive officers hold similar offices with some or all of the other
investment companies managed or advised by AIM.
REMUNERATION OF TRUSTEES
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any committee thereof. Each trustee who
is not also an officer of the Trust is compensated for his or her services
according to a fee schedule which recognizes the fact that such trustee also
serves as a director or trustee of other AIM Funds. Each such trustee receives a
fee, allocated among the AIM Funds for which he or she serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust:
<TABLE>
<CAPTION>
=========================================================================================================
RETIREMENT
BENEFITS
AGGREGATE ACCRUED TOTAL
COMPENSATION BY ALL AIM COMPENSATION
TRUSTEE FROM THE TRUST(1) FUNDS(2) FROM ALL AIM FUNDS(3)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
---------------------------------------------------------------------------------------------------------
Bruce L. Crockett 3,949 37,485 103,500
---------------------------------------------------------------------------------------------------------
Owen Daly II 3,949 122,898 103,500
---------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. 3,886 55,565 103,500
---------------------------------------------------------------------------------------------------------
Jack Fields 3,929 15,826 101,500
---------------------------------------------------------------------------------------------------------
Carl Frischling (4) 3,929 97,791 103,500
---------------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
---------------------------------------------------------------------------------------------------------
John F. Kroeger (5) 1,878 40,461 0
---------------------------------------------------------------------------------------------------------
Prema Mathai-Davis 2,262 11,870 101,500
---------------------------------------------------------------------------------------------------------
Lewis F. Pennock 3,929 45,766 103,500
---------------------------------------------------------------------------------------------------------
Ian Robinson (6) 3,886 94,442 25,000
---------------------------------------------------------------------------------------------------------
Louis S. Sklar 3,909 90,232 101,500
=========================================================================================================
</TABLE>
----------
(1) The total amount of compensation deferred by all trustees of the
Trust's predecessor during the fiscal year ended March 31, 1999,
including earnings thereon, was $21,015.
32
<PAGE> 52
(2) During the fiscal year ended March 31, 1999, the total amount of
expenses allocated to the Trust's predecessor in respect of such
retirement benefits was $2,228. Data reflects compensation for the
calendar year ended December 31, 1998.
(3) Each trustee serves as director or trustee of at least 12 registered
investment companies advised by AIM. Data reflects total compensation
for the calendar year ended December 31, 1999.
(4) During the fiscal year ended March 31, 1999, the Trust's predecessor
paid $14,241 in legal fees to Mr. Frischling's law firm, Kramer Levin
Naftalis & Frankel LLP for services rendered to the independent
trustees of the Trust. Mr. Frischling, a trustee of the Trust, is a
partner in such firm.
(5) Mr. Kroeger was a director of the Trust's predecessor until June 11,
1998, when he resigned. On that date he became a consultant to the
Trust's predecessor. Mr. Kroeger passed away on November 26, 1998. Mr.
Kroeger's widow will receive his pension as described below under "AIM
Funds Retirement Plan for Eligible Directors/Trustees."
(6) Mr. Robinson was a director of the Trust's predecessor until March 12,
1999, when he retired.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (who is not an employee of any of
the AIM Funds, AIM Management or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board of Trustees. Pursuant to the
Plan, a trustee becomes eligible to retire and receive full benefits under the
Plan when he or she 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 trustee 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 or her date of retirement equal to a maximum of
75% of the annual retainer paid or accrued by the Applicable AIM Funds for such
trustee during the twelve-month period immediately preceding the trustee's
retirement (including amounts deferred under a separate agreement between the
Applicable AIM Funds and the trustee) and based on the number of such trustee'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
trustee in quarterly installments. If an eligible trustee dies after attaining
the normal retirement date but before receipt of all benefits under the Plan,
the trustee's surviving spouse (if any) shall receive a quarterly survivor's
benefit equal to 50% of the amount payable to the deceased trustee for no more
than ten years beginning the first day of the calendar quarter following the
date of the trustee's death. Payments under the Plan are not secured or funded
by any Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service as of March 31, 1999, for Messrs. Crockett, Daly, Dunn, Fields,
Frischling, Kroeger, Pennock, Robinson and Sklar and Dr. Mathai-Davis are 13,
13, 2, 3, 23, 20, 18, 11, 10 and 1 years, respectively.
33
<PAGE> 53
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
================================================================
NUMBER OF ANNUAL RETIREMENT COMPENSATION
YEARS OF PAID BY ALL APPLICABLE AIM FUNDS
SERVICE WITH
APPLICABLE
AIM FUNDS
================================================================
<S> <C>
10 $67,500
----------------------------------------------------------------
9 $60,750
----------------------------------------------------------------
8 $54,000
----------------------------------------------------------------
7 $47,250
----------------------------------------------------------------
6 $40,500
----------------------------------------------------------------
5 $33,750
================================================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis
(the "Deferring Trustees") have each executed a Deferred Compensation Agreement
(collectively, the "Agreements"). Pursuant to the Compensation Agreements, the
Deferring Trustees may elect to defer receipt of up to 100% of their
compensation payable by the Trust, and such amounts are placed into a deferral
account. Currently, the Deferring Trustees may select various AIM Funds in which
all or part of their deferral accounts shall be deemed to be invested.
Distributions from the Deferring Trustees' deferral accounts will be paid in
cash, generally in equal quarterly installments over a period of five (5) or ten
(10) years (depending on the Compensation Agreement) beginning on the date the
Deferring Trustee's retirement benefits commence under the Plan. The Trust's
Board of Trustees, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the Deferring Trustee's termination
of service as a trustee of the Trust. If a Deferring Trustee dies prior to the
distribution of amounts in his or her deferral account, the balance of the
deferral account will be distributed to his or her designated beneficiary in a
single lump sum payment as soon as practicable after such Deferring Trustee's
death. The Compensation Agreements are not funded and, with respect to the
payments of amounts held in the deferral accounts, the Deferring Trustees have
the status of unsecured creditors of the Trust and of each other AIM Fund from
which they are deferring compensation.
INVESTMENT ADVISORY AND OTHER SERVICES
AIM serves as the investment advisor to each Fund pursuant to a Master
Investment Advisory Agreement dated June 1, 2000 (the "Advisory Agreement"). AIM
was organized in 1976, and together with its subsidiaries, advises or manages
approximately 120 investment portfolios encompassing a broad range of investment
objectives. AIM is a direct wholly owned subsidiary of 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 institutional investment
management and retail mutual fund businesses in the United States, Europe and
the Pacific Region. Certain of the trustees and officers of AIM are also
executive officers of the Trust and their affiliations are shown under "Trustees
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.
34
<PAGE> 54
AIM and the Trust have adopted a Code of Ethics which requires
investment personnel and certain other employees to (a) pre-clear all personal
securities transactions subject to the Code of Ethics; (b) file reports
regarding such transaction; (c) 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 (subject to a
de minimis exception), and (iii) transactions involving securities being
considered for investment by an AIM Fund (subject to the de minimis exception);
and (d) abide by certain other provisions of the Code of Ethics. The de minimis
exception under the Code of Ethics covers situations where there is no material
conflict of interest because of the large market capitalization of a security
and the relatively small number of shares involved in a personal transaction.
The Code of Ethics also generally prohibits AIM employees from purchasing
securities in initial public offerings. Personal trading reports are
periodically reviewed by AIM, and the Board of Trustees reviews quarterly and
annual reports (which summarize any significant violations of the Code of
Ethics). Sanctions for violating the Code of Ethics may include censure,
monetary penalties, suspension or termination of employment.
The Trust, on behalf of each Fund, has entered into the Advisory
Agreement and a Master Administrative Services Agreement (the "Administrative
Agreement") with AIM.
Under the terms of the Advisory Agreement, AIM supervises all aspects
of each Fund's operations and provides investment advisory services to each
Fund.
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 trustee and shareholder meetings; the cost of preparing and
distributing reports and notices to shareholders; the fees and other expenses
incurred by the Trust on behalf of each Fund in connection with membership in
investment company organizations and the cost of printing copies of prospectuses
and statements of additional information distributed to the Fund's shareholders.
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
Trust's Board of Trustees 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 trustees who are not parties to the Advisory Agreement or "interested
persons" of any such party (the "Non-Interested Trustees") by votes cast in
person at a meeting called for such purpose. 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.
Under the Advisory Agreement, AIM is entitled to receive a fee from AIM
TAX-EXEMPT CASH FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT at the annual
rates of 0.35% and 0.50% of those Funds' average daily net assets, respectively.
The Advisory Agreement provides that AIM is entitled to receive a fee from AIM
TAX-FREE INTERMEDIATE FUND at the following annual rates based on the Fund's
average daily net assets:
AIM TAX-FREE INTERMEDIATE FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $500 million 0.30%
Next $500 million 0.25%
Amount over $1 billion 0.20%
</TABLE>
The Advisory Agreement provides that AIM is entitled to receive a fee
from AIM HIGH INCOME MUNICIPAL FUND at the following annual rates based on the
Fund's average daily net assets:
35
<PAGE> 55
AIM HIGH INCOME MUNICIPAL FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $500 million 0.60%
Over $500 million up to and including $1 billion 0.55%
Over $1 billion to and including $1.5 billion 0.50%
Over $1.5 billion 0.45%
</TABLE>
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund. For the year ended
March 31, 1999, and the period January 2, 1998 (date operations commenced)
through March 31, 1998, AIM waived the entire amount of advisory fees of
$272,006 and $20,756, respectively, from AIM HIGH INCOME MUNICIPAL FUND. AIM has
contractually agreed to limit net expenses until June 30, 2000 of Class A, B and
C shares of AIM HIGH INCOME MUNICIPAL FUND to the annual amount of 0.60%, 1.35%
and 1.35%, respectively, of average daily net assets of the Fund. Effective
July 1, 2000, AIM has agreed to limit total annual fund operating expenses,
excluding interest, taxes, dividend expense on short sales, extraordinary items
and increases for indirect credits, if any, of Class A, Class B and Class C to
0.55%, 1.30% and 1.30%, respectively.
For the years ended March 31, 1999, 1998 and 1997, AIM received
advisory fees from AIM TAX-EXEMPT CASH FUND of $250,445, $182,302 and $125,537,
respectively.
For the years ended March 31, 1999, 1998 and 1997, AIM received
advisory fees from AIM TAX-FREE INTERMEDIATE FUND of $623,357, $566,927 and
$276,828, respectively.
For the years ended March 31, 1999, 1998 and 1997, AIM received
advisory fees from AIM TAX-EXEMPT BOND FUND OF CONNECTICUT of $205,983, $106,187
and $49,597, respectively. For the years ended March 31, 1999, 1998 and 1997,
AIM waived fees from the Fund in the amounts of $47,933, $86,950 and $144,775,
respectively.
The payments set forth in the prior three paragraphs were made pursuant
to a substantially similar advisory agreement between AIM and the Trust's
predecessor.
In addition, if a Fund engages in securities lending, AIM will provide
the Fund investment advisory services and related administrative services. The
Master Investment Advisory Agreement describes the administrative services to be
rendered by AIM if a Fund engages in securities lending activities, as well as
the compensation AIM may receive for such administrative services. Services to
be provided include: (a) overseeing participation in the securities lending
program to ensure compliance with all applicable regulatory and investment
guidelines; (b) assisting the securities lending agent or principal (the agent)
in determining which specific securities are available for loan; (c) monitoring
the agent to ensure that securities loans are effected in accordance with AIM's
instructions and with procedures adopted by the Board; (d) preparing appropriate
periodic reports for, and seeking appropriate approvals from, the Board with
respect to securities lending activities; (e) responding to agent inquiries; and
(f) performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the
36
<PAGE> 56
Fund from such activities. AIM currently intends to waive such fee,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fee.
Under the terms of the Administrative Agreement, AIM is entitled to
receive from each Fund reimbursement of its costs or such reasonable
compensation as may be approved by the Board of Trustees. Currently, AIM is
reimbursed for the services of the Funds' principal financial officer and her
staff, and any expenses related to fund accounting services.
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. For such services, AIM is entitled to
receive from each Fund reimbursement of AIM's costs or such reasonable
compensation as may be approved by the Trust's Board of Trustees. The
Administrative Agreement will continue in effect from year to year only if such
continuance is specifically approved at least annually (i) (a) by the Trust's
Board of Trustees 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
Trustees, by votes cast in person at a meeting called for such purpose.
For the year ended March 31, 1999 and 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 during this period, the Fund would have reimbursed AIM $69,125 and $18,594,
respectively, for administrative services.
For the years ended March 31, 1999, 1998 and 1997, AIM TAX-EXEMPT CASH
FUND reimbursed AIM in the amounts of $49,285, $38,545 and $34,329,
respectively, for administrative services.
For the years ended March 31, 1999, 1998 and 1997, the AIM TAX-FREE
INTERMEDIATE FUND reimbursed AIM in the amounts of $50,951, $46,097 and $52,666,
respectively, for administrative services.
For the years ended March 31, 1999, 1998 and 1997, AIM TAX-EXEMPT BOND
FUND OF CONNECTICUT reimbursed AIM in the amounts of $48,824, $46,188 and
$49,467, respectively, for administrative services.
The payments set forth in the prior four paragraphs were made pursuant
to a substantially similar administrative services agreement between AIM and the
Trust's predecessor.
In addition, the Amended and Restated Transfer Agency and Service
Agreement (the "Transfer Agency and Service Agreement") between the Trust and
AIM 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 Trust has adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to the Class A shares of
AIM TAX-EXEMPT CASH FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT and AIM HIGH
INCOME MUNICIPAL FUND, and the Class C shares of AIM HIGH INCOME MUNICIPAL FUND
(the "Class A and C Plan"). The Class A and C Plan provides that Class A shares
pay 0.25% per annum of their average daily net assets as compensation to AIM
Distributors for the purpose of financing any activity which is primarily
intended to result in the sale of Class A shares. The Class A and C Plan also
provides that Class C shares pay 1.00% per annum of their average daily net
assets as compensation to AIM Distributors. Of such amount, the Class C shares
pay a service fee of 0.25% of their average daily net assets to selected dealers
and other institutions which furnish continuing personal shareholder services to
their customers who purchase and own Class C shares. Activities appropriate for
financing under the Class A and C Plan include, but are not limited to, the
following: printing of prospectuses and statements of additional
37
<PAGE> 57
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 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. 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 and who provide
continuing personal shareholder services to their customers who own Class A and
Class C shares.
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, in amounts
of up to 0.25% of the average daily net assets 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 B PLAN. The Trust 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. 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, 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.
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 Trust; processing customer purchase and redemption
38
<PAGE> 58
transactions; providing periodic statements showing a shareholder's account
balance and the integration of such statements with those of other
transactions and balances in the shareholder's other accounts serviced by the
bank; forwarding applicable prospectuses, proxy statements, reports and
notices to bank clients who hold shares of the Funds; and such other
administrative services as the Funds reasonably may request, to the extent
permitted by applicable statute, rule or regulation. Similar agreements may be
permitted under the Plans for institutions which provide recordkeeping for and
administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive
compensation for selling shares of the Funds may receive different compensation
for selling shares of one particular class over another.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD"). The Plans conform to rules of the NASD by limiting payments made
to dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of the Funds
to no more than 0.25% per annum of the average daily net assets of the Funds
attributable to the customers of such dealers or financial institutions, and by
imposing a cap on the total sales charges, including asset based sales charges,
that may be paid by the Funds and their respective classes.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A shares of the Funds and for Class C shares of AIM HIGH
INCOME MUNICIPAL FUND. Voluntary fee waivers or reductions may be rescinded at
any time without further notice to investors. During periods of voluntary fee
waivers or reductions, AIM Distributors will retain its ability to be reimbursed
for such fee prior to the end of each fiscal year. Contractual fee waivers or
reductions set forth in the Fee Table in a Prospectus may not be terminated or
amended to the Funds' detriment during the period stated in the agreement
between AIM Distributors and the Fund.
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.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Funds on an agency basis, may
receive payments from the Funds pursuant to the respective Plans. 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. The
Funds will obtain a representation from such financial institutions that they
will either be licensed as a dealer 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.
For the years ended March 31, 1999, 1998 and 1997, the Class A shares
of AIM TAX-EXEMPT CASH FUND paid a total of $71,556, $52,086 and $35,864,
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, 1999, 1998 and 1997, the Class A shares of AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT paid a total of $102,992, $96,569 and $97,186,
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
year ended March 31, 1999, the Class A, Class B and Class C shares of AIM HIGH
INCOME MUNICIPAL FUND paid a total of $90,468, $74,401 and $17,071,
respectively, under the Class A and C Plan and the Class B Plan, which
constitutes 0.25%, 1.00% and 1.00%, of such Class A, Class B and Class C shares'
average net assets. For the period January 2, 1998 (date operations commenced)
through March 31, 1998, the Class
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<PAGE> 59
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 and C Plan, and
the Class B Plan, which constituted 0.25%, 1.00% and 1.00%, of such Class A,
Class B and Class C shares' average net assets.
The payments set forth in the prior paragraph were made pursuant to
substantially similar distribution plans adopted by the Trust's predecessor.
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, 1999 were allocated as follows:
<TABLE>
<CAPTION>
AIM TAX-EXEMPT
AIM HIGH INCOME AIM TAX-EXEMPT BOND FUND OF
MUNICIPAL FUND CASH FUND CONNECTICUT
-------------- -------------- -----------------
CLASS A
<S> <C> <C> <C>
Advertising $16,111 $24,045 $2,489
Printing and mailing prospectuses, 1,641 2,554 221
semi-annual reports and annual
reports (other than to current
shareholders)
Seminars 3,838 5,024 613
Compensation to Underwriters to 0 0 0
partially offset other marketing
expenses
Compensation to Dealers 68,879 39,932 99,669
(including finder's fees)
Compensation to Sales Personnel 0 0 0
Annual Report Total 90,469 71,555 102,992
</TABLE>
An estimate by category of the allocation of the actual fees paid by
AIM HIGH INCOME MUNICIPAL FUND under the Class B Plan (for Class B shares) and
the Class A and C Plan (for Class C shares) during the year ended March 31,
1999, was as follows:
40
<PAGE> 60
<TABLE>
<CAPTION>
AIM HIGH INCOME MUNICIPAL FUND
------------------------------
CLASS B CLASS C
-------------- -------------
<S> <C> <C>
Advertising $ 9,138 $1,098
Printing and mailing prospectuses, 795 0
semi-annual reports and annual
reports (other than to current
shareholders)
Seminars 1,104 0
Compensation to Underwriters to 55,800 12,803
partially offset other marketing
expenses
Compensation to Dealers 7,564 3,170
(including finder's fees)
Compensation to Sales Personnel 0 0
Annual Report Total 74,401 17,071
</TABLE>
The Plans require AIM Distributors to provide the Board of Trustees 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
Trustees 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 Trustees, including a majority
of the trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or in any agreements related to the Plans ("Qualified Trustees").
In approving the Plans in accordance with the requirements of Rule 12b-1, the
trustees 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 as long as such continuance is specifically approved at least
annually by the Board of Trustees, including a majority of the Qualified
Trustees.
The Plans may be terminated by the vote of a majority of the Qualified
Trustees, 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 trustees, including a majority of the Qualified
Trustees, 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 Trustees is
41
<PAGE> 61
committed to the discretion of the Qualified Trustees. In the event the Class A
and C Plan is amended in a manner which the Board of Trustees determines would
materially increase the charges paid under the Class A and C Plan, the Class B
shares of the Funds (if any) will no longer convert into Class A shares of the
same Funds unless the Class B shares, voting separately, approve such amendment.
If the Class B shareholders do not approve such amendment, the Board of Trustees
will (i) create a new class of shares of the Funds 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 Funds (if any) 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
The Trust has entered into distribution arrangements with AIM
Distributors, a registered broker-dealer and a wholly owned subsidiary of AIM,
pursuant to which AIM Distributors acts as the distributor of Class A shares of
the Funds and Class B and Class C shares of AIM HIGH INCOME MUNICIPAL FUND. The
address of AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain
trustees and officers of the Trust are affiliated with AIM Distributors.
A 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
has been approved by the Board of Trustees of the Trust. A Master Distribution
Agreement with AIM Distributors relating to the Class B shares of AIM HIGH
INCOME MUNICIPAL FUND also has been approved by the Board of Trustees of the
Trust. Both such Master Distribution Agreements are hereinafter collectively
referred to as the "Distribution Agreements".
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds directly and through institutions with
whom AIM Distributors has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares of AIM HIGH INCOME MUNICIPAL FUND,
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 average daily net
assets attributable to Class B shares of AIM HIGH INCOME MUNICIPAL FUND
attributable to the sales efforts of AIM Distributors.
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.
42
<PAGE> 62
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B shares and Class C shares
at the time of such sales. Payments with respect to Class B shares will equal
4.0% of the purchase price of the Class B shares sold by the dealer or
institution, and will consist of a sales commission equal to 3.75% of the
purchase price of the Class B shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. The portion of the payments to
AIM Distributors under the Class B Plan which constitutes an asset-based sales
charge (0.75%) is intended in part to permit AIM Distributors to recoup a
portion of such sales commissions plus financing costs. AIM Distributors
anticipates that it will require a number of years to recoup from Class B Plan
payments the sales commissions paid to dealers and institutions in connection
with sales of Class B shares. In the future, if multiple distributors serve AIM
HIGH INCOME MUNICIPAL FUND, each such distributor (or its assignee or
transferee) would receive a share of the payments under the Class B Plan based
on the portion of such Fund's Class B shares sold by or attributable to the
distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares 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 Trust (on behalf of any class of the Funds) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate in the event of their
assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B Plan (as defined in such Plan) would terminate all
payments to AIM Distributors. Termination of the Class B Plan or Distribution
Agreement does not affect the obligations of Class B shareholders to pay
contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreements relating to Class B shares in order
to finance distribution expenditures in respect of Class B shares.
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
Sales Amount Sales Amount Sales Amount
Charges Retained Charges Retained Charges Retained
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AIM HIGH INCOME MUNICIPAL FUND $213,013 $ 49,929 $ 43,626 $ 8,743 N/A N/A
AIM TAX-FREE INTERMEDIATE FUND 90,481 28,272 85,903 21,156 $ 82,414 $ 21,018
AIM TAX-EXEMPT BOND FUND OF 113,890 25,026 167,903 29,650 152,493 27,428
CONNECTICUT
</TABLE>
43
<PAGE> 63
The following chart reflects the contingent deferred sales charges paid by
shareholders. AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE INTERMEDIATE FUND are
not subject to contingent deferred sales charges. Class A shares of AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, and Class A, B and C shares of AIM HIGH
INCOME MUNICIPAL FUND for the fiscal years or periods ended March 31, 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
AIM Tax-Exempt Bond Fund of Connecticut...... $ 0 $ 0 $ 0
AIM High Income Municipal Fund*.............. 13,087 3,627 --
--------------
</TABLE>
* Class A, B and C shares of High Income Municipal Fund commenced operations
on January 2, 1998.
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY 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 Aggressive Growth Fund, AIM Asian Growth Fund, AIM Basic Value Fund, AIM
Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM
Constellation Fund, AIM Dent Demographic Trends Fund, AIM Emerging Growth Fund,
AIM European Development Fund, AIM Euroland Growth Fund, AIM Global Utilities
Fund, AIM Global Growth & Income Fund, AIM International Equity Fund, AIM Japan
Growth Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund, AIM
Large Cap Opportunities Fund, AIM Mid Cap Equity Fund, AIM Mid Cap Growth Fund,
AIM Mid Cap Opportunities Fund, AIM New Pacific Growth Fund, AIM Select Growth
Fund, AIM Small Cap 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>
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.
CATEGORY 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 Developing Markets Fund, AIM Emerging
Markets Debt Fund, AIM Global Aggressive Growth Fund, AIM Global Consumer
Products and Services Fund, AIM Global Financial Services Fund, AIM Global
Government Income Fund, AIM Global Growth Fund, AIM Global Health Care Fund, AIM
Global Income Fund, AIM Global Infrastructure Fund, AIM Global Resources Fund,
AIM Global
44
<PAGE> 64
Telecommunications and Technology Fund, AIM Global Trends Fund, AIM High Income
Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund,
AIM Intermediate Government Fund, AIM Latin American Growth Fund, AIM Municipal
Bond Fund, AIM Strategic Income Fund and AIM Tax-Exempt Bond Fund of
Connecticut.
<TABLE>
<CAPTION>
Dealer
Investor's Sales Charge Concession
------------------------------- -----------------
As a As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Amount Offering Offering
Single Transaction Price Invested Price
------------------ -------------- --------------- -----------------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
CATEGORY 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
Investor's Sales Charge Concession
------------------------------- -----------------
As a As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Amount Offering Offering
Single Transaction Price Invested Price
------------------ -------------- --------------- -----------------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more of Category
I, II or III funds; however, AIM Distributors may pay a dealer concession and/or
advance a service fee on such transactions as set forth below.
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. 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
45
<PAGE> 65
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. 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 of AIM Advisor Funds, Inc. 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.
Exchanges of AIM Cash Reserve Shares of AIM Money Market Fund for Class
B shares or Class C shares are considered sales of such Class B shares or Class
C shares for purposes of the sales charges and dealer concessions discussed
above.
AIM Distributors may pay investment dealers or other financial service
firms for share purchases (measured on an annual basis) of Class A Shares of all
AIM Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate
Fund and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit
plan 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.
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<PAGE> 66
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 AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
o an individual and his or her spouse and 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);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted
with respect to individual participants);
b. each transmittal must be accompanied by a single check or
wire transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant
with the contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or
single fiduciary account (including a pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified
under Section 401 of the Code) and 457 plans, although more than
one beneficiary or participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension account (SAR-SEP) or a
Savings Incentive Match Plans for Employees IRA (SIMPLE IRA),
where the employer has notified the distributor in writing that
all of its related employee SEP, SAR-SEP or SIMPLE IRA accounts
should be linked; or
o any other organized group of persons, whether incorporated or
not, provided the organization has been in existence for at least
six months and has some purpose other than the purchase at a
discount of redeemable securities of a registered investment
company.
Investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled, by virtue of the foregoing
definition, to the reduced sales charge. No person or entity may distribute
shares of the AIM Funds without payment of the applicable sales charge other
than to persons or entities who qualify for a reduction in the sales charge as
provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay
reduced initial sales charges by completing the appropriate section of the
account application and by fulfilling a Letter of Intent ("LOI"). The LOI
privilege is also available to holders of the Connecticut General Guaranteed
Account, established for tax qualified group annuities, for contracts purchased
on or before June 30, 1992. The LOI confirms such purchaser's intention as to
the total investment to be made in shares of the AIM Funds (except for (i) Class
A shares of AIM Tax-Exempt Cash Fund, and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM
47
<PAGE> 67
Funds and (iii) shares of AIM Floating Rate Fund) 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 AIM Funds and (iii)
shares of AIM Floating Rate Fund) 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,
(ii) Class B and Class C shares of the AIM Funds and (iii) shares of AIM
Floating Rate Fund) 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
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<PAGE> 68
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; (b) exchanges of shares of certain funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of a fund.
The following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and members
of their immediate family) of AIM Management, its affiliates or
The AIM Family of Funds,(R) and any foundation, trust or employee
benefit plan established exclusively for the benefit of, or by,
such persons;
o Any current or retired officer, director, or employee (and
members of their immediate family), of CIGNA Corporation or its
affiliates, or of First Data Investor Services Group; and any
deferred compensation plan for directors of investment companies
sponsored by CIGNA Investments, Inc. or its affiliates;
o Sales representatives and employees (and members of their
immediate family) of selling group members or financial
institutions that have arrangements with such selling group
members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined above,
and non-qualified plans offered in conjunction therewith,
provided the initial investment in the plan(s) is at least $1
million; the sponsor signs a $1 million LOI; the
employer-sponsored plan(s) has at least 100 eligible employees;
or all plan transactions are executed through a single omnibus
account per Fund and the financial institution or service
organization has entered into the appropriate agreement with the
distributor. Section 403(b) plans sponsored by public educational
institutions are not eligible for a sales charge exception based
on the aggregate investment made by the plan or the number of
eligible employees. Purchases of AIM Small Cap Opportunities Fund
by such plans are subject to initial sales charges;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund
on November 17, 1986, who have continuously owned shares having a
market value of at least $500 and who purchase additional shares
of the same Fund;
o Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on
February 12, 1999 who have continuously owned shares of the AIM
Funds;
o Unitholders of G/SET series unit investment trusts investing
proceeds from such trusts in shares of AIM Weingarten Fund or AIM
Constellation Fund; provided, however, prior to the termination
date of the trusts, a unitholder may invest proceeds from the
redemption or repurchase of his units only when the investment in
shares of AIM Weingarten Fund and AIM Constellation Fund is
effected within 30 days of the redemption or repurchase;
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<PAGE> 69
o A shareholder of a fund that merges or consolidates with an AIM
Fund or that sells its assets to an AIM Fund in exchange for
shares of an AIM Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who
since that date continually have owned shares of one or more of
these funds;
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989,
and who have continuously held shares in the GT Global funds
since that time; and
o Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM
Fund, and who purchase additional shares of that AIM Fund.
As used above, immediate family includes an individual and his or her
spouse, children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to a Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of
which are reinvested in the former GT Global funds; (6) redemptions made in
connection with participant-directed exchanges between options in an employer-
sponsored benefit plan; (7) redemptions made for the purpose of providing cash
to fund a loan to a participant in a tax-qualified retirement plan; (8)
redemptions made in connection with a distribution from any retirement plan or
account that is permitted in accordance with the provisions of Section 72(t)(2)
of the Code, and the regulations promulgated thereunder; (9) redemptions made
in connection with a distribution from any retirement plan or account that
involves the return of an excess deferral amount pursuant to Section 401(k)(8)
or Section 402(g)(2) of the Code; (10) redemptions made in connection with a
distribution from a qualified profit-sharing or stock bonus plan described in
Section 401(k) of the Code to a participant or beneficiary under Section
401(k)(2)(B)(IV) of the Code upon hardship of the covered employee (determined
pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions
made by or for the benefit of certain states, counties or cities, or any
instrumentalities, departments or authorities thereof where such entities are
prohibited or limited by applicable law from paying a sales charge or
commission.
Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption in addition to the waivers provided for
redemptions of currently issued Class B shares as described in a Prospectus: (1)
total or partial redemptions resulting from a distribution following retirement
in the case of a tax-qualified employer-sponsored retirement; (2) minimum
required distributions made in connection with an IRA, Keogh Plan or custodial
account under Section 403(b) of the Code or other retirement plan following
attainment of age 70 1/2; (3) redemptions pursuant to distributions from a
tax-qualified employer-sponsored retirement plan, which is invested in the
former GT Global funds, which are permitted to be made without penalty pursuant
to the Code, other than tax-free rollovers or transfers of assets, and the
proceeds of which are reinvested in the former GT Global funds; (4) redemptions
made in connection with participant-directed exchanges between options in an
employer-sponsored benefit plan; (5) redemptions made for the purpose of
providing cash to fund a loan to a participant in a tax-qualified retirement
50
<PAGE> 70
plan; (6) redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of Section
72(t)(2) of the Code, and the regulations promulgated thereunder; (7)
redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the Code to a
participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code upon
hardship of the covered employee (determined pursuant to Treasury Regulation
Section 1.401(k)-1(d)(2)); and (8) redemptions made by or for the benefit of
certain states, counties or cities, or any instrumentalities, departments or
authorities thereof where such entities are prohibited or limited by applicable
law from paying a sales charge or commission.
CDSCs will not apply to the following:
o Additional purchases of Class C shares of AIM Advisor Flex Fund,
AIM Advisor International Value Fund, AIM Advisor Large Cap Value
Fund and AIM Advisor Real Estate Fund by shareholders of record
on April 30, 1995, of these Funds, except that shareholders whose
broker-dealers maintain a single omnibus account with AFS 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;
o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor of
a living trust, of shares held in the account at the time of
death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result 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 that
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 the distributor of the transfer no later than the time
the transfer occurs; (iii) tax-free rollovers or transfers of
assets to another plan of the type described above invested in
Class B or Class C shares of one or more of the AIM Funds; (iv)
tax-free returns of excess contributions or returns of excess
deferral amounts; and (v) distributions on the death or
disability (as defined in the Internal Revenue Code of 1986, as
amended) of the participant or beneficiary;
o Amounts from a Systematic Withdrawal Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
o Liquidation by the Fund when the account value falls below the
minimum required account size of $500;
o Investment account(s) of AIM; and
o Class C shares where the investor's dealer of record notifies the
distributor prior to the time of investment that the dealer
waives the payment otherwise payable to him.
Upon the redemption of shares of funds in sales charge Categories I and
II (see "Sales Charges and Dealer Concessions") purchased in amounts of $1
million or more, no CDSC will be applied in the following situations:
o Shares held more than 18 months;
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o Redemptions from employee benefit plans designated as qualified
purchasers, as defined above, where the redemptions are in
connection with employee terminations or withdrawals, provided
the total amount invested in the plan is at least $1,000,000; the
sponsor signs a $1 million LOI; or the employer-sponsored plan
has at least 100 eligible employees; provided, however, that
403(b) plans sponsored by public educational institutions shall
qualify for the CDSC waiver 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;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment; and
o Shares acquired by exchange from Class A shares of funds in sales
charge Categories I and II unless the shares acquired by exchange
are redeemed within 18 months of the original purchase of the
Class A shares.
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 heading "Purchasing
Shares-How to Purchase Shares."
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. Class A shares of AIM TAX-EXEMPT
CASH FUND are offered at net asset value.
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 "Exchanging Shares."
Information concerning redemption of the Funds' shares is set forth in
the Prospectuses under the heading "Redeeming 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 permitted
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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.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to 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
taxpayer identification number ("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 or the Fund 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
non-exempt mutual fund accounts opened after 1983, or broker
accounts considered inactive during 1983.
Interest and dividend payments are subject to withholding in all five
situations discussed above. Redemption proceeds and long-term gain distributions
are subject to backup withholding only if (1), (2) or (5) above.
Certain payees and payments are exempt from backup withholding and
information reporting. 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:
o a corporation
o an organization exempt from tax under Section 501(a), an
individual retirement plan (IRA), or a custodial account under
Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United
States, or any of their political subdivisions or
instrumentalities
o a foreign government or any of its political subdivisions,
agencies or instrumentalities
o an international organization or any of its agencies or
instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the
U.S. or a possession of the U.S.
o a futures commission merchant registered with the Commodity
Futures Trading Commission
o a real estate investment trust
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o an entity registered at all times during the tax year under the
1940 Act
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o a middleman known in the investment community as a nominee or
listed in the most recent publication of the American Society of
Corporate Secretaries, Inc., Nominee List
o a trust exempt from tax under Section 664 or described in Section
4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign
entities are not subject to the backup withholding previously discussed, but
must certify their foreign status by attaching IRS Form W-8 to their
application. Form W-8 remains in effect for three calendar years beginning with
the calendar year in which it is received by the Fund. Such shareholders may,
however, 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.
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 Trustees 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 trustees 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
trustees determine that a deviation
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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 Trustees. 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 Trustees.
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 customary trading session of the NYSE
(generally 4:00 p.m. Eastern time) on each business day of the Fund. In the
event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a
particular day, the net asset value of a Fund share is determined as of the
close of the NYSE on such day. For purposes of determining net asset value per
share, futures and options contract closing prices which are available fifteen
(15) minutes after the close of the customary trading session 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 Trust's officers in a manner specifically authorized by
the Board of Trustees of the Trust. 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 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 such values are determined and the close of the customary trading session
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 Trustees.
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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 generally
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.
Dividends with respect to the shares of AIM Tax-Free Intermediate
Fund, AIM HIGH INCOME MUNICIPAL FUND and AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
begin accruing on the day on which payment is received for the purchase of
shares, and accrue through the day preceding the date of payment of redemption
proceeds. Dividends with respect to the shares of AIM TAX-EXEMPT CASH FUND begin
accruing on the day after which payment is received, and accrue through the date
of payment of redemption proceeds.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders. 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.
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If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and
such distributions will be taxable as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies. A 4% non-deductible
excise tax is imposed on a regulated investment company that fails to distribute
in each calendar year an amount equal to 98% of its ordinary taxable income for
the calendar year plus 98% of its capital gain net income (excess of capital
gains over capital losses) for the one-year period ended on October 31 of such
calendar year. The balance of such income must be distributed during the next
calendar year. Undistributed tax-exempt interest on Municipal Securities (as
defined under "Investment Program and Restrictions -- Municipal Securities") is
not subject to the excise tax. For the foregoing purposes, a regulated
investment company is treated as having distributed any amount on which it is
subject to income tax for any taxable year ending in such calendar year.
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Fund may in certain circumstances be required to
liquidate portfolio investments if it intends to make sufficient distributions
to avoid excise tax liability.
Tax Treatment of Interest Rate Futures Contracts and Related Options.
Section 1092 of the Code affects the taxation of certain transactions involving
futures or options contracts. If a futures or options contract is part of a
"straddle" (which could include another futures contract or underlying stock or
securities), as defined in Section 1092 of the Code, then, generally, losses are
deferred first to the extent that the modified "wash sale" rules of the Section
1092 regulations apply, and second to the extent of unrecognized gains on
offsetting positions. Further, a Fund may be required to capitalize, rather than
deduct currently, any interest expense on indebtedness incurred or continued to
purchase or carry any positions that are part of a straddle. Sections 1092 of
the Code and the Treasury Regulations thereunder also suspend the holding
periods for straddle positions with possible adverse effects regarding long-term
capital gain treatment.
Section 1256 of the Code generally requires that futures contracts and
options on futures contracts be "marked-to-market" at the end of each year for
federal income tax purposes. Code Section 1256 further characterizes 60% of any
capital gain or loss with respect to such futures and options contracts as
long-term capital gain or loss and 40% as short-term capital gain or loss. If
such a future or option is held as an offsetting position and can be considered
a straddle under Section 1092 of the Code, such a straddle will constitute a
mixed straddle. A mixed straddle will be subject to both Section 1256 and
Section 1092 unless certain elections are made by a Fund.
Fund Distributions. Each Fund intends to qualify to pay exempt-interest
dividends by satisfying the requirement that at the close of each quarter of a
Fund's taxable year at least 50% of the Fund's total assets consist of
tax-exempt Municipal Securities. Distributions from a Fund will constitute
exempt-interest dividends to the extent of the Fund's tax-exempt interest income
(net of allocable expenses and amortized bond premium). Exempt-interest
dividends distributed to shareholders of a Fund are excluded from gross income
for federal income tax purposes. However, shareholders who file federal income
tax returns will be required to report the receipt of exempt-interest dividends
on such returns. Moreover, while exempt-interest dividends are excluded from
gross income for federal income tax purposes, they may be subject to alternative
minimum tax ("AMT") in certain circumstances and may have other collateral tax
consequences as discussed below. Distributions by a Fund of any investment
company taxable income or of any net capital gain will be taxable to
shareholders as discussed below.
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
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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, 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 (excess of net long-term capital gain over net short-term capital
loss), 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
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withholding by the IRS for failure to properly report the receipt of interest or
dividend income, or (3) has failed to certify to the Fund that it is not subject
to backup withholding or that it is a corporation or other "exempt recipient."
Sale or Redemption of Shares. A shareholder will recognize gain or loss
on the sale or redemption of shares of a Fund in an amount equal to the
difference between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be disallowed if the shareholder purchases other shares of the same Fund within
30 days before or after the sale or redemption. Investors should note that this
rule applies to shares purchased through the reinvestment of 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 (taxable to a noncorporate shareholder at a maximum rate of 20%) or loss if
the shares were held for longer than one year. However, any capital loss arising
from the sale or redemption of shares held for six months or less will be
disallowed to the extent of the amount of exempt-interest dividends received on
such shares and (to the extent not disallowed) will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period of
shares. Long-term capital gains of non-corporate taxpayers are currently taxed
at a maximum rate 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 using IRS Form
W-7.
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<PAGE> 79
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 May 22, 2000. 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.
SHAREHOLDER INFORMATION
This information supplements the discussion in each Fund's Prospectus
under the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. 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. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to
demand or require the Trust to issue share certificates, although the Trust in
its sole discretion may issue them.
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
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<PAGE> 80
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 AIM 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.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
TERMS AND CONDITIONS OF EXCHANGES. 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, 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.
EXCHANGES BY TELEPHONE. 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 the close of
the customary trading session of the NYSE. The Transfer Agent and AIM
Distributors 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.
By signing an 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 transactions. The Transfer Agent 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.
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<PAGE> 81
REDEMPTIONS BY TELEPHONE. By signing an 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. 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 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.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) 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.
AIM Funds may waive or modify any signature guarantee requirements at any time.
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 SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also accept
signatures with either: (1) a signature guaranteed with a medallion stamp of the
STAMP Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
TRANSACTIONS BY INTERNET. An investor may effect transactions in his
account through the Internet by selecting the AIM Internet Connect option on his
completed account application form or completing an AIM Internet Connect
Authorization Form. By signing either form the Investor acknowledges and agrees
that the Transfer Agent and AIM Distributors will not be liable for any loss,
expense or cost arising out of any Internet transaction effected in accordance
with the instructions set forth in the forms if they reasonably believe such
request to be genuine. Procedures for verification of Internet transactions
include requests for confirmation of the shareholder's personal identification
number and mailing of confirmations promptly after the transactions. The
investor also acknowledges that (1) if he no longer wants the AIM Internet
Contract option, he will notify the Transfer Agent in writing, and (2) the AIM
Internet Connect option may be terminated at any time by the AIM Funds.
DIVIDENDS AND DISTRIBUTIONS. 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.
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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.
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.
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.
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Trustees 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 KPMG LLP, 700
Louisiana, Bank of America Building, Houston, Texas 77002, currently serves as
the auditors of the Funds.
LEGAL MATTERS
Legal matters for the Trust have been passed upon by Ballard Spahr
Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia, Pennsylvania 19103.
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 Trust, 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
agent, dividend disbursing agent and shareholder services 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.
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<PAGE> 83
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of May 18, 2000, the trustees and officers of the Trust as a group
owned less than 1% of the outstanding Class A shares of AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT. As of May 18, 2000, the trustees and officers of the Trust as a
group owned 1.54% of the outstanding Class A Shares of AIM HIGH INCOME MUNICIPAL
FUND. Also as of May 18, 2000, the trustees and officers of the Trust as a group
owned 18.03% of the outstanding Class A shares of AIM TAX-EXEMPT CASH FUND. Also
as of May 18, 2000, the trustees and officers of the Trust as a group owned
19.29% of the outstanding Class A shares of AIM TAX-FREE INTERMEDIATE FUND.
To the best knowledge of the Trust, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of each Fund as of
May 18, 2000, and the percentage of the outstanding shares held 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
Intermediate Fund -
Class A Shares Fiserv Securities Inc. 17.74% --
FBO CB Clients
Trade House Account
2005 Market Street
Philadelphia, PA 19103-0000
Charles T. Bauer -- 10.10%
c/o AIM Management
11 Greenway Plaza, Suite 100
Houston, TX 77046
</TABLE>
--------
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
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<PAGE> 84
<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>
Gary T. Crum -- 8.85%
11 Greenway Plaza, Suite 100
Houston, TX 77046
AIM Tax-Exempt
Cash Fund -
Class A Shares Gary T. Crum -- 17.19%
11 Greenway Plaza, Suite 100
Houston, TX 77046-1100
CFP Holdings Ltd. (Partnership) 9.60% --
Attn: Gary Crum
11 Greenway Plaza, Suite 100
Houston, TX 77046-1100
AIM High Income
Municipal Fund -
Class A Shares Obie & Co. 17.64% --
FBO Charles T. Bauer
P. O. Box 200547
Mutual Fund Unit 16-HCB-09
Houston, TX 77216-0547
AIM High Income
Municipal Fund -
Class B Shares Merrill Lynch Pierce Fenner & Smith 15.83% --
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
--------
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
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<PAGE> 85
<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
Municipal Fund -
Class C Shares Merrill Lynch Pierce Fenner & Smith 10.45% --
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Prudential Securities Inc. -- 8.97%
FBO Robert C. Byrne
28 Brookside Drive
Littleton, CO 80121-1244
Legg Mason Wood Walker, Inc. 5.32% --
291-11485-14
P.O. Box 1476
Baltimore, MD 21202
Paul A. Sartoni TTEE 5.17% --
Robert M. Daniels TR
DTD 03/31/95
11 Whitehouse Dr.
Crestview Hills, KY 41017-0000
AIM Tax-Exempt
Bond Fund of
Connecticut Merrill Lynch Pierce Fenner & Smith 5.34% --
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
</TABLE>
--------
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
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<PAGE> 86
RATINGS OF SECURITIES
The following is a description of the factors underlying the
commercial paper and debt ratings of Moody's, S&P and Fitch:
MOODY'S BOND RATINGS
Moody's describes its ratings for corporate bonds as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper- medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
low end of its generic rating category.
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<PAGE> 87
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.
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<PAGE> 88
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.
69
<PAGE> 89
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 out weighed 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+).
70
<PAGE> 90
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 IBCA, INC. INVESTMENT GRADE BOND RATINGS
Fitch IBCA, Inc. ("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.
71
<PAGE> 91
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.
72
<PAGE> 92
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term and should be resolved
within 12 months.
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.
73
<PAGE> 93
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.
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.
74
<PAGE> 94
FINANCIAL STATEMENTS
FS
<PAGE> 95
SCHEDULE OF INVESTMENTS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL
OBLIGATIONS-88.57%
ALABAMA-3.09%
Alabama Industrial
Development Board
(Industrial Partners
Project);
Variable/Fixed Rate
Refunding Series 1989
RB (LOC-Wachovia Bank
of Georgia)
4.05%, 01/01/07(b) -- VMIG-1 $1,525 $ 1,525,000
-----------------------------------------------------------------
CALIFORNIA-4.46%
Huntington Beach (City
of) (Seabridge Villas
Project); Floating Rate
Multifamily Housing
Series 1985 A RB
4.00%, 02/01/10(b) -- VMIG-1 2,200 2,200,000
-----------------------------------------------------------------
COLORADO-1.12%
Arapahoe (County of);
Capital Improvement
Trust Law Enforcement
Series 1999 RB
4.00%, 12/01/99 AA- Aa3 555 555,652
-----------------------------------------------------------------
CONNECTICUT-0.42%
Connecticut (State of)
(Infrastructure Purpose
S-1); Special Tax
Obligation
Transportation Series
RB
3.75%, 12/01/10(b) A-1+ VMIG-1 155 155,000
-----------------------------------------------------------------
Connecticut (State of)
Development Authority
(Corporate Independent
Living Project); Health
Care Series RB
(LOC-Chase Manhattan
Bank)
3.65%, 07/01/15(b) -- VMIG-1 20 20,000
-----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Yale
University); Series T-2
RB
3.70%, 07/01/29(b) A-1+ VMIG-1 32 32,000
-----------------------------------------------------------------
207,000
-----------------------------------------------------------------
DELAWARE-3.27%
Delaware (University of);
Variable Rate Demand
Series 1998 RB
(LOC-Bank of America
NT)
3.75%, 11/01/23(b) A-1+ -- 1,615 1,615,000
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
FLORIDA-13.12%
Gulf Breeze (City of)
(Florida Municipal Bond
Fund); Variable Rate
Demand Series 1996 A RB
(LOC-Bank of America
N.A.)
3.85%, 03/31/21(b) A-1+ -- $ 900 $ 900,000
-----------------------------------------------------------------
Hillsborough (County of)
Industrial Development
Authority (Tampa
Electric Co. Gannon
Coal Conversion
Project); Series 1992
PCR
3.95%, 05/15/18(b) A-1+ VMIG-1 2,500 2,500,000
-----------------------------------------------------------------
Hillsborough (County of)
Industrial Development
Authority (Leslie
Controls Inc.);
Refunding Series IDR
(LOC-First Union
National Bank)
3.85%, 08/01/19(b)(c) -- -- 1,300 1,300,000
-----------------------------------------------------------------
Lee (County of) Housing
Finance Authority
(Forestwood Apartments
Project); Housing
Series 1995 A RB
3.75%, 06/15/25(b) A-1+ -- 1,777 1,777,000
-----------------------------------------------------------------
6,477,000
-----------------------------------------------------------------
GEORGIA-4.06%
Cobb (County of);
Refunding Unlimited Tax
Series GO
5.10%, 01/01/00 AAA Aaa 1,000 1,002,590
-----------------------------------------------------------------
Dekalb Private Hospital
Authority (Egleston
Children's Hospital at
Emory University);
Variable Rate Demand
Revenue Anticipation
Certificates Series
1994 A (LOC-Suntrust
Bank) 3.65%,
03/01/24(b) A-1+ VMIG-1 3 3,000
-----------------------------------------------------------------
Elbert & Bowman (Counties
of) Industrial
Development Authority;
(Seaboard Farms of
Elberton); Series 1985
IDR (LOC-Bank of New
York)
3.80%, 07/01/05(b) A-1+ -- 1,000 1,000,000
-----------------------------------------------------------------
2,005,590
-----------------------------------------------------------------
</TABLE>
FS-1
<PAGE> 96
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS-9.16%
Illinois Development
Finance Authority
(American College of
Surgeons Project); Tax
Exempt Series 1996 RB
(LOC-First National
Bank)
3.85%, 08/01/26(b) A-1+ -- $1,753 $ 1,753,000
-----------------------------------------------------------------
Illinois Health
Facilities Authority;
Revolving Fund Pooled
Series D RB (LOC-First
National Bank)
3.80%, 08/01/15(b) A-1+ VMIG-1 1,351 1,351,000
-----------------------------------------------------------------
Illinois Health
Facilities Authority
(Franciscan Eldercare
Project); Adjustable
Rate Refunding Series
1996 C RB (LOC-Lasalle
National Bank)
3.80%, 05/15/26(b) A-1+ -- 1,420 1,420,000
-----------------------------------------------------------------
4,524,000
-----------------------------------------------------------------
INDIANA-1.02%
New Albany (City of)
(Floyd County
Independent School
Building Corp); Series
1998 RB
4.10%, 01/15/00(d) AAA -- 500 501,417
-----------------------------------------------------------------
KENTUCKY-6.42%
Kentucky Asset/Liability
Commission; General
Fund Series 1998 A
Commercial Paper Notes
(LOC-Landesbank Hessen)
3.40%, 11/29/99(b) -- VMIG-1 2,000 2,000,000
-----------------------------------------------------------------
Kentucky Interlocal
School Transportation
Association; Series
1999 TRAN
4.00%, 06/30/00 SP-1+ MIG-1 1,163 1,166,744
-----------------------------------------------------------------
3,166,744
-----------------------------------------------------------------
LOUISIANA-3.05%
Louisiana State Gas and
Fuels Tax Authority;
Series A RB
7.20%, 11/15/99(d) AAA Aaa 1,500 1,507,182
-----------------------------------------------------------------
MICHIGAN-2.05%
Michigan State Hospital
Finance Authority
(Hospital Equipment
Loan Program); Series
1995 A RB (LOC-First of
America Bank)
3.85%, 12/01/23(b) -- VMIG-1 400 400,000
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MICHIGAN-(CONTINUED)
Plymouth (Township of)
Economic Development
Corp. (Key
International Project);
Variable Rate Demand
Series 1984 RB
(LOC-Comerica Bank)
3.50%, 07/01/04(b)(c) -- -- $ 100 $ 100,000
-----------------------------------------------------------------
Walled Lake Michigan
Consolidated School
District; Unlimited Tax
Series II GO
7.00%, 05/01/00(d) AA+ Aa 500 510,350
-----------------------------------------------------------------
1,010,350
-----------------------------------------------------------------
MINNESOTA-3.98%
Bloomington (City of)
Port Authority;
Refunding Unlimited Tax
Series GO
5.70%, 03/01/00 (e) AA+ Aa1 500 504,446
-----------------------------------------------------------------
Owatonna (City of) (The
Health Central System
Project); Hospital
Series 1985 RB
(LOC-Norwest Bank
Minnesota)
3.90%, 08/01/14(b) A-1+ -- 1,460 1,460,000
-----------------------------------------------------------------
1,964,446
-----------------------------------------------------------------
MONTANA-1.42%
Missoula (County of)
(Washington Corp.
Project); Floating Rate
Monthly Demand Series
1984 IDR (LOC-Bank of
Montreal)
3.41%, 11/01/04(b) -- VMIG-1 700 700,000
-----------------------------------------------------------------
NEW HAMPSHIRE-2.84%
New Hampshire Higher
Education and Health
Facilities Authority;
Variable Rate Hospital
Series 1985 C RB
3.85%, 12/01/25(b)(d) A-1 -- 1,400 1,400,000
-----------------------------------------------------------------
NEW YORK-5.66%
Eagle Tax Exempt Trust;
Class A Series 943802
COP
3.84%,
05/01/07(b)(d)(f) A-1+C -- 1,295 1,295,000
-----------------------------------------------------------------
New York (City of);
Unlimited Tax Series A4
GO (LOC-Chase Manhattan
Bank)
3.80%, 08/01/21(b) A-1+ VMIG-1 1,500 1,500,000
-----------------------------------------------------------------
2,795,000
-----------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 97
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OHIO-0.61%
Delaware (County of)
(Radiation Sterilizers,
Inc.); Series 1984 IDR
(LOC-Comerica Bank)
3.55%, 12/01/04(b) A-1 -- $ 300 $ 300,000
-----------------------------------------------------------------
PENNSYLVANIA-0.00%
York (City of) General
Authority; Adjustable
Rate Pooled Financing
Series 1996 RB
(LOC-First Union
National Bank)
3.85%, 09/01/26(b) A-1 -- 1 1,000
-----------------------------------------------------------------
RHODE ISLAND-2.14%
Providence (City of);
Unlimited Tax Series GO
4.60%, 01/15/00(d) AAA Aaa 500 501,911
-----------------------------------------------------------------
Rhode Island Public
Buildings Authority
(State Project); Series
A RB
4.70%, 02/01/00(d) AAA Aaa 550 552,154
-----------------------------------------------------------------
1,054,065
-----------------------------------------------------------------
SOUTH DAKOTA-2.05%
South Dakota Housing
Development Authority
(Homeownership
Mortgage); Series C RB
4.90%, 05/01/00 AAA Aa1 1,005 1,012,662
-----------------------------------------------------------------
TENNESSEE-2.35%
Nashville and Davidson
(Counties of)
(Amberwood Ltd.
Project); Metro
Government Multifamily
Housing Refunding
Series 1993 A IDR
(LOC-Commerzbank A.G.)
4.07%, 07/01/13(b) -- VMIG-1 1,160 1,160,000
-----------------------------------------------------------------
TEXAS-15.27%
Bexar (County of) Texas
Housing Finance
Authority (Fountainhead
Apts. Project);
Multifamily Refunding
Series RB
3.75%, 09/15/26(b) A-1+ -- 2,412 2,412,000
-----------------------------------------------------------------
Harris (County of) Texas
Health Facilities (St.
Lukes Episcopal
Hospital); Series A RB
3.80%, 02/15/27(b)(d) A-1+ -- 1,000 1,000,000
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Lubbock (City of)
Waterworks System Sub
Lien Certificates of
Obligation; Ltd.
General Obligation
Series 1991 RB
8.60%, 02/15/00 AA Aa2 $ 500 $ 509,632
-----------------------------------------------------------------
Southwest Higher
Education Authority
(Southern Methodist
University); Series B
RB (LOC-Landesbank
Hessen)
3.75%, 10/01/29(b) A-1+ VMIG-1 200 200,000
-----------------------------------------------------------------
Texas (State of); Series
1999 A TRAN
4.50%, 08/31/00 SP-1+ VMIG-1 2,000 2,013,804
-----------------------------------------------------------------
Trinity River Industrial
Development Authority
(Radiation Sterilizers,
Inc. Project); Variable
Rate Demand Series 1985
A IDR (LOC-Comerica
Bank)
3.60%, 11/01/05(b) A-1 -- 1,400 1,400,000
-----------------------------------------------------------------
7,535,436
-----------------------------------------------------------------
WASHINGTON-1.01%
Industrial Development
Corp. of Port Townsend
(Port Townsend Paper
Corp. Project);
Variable Rate Series
1988 A RB
3.90%, 03/01/09(b) -- VMIG-1 500 500,000
-----------------------------------------------------------------
Total Short-Term
Municipal
Obligations (Cost
$43,717,544) 43,717,544
-----------------------------------------------------------------
COMMERCIAL PAPER(g)-1.98%
BROKERAGE/INVESTMENTS-1.98%
Credit Suisse First
Boston, Inc.
5.74%, 02/18/00 (Cost
$977,678)(h) A-1+ -- 1,000 977,678
-----------------------------------------------------------------
MASTER NOTE
AGREEMENT(g)-5.22%
BROKER/DEALER-5.22%
Merrill Lynch Mortgage
Capital, Inc.
6.01%, 08/17/00(c)(i)
(Cost $2,575,000) -- -- 2,575 2,575,000
-----------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 98
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
REPURCHASE
AGREEMENT(g)(j)-6.08%
Bank One Capital Markets,
Inc.
5.50%, 10/01/99(k)
(Cost $2,999,678) -- -- $2,999 $ 2,999,678
-----------------------------------------------------------------
TOTAL INVESTMENTS-101.85% 50,269,900(l)
-----------------------------------------------------------------
OTHER LIABILITIES LESS
ASSETS-(1.85%) (913,332)
-----------------------------------------------------------------
NET ASSETS-100.00% $49,356,568
=================================================================
</TABLE>
ABBREVIATIONS:
COP - Certificates of Participation
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
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").
(b) 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 09/30/99.
(c) 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.
(d) Secured by bond insurance.
(e) Secured by an escrow fund of U.S. Treasury Obligations.
(f) The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include
variable rate instruments. These instruments involve the deposit into a
trust of one or more long-term tax-exempt bonds or notes ("Underlying
Bonds"), and the sale of certificates evidencing interests in the trust to
investors such as the Fund. The trustee receives the long-term fixed rate
interest payments on the Underlying Bonds, and pays certificate holders
short-term floating or variable interest rates which are reset periodically.
A "variable rate trust certificate" evidences an interest in a trust
entitling the certificate holder to receive variable rate interest based on
prevailing short-term interest rates and also typically providing the
certificate holder with the conditional right to put its certificate at par
value plus accrued interest. Because synthetic municipal instruments involve
a trust and a third party conditional put feature, they involve complexities
and potential risks that may not be present where a municipal security is
owned directly.
(g) Interest does not qualify as exempt interest for federal tax purposes.
(h) Some commercial paper is traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(i) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business days' notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
9/30/99.
(j) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(k) Joint repurchase agreement entered into 09/30/99 with a maturing value of
$125,019,097. Collateralized by $128,075,000 U.S. Government obligations, 0%
to 8.02% due 10/01/99 to 04/15/28 with an aggregate market value at 09/30/99
of $127,500,581.
(l) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-4
<PAGE> 99
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $ 50,269,900
------------------------------------------------------------
Receivables for:
Capital stock sold 238,021
------------------------------------------------------------
Interest 272,215
------------------------------------------------------------
Investment for deferred compensation plan 27,523
------------------------------------------------------------
Other assets 18,667
------------------------------------------------------------
Total assets 50,826,326
------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,015,340
------------------------------------------------------------
Dividends 3,027
------------------------------------------------------------
Deferred compensation 27,523
------------------------------------------------------------
Capital stock reacquired 340,772
------------------------------------------------------------
Accrued administrative services fees 4,224
------------------------------------------------------------
Accrued advisory fees 14,491
------------------------------------------------------------
Accrued distribution fees 13,053
------------------------------------------------------------
Accrued transfer agent fees 8,374
------------------------------------------------------------
Accrued operating expenses 42,954
------------------------------------------------------------
Total liabilities 1,469,758
------------------------------------------------------------
Net assets applicable to shares outstanding $ 49,356,568
============================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 1,000,000,000
------------------------------------------------------------
Outstanding 49,335,747
============================================================
Net asset value, offering and redemption
price per share $ 1.00
============================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $974,943
-----------------------------------------------------------
EXPENSES:
Advisory fees 95,567
-----------------------------------------------------------
Administrative services fees 25,169
-----------------------------------------------------------
Custodian fees 4,112
-----------------------------------------------------------
Directors' fees and expenses 445
-----------------------------------------------------------
Transfer agent fees 22,457
-----------------------------------------------------------
Distribution fees 68,262
-----------------------------------------------------------
Filing fees 24,988
-----------------------------------------------------------
Other 15,962
-----------------------------------------------------------
Total expenses 256,962
-----------------------------------------------------------
Less: Fees waived (40,957)
-----------------------------------------------------------
Expenses paid indirectly (281)
-----------------------------------------------------------
Net expenses 215,724
-----------------------------------------------------------
Net investment income 759,219
-----------------------------------------------------------
Net increase in net assets resulting from
operations $759,219
============================================================
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 100
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 1999 and the year ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 759,219 $ 2,023,407
-----------------------------------------------------------------------------------------
Net realized gain on sales of investment securities -- 11,634
-----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities -- (160)
-----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 759,219 2,034,881
-----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (766,565) (2,029,841)
-----------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions (11,795,084) 9,220,052
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets (11,802,430) 9,225,092
-----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 61,158,998 51,933,906
-----------------------------------------------------------------------------------------
End of period $ 49,356,568 $61,158,998
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 49,335,747 $61,130,831
-----------------------------------------------------------------------------------------
Undistributed net investment income 22,652 29,998
-----------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (1,831) (1,831)
-----------------------------------------------------------------------------------------
$ 49,356,658 $61,158,998
=========================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
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 the preservation of
capital 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
FS-6
<PAGE> 101
is recorded in the financial statements. The Fund has a capital loss
carryforward of $4,570 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2004. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.35% of the Fund's
average daily net assets.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the six months ended September 30, 1999,
AIM was paid $25,169 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 six months ended September 30, 1999, AFS was
paid $19,667 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
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 six months ended September 30, 1999, AIM
Distributors waived fees of $40,957. 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 six
months ended September 30, 1999, the Fund paid AIM Distributors $27,305 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 six months ended September 30, 1999, the Fund paid legal fees of
$2,009 for services rendered by Kramer, Levin, Naftalis & Frankel LLP 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 directors who are 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-INDIRECT EXPENSES
During the six months ended September 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $281 under an expense
offset arrangement. The effect of the above arrangement resulted in a reduction
of the Fund's total expenses of $281 during the six months ended September 30,
1999.
NOTE 5-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended September 30,
1999 and the year ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Sold 49,112,052 $ 49,112,052 365,487,367 $ 365,487,367
---------------------------------------------------------------------------------
Issued as
reinvestment of
dividends 740,339 740,339 1,903,872 1,903,872
---------------------------------------------------------------------------------
Reacquired (61,647,475) (61,647,475) (358,171,187) (358,171,187)
---------------------------------------------------------------------------------
(11,795,084) $(11,795,084) 9,220,052 $ 9,220,052
=================================================================================
</TABLE>
FS-7
<PAGE> 102
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during the six months ended September 30, 1999 and for each of the
years in the five-year period ended March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, ---------------------------------------------------
1999 1999 1998 1997 1996 1995
--------------- ------- ------- ------- ------- -------
<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 0.01 0.03 0.03 0.03 0.03 0.03
--------------------------------------------------------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.01) (0.03) (0.03) (0.03) (0.03) (0.03)
--------------------------------------------------------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================= ======= ======= ======= ======= ======= =======
Total return 1.42% 2.90% 3.12% 2.82% 2.92% 2.54%
========================================================= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $49,357 $61,159 $51,934 $56,880 $30,014 $30,365
========================================================= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets(a) 0.79%(b) 0.79% 0.83% 1.04% 1.05% 1.01%
========================================================= ======= ======= ======= ======= ======= =======
Ratio of net investment income to average net assets(c) 2.78%(b) 2.83% 3.07% 2.78% 2.97% 2.53%
========================================================= ======= ======= ======= ======= ======= =======
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.94% (annualized), 0.94%, 0.98%, 1.19%, 1.20% and 1.16% for the periods
1999-1995 respectively.
(b) Ratios are annualized and based on average net assets of $54,609,933.
(c) After fee waivers and/or expense reimbursements. Ratios of income to average
net assets prior to fee waivers and/or expense reimbursements were 2.63%
(annualized), 2.68%, 2.92%, 2.63%, 2.82% and 2.38%, for the periods
1999-1995 respectively.
FS-8
<PAGE> 103
SCHEDULE OF INVESTMENTS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALABAMA-3.08%
Alabama State Municipal
Electric Authority;
Power Supply Series 1991
A RB
6.30%, 09/01/01(b) AAA Aaa $ 400 $ 415,508
-------------------------------------------------------------------
Birmingham (City of);
Limited Tax Series 1999 B
GO
5.125%, 06/01/08 AA Aa3 2,660 2,692,266
-------------------------------------------------------------------
5.125%, 06/01/09 AA Aa3 3,355 3,376,371
-------------------------------------------------------------------
Birmingham (City of)
Special Care Facilities
Financing Authority
(Charity Obligation
Group);
Hospital Series 1997 D RB
4.95%, 11/01/07(c) AA+ Aa2 970 962,968
-------------------------------------------------------------------
Lauderdale & Florence
(County of) Health Care
Authority (Coffee Health
Group Project);
Unlimited Tax Series 1999
A GO
5.00%, 07/01/07(b) AAA Aaa 2,450 2,460,731
-------------------------------------------------------------------
McIntosh Alabama Industrial
Development Board;
Environmental Improvement
Series 1998 B RB
4.65%, 06/01/08 AA- A2 2,000 1,926,680
-------------------------------------------------------------------
11,834,524
-------------------------------------------------------------------
ALASKA-1.30%
Alaska State Housing
Financing Corp.; Series
1991 A-1 RB
4.90%, 12/01/07(b) AAA Aaa 800 793,064
-------------------------------------------------------------------
Anchorage (City of);
Unlimited Tax Series 1994
GO
5.50%, 07/01/06(b) AAA Aaa 1,950 2,031,061
-------------------------------------------------------------------
Fairbanks North Star
Borough;
Unlimited Tax School
Series 1999 B GO
5.125%, 04/01/09(b) AAA Aaa 1,160 1,164,756
-------------------------------------------------------------------
Matanuska-Susitna Borough;
Unlimited Tax Series 1999
A GO
5.00%, 03/01/09(b) AAA Aaa 1,000 994,770
-------------------------------------------------------------------
4,983,651
-------------------------------------------------------------------
ARIZONA-3.06%
Graham County Unified
School District #1
(Safford Project of
1997);
Unlimited Tax Series 1999
B GO
4.40%, 07/01/07(b) -- Aaa 400 389,228
-------------------------------------------------------------------
Maricopa County Unified
School District #4 (Mesa
Project of 1995);
Unlimited Tax Series 1998
E GO
5.00%, 07/01/09(b) AAA Aaa 1,900 1,896,960
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ARIZONA-(CONTINUED)
Maricopa County Unified
School District #41
(Gilbert Project of
1988);
Unlimited Tax Series 1992
E GO
6.20%, 07/01/02(d) AAA Aaa $1,250 $ 1,312,963
-------------------------------------------------------------------
Maricopa County Unified
High School District #210
(Phoenix Project of
1995);
Unlimited Tax Series 1998
C GO
4.00%, 07/01/00 AA Aa3 2,500 2,504,950
-------------------------------------------------------------------
Mohave County Unified
School District #1 (Lake
Havasu);
Unlimited Tax Series 1996
A GO 5.40%, 07/01/06(b) AAA Aaa 200 207,758
-------------------------------------------------------------------
Navajo County Unified
School District
(Herber-Overgaard);
Unlimited Tax Series 1997
A GO
5.00%, 07/01/07(b) AAA Aaa 450 455,148
-------------------------------------------------------------------
Nogales Municipal
Development Authority;
Series 1999 RB
4.20%, 06/01/08(b) -- Aaa 710 677,169
-------------------------------------------------------------------
4.30%, 06/01/09(b) -- Aaa 530 503,781
-------------------------------------------------------------------
Phoenix (City of) Senior
Lien Street and Highway
User;
Refunding Series 1992 RB
6.20%, 07/01/02 AA A1 1,000 1,046,410
-------------------------------------------------------------------
PIMA County Unified School
District #10
(Amphitheater Project of
1994);
Unlimited Tax Series 1997
C GO
5.00%, 07/01/09(b) AAA Aaa 1,010 1,008,384
-------------------------------------------------------------------
Yuma County School District
#13 (Crane Elementary);
Refunding Unlimited Tax
Series 1998 GO
5.25%, 07/01/01(b) -- Aaa 675 688,763
-------------------------------------------------------------------
Yuma Industrial Development
Authority (Yuma Regional
Medical Center Project);
Refunding Hospital Series
1997 RB
5.70%, 08/01/06(b) AAA Aaa 1,000 1,057,120
-------------------------------------------------------------------
11,748,634
-------------------------------------------------------------------
ARKANSAS-1.92%
Arkansas State Development
Financial Authority;
Correction Facility
Series 1996 RB
6.25%, 10/01/06(b) AAA Aaa 1,800 1,964,556
-------------------------------------------------------------------
</TABLE>
FS-9
<PAGE> 104
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ARKANSAS-(CONTINUED)
Conway (City of);
Sales and Use Tax Capital
Improvement Series 1997 A
RB
4.80%, 12/01/07(b) AAA Aaa $ 825 $ 821,098
-------------------------------------------------------------------
Fort Smith Water and Sewer;
Series 1999 RB
5.00%, 10/01/08(b) AAA A- 1,000 1,005,030
-------------------------------------------------------------------
Little Rock (City of)
Health Facility Board
(Baptist Medical Center);
Refunding Hospital Series
1991 RB
6.70%, 11/01/04(b) AAA Aaa 1,400 1,519,742
-------------------------------------------------------------------
North Little Rock (City
of);
Refunding Electric Series
1992 A RB
6.00%, 07/01/01(b) AAA Aaa 500 515,580
-------------------------------------------------------------------
Sebastian (County of)
(Arkansas Community Jr.
College District);
Refunding and Improvement
Limited Tax Series 1997
GO
5.10%, 04/01/06(b) -- Aaa 500 511,915
-------------------------------------------------------------------
5.20%, 04/01/07(b) -- Aaa 1,000 1,026,810
-------------------------------------------------------------------
7,364,731
-------------------------------------------------------------------
CALIFORNIA-1.56%
California Health Care
Facilities Financing
Authority (Casa De Las
Campanas);
Refunding Series A RB
4.875%, 08/01/08 A+ -- 700 697,718
-------------------------------------------------------------------
California Intercommunity
Hospital Financing
Authority (NorthBay
Healthcare System);
Series 1998 COP
4.60%, 11/01/08(b) A -- 1,210 1,164,746
-------------------------------------------------------------------
California State Public
Works Board Department of
Corrections (Madera
County State Prison);
Lease Series 1990 A RB
7.00%, 09/01/00 A+ A1 100 103,070
-------------------------------------------------------------------
Folsom (City of) (School
Facilities Project);
Unlimited Tax Series 1994
B GO
6.00%, 08/01/02(b) AAA Aaa 500 527,500
-------------------------------------------------------------------
Inglewood (City of) (Daniel
Freeman Hospital Inc.);
Insured Hospital Series
1991 RB
6.50%, 05/01/01(d) NRR NRR 400 415,512
-------------------------------------------------------------------
Orange (County of);
Refunding Recovery Series
1995 A RB
5.50%, 06/01/06(b) AAA Aaa 1,000 1,056,900
-------------------------------------------------------------------
San Francisco (City and
County of) Parking
Authority;
Parking Meter Series 1994
RB
6.75%, 06/01/05(b) AAA Aaa 500 556,905
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)
South San Francisco Capital
Improvements Financing
Authority;
Redevelopment Series 1999
A RB
4.30%, 09/01/08(b) A -- $1,255 $ 1,199,391
-------------------------------------------------------------------
West End Water Treatment
and Conservation Joint
Powers Authority;
Water Facilities Series
1990 COP
7.00%, 10/01/00(d) NRR NRR 250 258,060
-------------------------------------------------------------------
5,979,802
-------------------------------------------------------------------
COLORADO-1.69%
Boulder (County of);
Open Space Capital
Improvement Trust Fund
Series 1998 RB
5.25%, 12/15/09 AA- -- 3,000 3,053,160
-------------------------------------------------------------------
Denver (City & County of)
Excise Tax;
Refunding Series 1999 A
RB
5.25%, 09/01/09(b) AAA Aaa 1,110 1,128,814
-------------------------------------------------------------------
Eagle (County of);
Series 1999 COP
4.80%, 12/01/07(b) AAA Aaa 665 661,854
-------------------------------------------------------------------
Highlands Ranch
Metropolitan District #3;
Refunding Unlimited Tax
Series 1998 B GO
4.50%, 12/01/04(b) A -- 1,175 1,163,227
-------------------------------------------------------------------
4.80%, 12/01/08(b) A A 500 486,255
-------------------------------------------------------------------
6,493,310
-------------------------------------------------------------------
CONNECTICUT-3.75%
Connecticut (State of)
Development Authority
(Independent Living
Project); Health Care
Variable Rate Demand
Series 1990 RB
(LOC-Chase Manhattan
Bank)
3.65%, 07/01/15(e) -- VMIG1 2,361 2,361,000
-------------------------------------------------------------------
Connecticut (State of)
Health and Educational
Facilities Authority
(Yale University);
Series 1997 T-2 RB
3.70%, 07/01/29(e) A-1+ VMIG1 3,647 3,647,000
-------------------------------------------------------------------
Connecticut (State of)
Residential Recovery
Authority (Bridgeport
Resco Co. LP Project);
Refunding Series 1999 RB
5.00%, 01/01/07(b) AAA Aaa 2,000 2,004,660
-------------------------------------------------------------------
5.00%, 01/01/08(b) AAA Aaa 1,000 997,250
-------------------------------------------------------------------
5.125%, 01/01/09(b) AAA Aaa 1,000 1,002,470
-------------------------------------------------------------------
Connecticut (State of)
Residential Recovery
Authority;
Connecticut System Series
1999 A RB
5.50%, 11/15/03(b) AAA Aaa 2,000 2,077,240
-------------------------------------------------------------------
</TABLE>
FS-10
<PAGE> 105
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CONNECTICUT-(CONTINUED)
Connecticut (State of)
Special Tax Obligation (2nd
Lien Transportation
Infrastructure-1);
Variable Rate Demand Series
1990 RB
3.75%, 12/01/10(e) A-1+ VMIG1 $ 118 $ 118,000
-------------------------------------------------------------------
New Haven (City of);
Unlimited Series 1997 GO
6.00%, 02/15/06(b) AAA Aaa 2,050 2,198,420
-------------------------------------------------------------------
14,406,040
-------------------------------------------------------------------
DELAWARE-0.99%
Delaware Transportation
Authority;
Senior Lien
Transportation System
Series 1991 RB
6.00%, 07/01/01(c)(d) AAA NRR 750 773,243
-------------------------------------------------------------------
University of Delaware;
Variable Rate Demand
Series 1998 RB
3.75%, 11/23/23(e) A-1+ -- 3,019 3,019,000
-------------------------------------------------------------------
3,792,243
-------------------------------------------------------------------
DISTRICT OF COLUMBIA-4.54%
District of Columbia;
Refunding Unlimited Tax
GO
Series 1993 B-2,
5.50%, 06/01/07(b) AAA Aaa 3,000 3,101,940
-------------------------------------------------------------------
Series 1993 B-1,
5.50%, 06/01/09(b) AAA Aaa 1,250 1,283,825
-------------------------------------------------------------------
Series 1999 B,
5.50%, 06/01/09(b) AAA Aaa 5,000 5,135,300
-------------------------------------------------------------------
District of Columbia;
Unlimited Tax Series 1992
B GO
6.125%, 06/01/02(c)(d) AAA Aaa 60 63,741
-------------------------------------------------------------------
District of Columbia;
Unrefunded Unlimited Tax
Series 1992 B GO
6.125%, 06/01/03(b) AAA Aaa 2,960 3,116,170
-------------------------------------------------------------------
District of Columbia
(American Association of
Advancement Science);
Series 1997 RB
5.00%, 01/01/05(b) AAA Aaa 800 807,640
-------------------------------------------------------------------
District of Columbia
(Gonzaga College High
School);
Series 1999 RB
5.25%, 07/01/08(b) AAA Aaa 500 505,545
-------------------------------------------------------------------
5.25%, 07/01/09(b) AAA Aaa 510 511,499
-------------------------------------------------------------------
District of Columbia
(Howard University Issue
(The));
Series 1990 A RB
6.90%, 10/01/00(d) AAA NRR 200 205,922
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA-(CONTINUED)
District of Columbia
(Medlantic Healthcare
Group);
Hospital Refunding Series
A RB
Series 1993, 5.50%,
08/15/06(d) AAA Aaa $ 500 $ 520,815
-------------------------------------------------------------------
Series 1996, 6.00%,
08/15/06(d) AAA Aaa 1,550 1,659,399
-------------------------------------------------------------------
Series 1997, 6.00%,
08/15/07(d) AAA Aaa 500 536,165
-------------------------------------------------------------------
17,447,961
-------------------------------------------------------------------
FLORIDA-2.90%
Broward (County of)
Expressway Authority;
Refunding Unlimited Tax
Series 1986 A GO
6.50%, 07/01/04 AA+ Aa2 1,000 1,002,300
-------------------------------------------------------------------
Jacksonville Health
Faculties Authority
(Charity Obligation
Group);
Hospital Series 1999 C RB
5.00%, 08/15/09 AA+ Aa2 1,275 1,244,872
-------------------------------------------------------------------
Lee (County of) Housing
Financial Authority
(Forestwood Apartments
Project);
Multifamily Housing
Variable Rate Demand
Series 1995 A RB
3.20%, 06/15/25(e) A-1+ -- 1,762 1,762,000
-------------------------------------------------------------------
Miami Beach (City of)
Health Facilities
Authority (South Shore
Hospital);
Series 1998 A RB
4.80%, 08/01/08 A -- 1,000 978,140
-------------------------------------------------------------------
Orange (County of) Health
Facilities Authority
(South Central Nursing);
Mortgage Series 1999 A RB
5.00%, 07/01/09(b) AAA Aaa 1,830 1,831,263
-------------------------------------------------------------------
Palm Beach (County of)
Solid Waste Authority;
Refunding Series 1997 A
RB
5.50%, 10/01/06(b) AAA Aaa 3,000 3,139,740
-------------------------------------------------------------------
Walton (County of) School
Board;
Series 1999 COP
4.875%, 07/01/09(b) AAA Aaa 1,210 1,194,693
-------------------------------------------------------------------
11,153,008
-------------------------------------------------------------------
GEORGIA-2.26%
Albany (City of) Sewer
System;
Series 1992 RB
6.30%, 07/01/02(b)(d) AAA Aaa 500 525,800
-------------------------------------------------------------------
Cobb-Marietta Coliseum and
Exhibit Hall Authority;
Series 1999 RB
5.00%, 10/01/09(b) AAA Aaa 250 248,640
-------------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 106
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GEORGIA-(CONTINUED)
De Kalb (County of) Private
Hospital Authority
(Egleston Children's
Hospital);
Variable Rate Demand
Series 1994 A RAN
LOC-Suntrust Bank
3.65%, 03/01/24(e) A-1+ VMIG1 $2,132 $ 2,132,000
-------------------------------------------------------------------
Fulton (County of) Water
and Sewer;
Refunding Series 1992 RB
5.75%, 01/01/02(b) AAA Aaa 715 736,850
-------------------------------------------------------------------
Georgia State Municipal
Electric Authority;
Series 1991 V RB
6.00%, 01/01/01(b)(d) AAA Aaa 1,000 1,021,680
-------------------------------------------------------------------
Georgia State Municipal
Electric Authority
(Project One);
Sub Series 1998 A RB
4.75%, 01/01/08(b) AAA Aaa 2,500 2,469,650
-------------------------------------------------------------------
Metropolitan Atlanta Rapid
Transportation Authority;
Sales Tax Refunding
Series 1991 M RB
6.15%, 07/01/02 AA- A1 500 522,175
-------------------------------------------------------------------
Savannah (City of) Hospital
Authority (St.
Joseph's/Candler Health
System);
Series 1998 A RB
5.25%, 07/01/08(b) -- Aaa 1,000 1,018,860
-------------------------------------------------------------------
8,675,655
-------------------------------------------------------------------
HAWAII-2.61%
Hawaii (State of);
Refunding Unlimited Tax
Series CO 1997 GO
6.00%, 03/01/07(b) AAA Aaa 5,000 5,344,300
-------------------------------------------------------------------
Hawaii (State of);
Unlimited Tax Series CA
1993 GO
5.75%, 01/01/10(b) AAA Aaa 2,000 2,094,380
-------------------------------------------------------------------
Hawaii (State of) (Kapolei
State Office Building);
Series 1998 A COP
4.50%, 05/01/09 AAA Aaa 2,725 2,588,396
-------------------------------------------------------------------
10,027,076
-------------------------------------------------------------------
ILLINOIS-6.03%
Chicago (City of);
Limited Tax Series 1997
GO
6.00%, 01/01/06(b) AAA Aaa 500 532,805
-------------------------------------------------------------------
Chicago (City of) Public
Building Commission;
Unlimited Tax Series 1999
C GO
5.50%, 02/01/06(b) AAA Aaa 1,500 1,556,565
-------------------------------------------------------------------
Hoffman Estates Illinois
Multifamily Housing (Park
Place Apartments
Project);
Refunding Series 1996 RB
5.75%, 06/01/06(c) AAA Aaa 1,400 1,444,953
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Illinois Development
Financial Authority
(American College of
Surgeons);
Variable Rate Demand
Series 1996 RB
(LOC-Northern Trust Co.)
3.85%, 08/01/26(e) A-1+ -- $3,131 $ 3,131,002
-------------------------------------------------------------------
Illinois Development
Financial Authority
(Citizens Utility Company
Project);
Variable Rate Demand
Series 1997 IDR
4.80%, 08/01/07(c)(e) A-1 -- 1,000 987,110
-------------------------------------------------------------------
Illinois Educational
Facilities Authority
(Augustana College);
Series 1997 RB
4.80%, 10/01/99(b) AAA -- 375 375,000
-------------------------------------------------------------------
Illinois Educational
Facilities Authority (MJH
Educational Assistance);
Series 1999 B RB
4.625%, 09/01/04(b)(c) AAA Aaa 350 347,186
-------------------------------------------------------------------
Illinois Health Facilities
Authority (Alexian
Brothers Health System);
Series 1997 A RB
5.00%, 02/01/06(b) AAA Aaa 1,000 1,007,920
-------------------------------------------------------------------
Illinois Health Facilities
Authority (Edward
Obligated Group);
Series 1997 A RB
4.90%, 02/15/08(b) AAA Aaa 835 829,297
-------------------------------------------------------------------
Illinois Health Facilities
Authority (Highland Park
Hospital);
Series 1991 A RB
4.80%, 10/01/99(b) AAA Aaa 255 255,000
-------------------------------------------------------------------
Series 1991 B RB
5.55%, 10/01/06(b) AAA Aaa 500 520,535
-------------------------------------------------------------------
Illinois Health Facilities
Authority (Revolving Fund
Pooled);
Variable Rate Demand
Series 1985 D RB
(LOC-First National Bank)
3.80%, 08/01/15(e) A-1+ VMIG1 3,373 3,373,000
-------------------------------------------------------------------
Illinois Regional
Transportation Authority;
Series 1994 B RB
6.30%, 06/01/04(c)(d) AAA Aaa 1,000 1,090,590
-------------------------------------------------------------------
Illinois (State of);
Series 1999 COP
4.90%, 07/01/08(b) AAA Aaa 1,000 992,910
-------------------------------------------------------------------
Illinois (State of);
Unlimited Tax Series 1999
GO
5.00%, 03/01/09 AA Aa2 4,550 4,536,305
-------------------------------------------------------------------
Joliet (City of) Waterworks
and Sewer;
Series 1989 RB
6.95%, 01/01/01(b) AAA Aaa 250 258,378
-------------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 107
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Kane (County of) Public
Building Commission;
Public Building Series 1991
B RB
6.20%, 12/01/99(c)(d) NRR NRR $ 700 $ 702,618
-------------------------------------------------------------------
McHenry (County of) School
District #47 (Crystal
Lake);
Unlimited Tax Series 1999
GO
5.125%, 02/01/10(b) -- Aaa 1,250 1,241,500
-------------------------------------------------------------------
23,182,674
-------------------------------------------------------------------
INDIANA-3.20%
Frankfort Middle School
Building Corp.;
Refunding First Mortgage
Series 1996 RB
5.20%, 01/10/07(b) AAA Aaa 295 300,331
-------------------------------------------------------------------
Hamilton (County of);
Optional Income Tax
Revenue Series 1998 RB
5.00%, 07/10/08(b) AAA Aaa 1,095 1,096,456
-------------------------------------------------------------------
Indiana Health Facilities
Financing Authority
(Charity Obligated
Group);
Variable Rate Demand
Series 1997 D RB
5.00%, 11/01/07(c)(e) AA+ VMIG1 2,470 2,436,062
-------------------------------------------------------------------
Indiana Municipal Power
Agency (Power Supply
System);
Refunding Special
Obligation 1st-Crossover
Series 1998 B RB
4.80%, 01/01/09(b) AAA Aaa 2,000 1,956,080
-------------------------------------------------------------------
Indiana Transportation
Finance Authority;
Airport Facilities Lease
Series 1992 A RB
6.00%, 11/01/01 A+ A1 500 516,860
-------------------------------------------------------------------
Indiana Transportation
Finance Authority;
Highway Series 1993 A RB
5.50%, 06/01/07(b) AAA Aaa 1,000 1,037,850
-------------------------------------------------------------------
Indianapolis (City of);
Local Public Improvement
Series 1999 D RB
5.00%, 01/01/08 AAA Aaa 1,100 1,107,304
-------------------------------------------------------------------
5.10%, 01/01/09 AAA Aaa 425 429,335
-------------------------------------------------------------------
5.20%, 01/01/10 AAA Aaa 1,400 1,409,828
-------------------------------------------------------------------
Warren (City of)
Independent School
Building Corp;
Refunding First Mortgage
Series 1998 RB
4.30%, 01/05/01(b) AAA Aaa 500 500,935
-------------------------------------------------------------------
4.50%, 01/05/03(b) AAA Aaa 1,500 1,503,060
-------------------------------------------------------------------
12,294,101
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
IOWA-1.27%
Des Moines (City of);
Unlimited Tax Series 1999
A GO
4.80%, 06/01/08 AA+ Aa2 $ 775 $ 765,235
-------------------------------------------------------------------
4.90%, 06/01/09 AA+ Aa2 810 797,713
-------------------------------------------------------------------
Iowa Student Loan Liquidity
Corp.;
Student Loan Series 1992
A RB
6.25%, 03/01/00 -- Aa1 500 503,695
-------------------------------------------------------------------
Muscatine (City of);
Refunding Electric Series
1986 RB
5.00%, 01/01/08 A A3 2,855 2,820,654
-------------------------------------------------------------------
4,887,297
-------------------------------------------------------------------
KANSAS-1.08%
Burlington (City of)
Environmental Improvement
(Kansas City Power and
Light Company Project);
Refunding Series 1998 D
RB
4.35%, 09/01/01(c) A- A2 1,250 1,243,412
-------------------------------------------------------------------
4.50%, 09/01/03(c) A- A2 2,000 1,982,980
-------------------------------------------------------------------
Sedgewick (County of)
Unified School District
#265;
Refunding and Improvement
Unlimited Tax Series 1999
GO
4.35%, 10/01/09(b) -- Aaa 1,000 944,110
-------------------------------------------------------------------
4,170,502
-------------------------------------------------------------------
KENTUCKY-0.80%
Carrollton and Henderson
Public Energy Authority;
Gas Series B 1998 RB
4.20%, 01/01/06(b) AAA Aaa 1,000 967,920
-------------------------------------------------------------------
Kentucky Economic
Development Finance
Authority (Ashland
Hospital Corp.);
Refunding and Improvement
Medical Center Series
1998 RB
4.50%, 02/01/02(b) AAA Aaa 850 852,737
-------------------------------------------------------------------
Kentucky State Property and
Buildings Commission
(Project #64);
Series 1999 RB
5.125%, 05/01/09(b) AAA Aaa 1,000 1,004,840
-------------------------------------------------------------------
Kentucky State Turnpike
Authority (Economic
Development Road
Revitalization Projects);
Series 1990 RB
7.125%, 05/15/00(c)(d) AAA Aaa 260 269,100
-------------------------------------------------------------------
3,094,597
-------------------------------------------------------------------
LOUISIANA-3.46%
Jefferson Parish School
Board;
Sales and Use Tax Series
1995 RB
6.00%, 02/01/04(b) AAA Aaa 1,720 1,813,981
-------------------------------------------------------------------
</TABLE>
FS-13
<PAGE> 108
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
LOUISIANA-(CONTINUED)
Louisiana (State of);
Unlimited Tax Series A GO
Refunding Series 1997,
5.25%, 08/01/03(b) AAA Aaa $2,000 $ 2,061,920
-------------------------------------------------------------------
Series 1993, 6.00%,
04/15/07(b) AAA Aaa 5,000 5,358,950
-------------------------------------------------------------------
Louisiana (State of)
Offshore Terminal
Authority (Loop, Inc.);
Refunding Deepwater Port
1st Stage Series 1992 RB
6.00%, 09/01/01 A A3 1,000 1,021,920
-------------------------------------------------------------------
6.20%, 09/01/03 A A3 1,000 1,042,760
-------------------------------------------------------------------
New Orleans (City of);
Refunding Certificates of
Indebtedness Series 1998
A GO
4.15%, 08/01/01(b) AAA Aaa 2,000 2,004,440
-------------------------------------------------------------------
13,303,971
-------------------------------------------------------------------
MAINE-0.73%
Maine Financial Authority;
Electric Refunding Rate
Stabilization Series 1998
A RB
4.50%, 07/01/08(b) AAA Aaa 1,830 1,775,814
-------------------------------------------------------------------
Regional Waste System Inc.
(Solid Waste Resource
Recovery);
Series 1998 P RB
5.25%, 07/01/03 AA -- 1,000 1,026,510
-------------------------------------------------------------------
2,802,324
-------------------------------------------------------------------
MARYLAND-0.23%
Anne Arundel (County of);
Limited Tax Series 1999
GO
5.00%, 05/15/09 AA+ Aa2 880 883,951
-------------------------------------------------------------------
MASSACHUSETTS-0.63%
Massachusetts (State of)
Consumer Loan;
Unlimited Tax Series 1999
C GO
5.250%, 09/01/08 AA- Aa3 1,000 1,020,620
-------------------------------------------------------------------
Massachusetts (State of)
Health and Educational
Facilities Authority (Eye
and Ear Infirmary);
Series 1998 B RB
5.00%, 07/01/05 A -- 1,000 1,005,370
-------------------------------------------------------------------
New England Education Loan
Marketing Corp;
Refunding Student Loan
Senior Issue 1992 D RB
6.20%, 09/01/00 -- Aaa 400 407,660
-------------------------------------------------------------------
2,433,650
-------------------------------------------------------------------
MICHIGAN-1.03%
Dearborn (City of) Economic
Development Corp.
(Oakwood Obligated
Group);
Hospital Series 1991 A RB
6.95%, 08/15/01(b)(c)(d) AAA Aaa 1,000 1,068,490
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MICHIGAN-(CONTINUED)
Detroit (City of) School
District;
Unlimited Tax Series 1992
GO
5.60%, 05/01/01(b) AA+ Aa2 $ 765 $ 782,511
-------------------------------------------------------------------
Michigan State Building
Authority;
Refunding Series 1991 I
RB
6.40%, 10/01/04 AA Aa2 2,000 2,111,660
-------------------------------------------------------------------
3,962,661
-------------------------------------------------------------------
MINNESOTA-0.20%
Southern Minnesota
Municipal Power Agency;
Unrefunded Power Supply
System Series 1992 A RB
5.60%, 01/01/04 A+ A2 745 771,597
-------------------------------------------------------------------
MISSISSIPPI-1.39%
Gulfport (City of);
Refunding Unlimited Tax
Series 1998 GO
4.50%, 05/01/07(b) -- Aaa 515 503,037
-------------------------------------------------------------------
4.55%, 05/01/08(b) -- Aaa 550 533,643
-------------------------------------------------------------------
Mississippi (State of);
Lease Series 1999 A COP
4.25%, 10/15/00(b) AAA Aaa 4,280 4,299,174
-------------------------------------------------------------------
5,335,854
-------------------------------------------------------------------
MISSOURI-0.49%
Fort Osage Reorganization
School District #1
(Missouri School District
Direct Deposit Program);
Unlimited Tax Series 1997
GO
4.95%, 03/01/06 AA+ Aa1 405 411,196
-------------------------------------------------------------------
Missouri (State of) Health
and Educational
Facilities Authority
(Freeman Health Systems
Project);
Hospital Series 1998 RB
4.85%, 02/15/07(b) A -- 1,000 972,210
-------------------------------------------------------------------
5.00%, 02/15/08(b) A -- 515 502,604
-------------------------------------------------------------------
1,886,010
-------------------------------------------------------------------
MONTANA-0.11%
Montana (State of) Higher
Education Assistance
Corp.;
Student Loan Series 1992
A RB
6.60%, 12/01/00 -- A 420 429,076
-------------------------------------------------------------------
NEVADA-1.84%
Clark (County of)
Improvement District #65
(Lamb Boulevard III);
Series 1992 Special
Assessment
6.20%, 12/01/02 AA- A1 120 123,900
-------------------------------------------------------------------
Las Vegas (City of);
Limited Tax Park Series
1999 GO
5.00%, 08/01/09(b) AAA Aaa 3,000 2,974,560
-------------------------------------------------------------------
</TABLE>
FS-14
<PAGE> 109
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEVADA-(CONTINUED)
Nevada (State of) Capital
Improvement and Cultural
Affairs;
Limited Tax Series 1999 A
GO
5.25%, 02/01/09 AA Aa2 $1,125 $ 1,142,314
-------------------------------------------------------------------
5.00%, 02/01/10 AA Aa2 2,500 2,472,050
-------------------------------------------------------------------
Nevada (State of) Municipal
Bond Bank Project #38-39;
Limited Tax Series 1992 A
GO
6.00%, 07/01/01(d) AA NRR 350 360,549
-------------------------------------------------------------------
7,073,373
-------------------------------------------------------------------
NEW HAMPSHIRE-1.45%
New Hampshire (State of)
Municipal Bond Bank;
Unlimited Tax Series 1999
B GO
5.25%, 08/15/09(b) AAA Aaa 5,465 5,591,351
-------------------------------------------------------------------
NEW JERSEY-2.39%
Gloucester (County of)
Utilities Authority;
Refunding Sewer Series
1991 RB
6.10%, 01/01/00 AA- A1 225 226,127
-------------------------------------------------------------------
Jersey City (City of);
Unlimited Tax School
Series 1992 GO
6.40%, 02/15/00 AA Aa2 1,000 1,009,430
-------------------------------------------------------------------
New Jersey (State of)
Educational Facilities
Authority;
Higher Education
Facilities Trust Fund
Series 1995 A RB
5.125%, 09/01/09(b) AAA Aaa 2,000 2,019,960
-------------------------------------------------------------------
Ocean City (City of);
Unlimited Tax Series 1998
GO
5.00%, 04/01/09(b) AAA Aaa 1,400 1,410,514
-------------------------------------------------------------------
Passaic (County of)
Utilities Authority;
Solid Waste System Series
1999 A RB
4.70%, 03/01/07(b) AAA Aaa 1,970 1,960,189
-------------------------------------------------------------------
4.80%, 03/01/08(b) AAA Aaa 2,040 2,028,760
-------------------------------------------------------------------
Trenton (City of);
Unlimited Tax Series 1992
GO
6.10%, 08/15/02(b) AAA Aaa 500 526,295
-------------------------------------------------------------------
9,181,275
-------------------------------------------------------------------
NEW MEXICO-2.01%
Albuquerque (City of) Joint
Water and Sewer System;
Series 1990 A RB
6.00%, 07/01/00(c)(d) AAA NRR 1,000 1,016,400
-------------------------------------------------------------------
Farmington (City of) (San
Juan Regional Medical
Center);
Hospital Series A RB
5.00% 06/01/01(b) -- Aaa 1,015 1,028,449
-------------------------------------------------------------------
New Mexico (State of);
Severance Tax Series 1999
B RB
5.00% 07/01/06 AA Aa2 5,100 5,153,142
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW MEXICO-(CONTINUED)
Santa Fe (City of);
Series 1994 RB
5.50% 06/01/03(d) AAA Aaa $ 500 $ 518,355
-------------------------------------------------------------------
7,716,346
-------------------------------------------------------------------
NEW YORK-7.82%
Long Island Power Authority
(Electric System);
Series 1998 A RB
5.25%, 12/01/02 A- Baa1 1,250 1,277,212
-------------------------------------------------------------------
Nassau (County of);
Unlimited Tax General
Improvement Series 1997 V
GO
5.15%, 03/01/07(b) AAA Aaa 5,000 5,082,850
-------------------------------------------------------------------
New York (City of);
Refunding Series 1996 D
GO 5.60%, 11/01/05 A- A3 5,000 5,216,350
-------------------------------------------------------------------
New York (City of);
Unlimited Tax Series 1996
G GO
5.90%, 02/01/05 A- A3 1,150 1,210,363
-------------------------------------------------------------------
New York (City of);
Unlimited Tax Series 1999
H GO
5.00%, 03/15/09 A- A3 1,830 1,806,924
-------------------------------------------------------------------
New York (City of) Transit
Authority (Metropolitan
Transportation
Authority);
Triborough Series 1999 A
COP
5.00%, 01/01/08(b) AAA Aaa 1,000 1,005,290
-------------------------------------------------------------------
New York (State of)
Dormitory Authority;
Mental Health Facilities
Series 1997 A RB
6.00%, 02/15/05 A- A3 1,000 1,057,510
-------------------------------------------------------------------
6.00%, 08/15/07 A- A3 1,775 1,891,458
-------------------------------------------------------------------
New York (State of)
Dormitory Authority (Pace
University Issue);
Series 1997 RB
6.00%, 07/01/07(b) AAA Aaa 1,275 1,371,110
-------------------------------------------------------------------
New York (State of)
Dormitory Authority
(Upstate Community
Colleges);
Series 1999 A RB
4.375%, 07/01/09(b) AAA Aaa 1,000 948,510
-------------------------------------------------------------------
New York (State of) Medical
Care Facilities (Hospital
and Nursing Home);
Financial Agency
Series 1995 A RB
5.60%, 02/15/05(b) AAA -- 1,105 1,118,669
-------------------------------------------------------------------
New York (State of) Tollway
Authority;
General Series 1997 D RB
5.40%, 01/01/10 AA- Aa3 5,000 5,097,900
-------------------------------------------------------------------
</TABLE>
FS-15
<PAGE> 110
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW YORK-(CONTINUED)
Triborough Bridge and
Tunnel Authority;
General Purpose Series 1994
A RB
4.80%, 01/01/08 A+ Aa3 $3,000 $ 2,973,630
-------------------------------------------------------------------
30,057,776
-------------------------------------------------------------------
NORTH CAROLINA-2.04%
Coastal Regional Solid
Waste Management
Authority (Solid Waste
Disposal System);
Refunding Series 1999 RB
4.00%, 06/01/04(b) AAA Aaa 1,775 1,729,276
-------------------------------------------------------------------
North Carolina Municipal
Power Agency #1 (Catawba
Electric);
Electrical Series RB
5.25%, 01/01/07(b) AAA Aaa 1,000 1,018,600
-------------------------------------------------------------------
North Carolina (State of)
(Public Improvement);
Unlimited Tax Series 1999
A GO
5.25%, 03/01/10 AAA Aaa 5,000 5,096,150
-------------------------------------------------------------------
7,844,026
-------------------------------------------------------------------
NORTH DAKOTA-0.24%
Fargo (City of);
Refunding Water Series
1997 RB
5.50%, 01/01/08(b) AAA Aaa 905 937,028
-------------------------------------------------------------------
OHIO-2.22%
Franklin (County of);
Limited Tax Series 1991
GO
6.30%, 12/01/01(c)(d) NRR NRR 1,500 1,592,235
-------------------------------------------------------------------
Greene (County of) Water
System;
Series 1996 A RB
5.45%, 12/01/06(b) AAA Aaa 585 612,085
-------------------------------------------------------------------
Hilliard (City of) School
District;
Refunding Unlimited Tax
Series 1992 GO
6.05%, 12/01/00(b) AAA Aaa 500 512,800
-------------------------------------------------------------------
6.15%, 12/01/01(b) AAA Aaa 250 260,875
-------------------------------------------------------------------
Lucas (County of) (St.
Vincent's Medical
Center);
Hospital Improvement
Series A 1990 RB
6.75%, 08/15/20(b) AAA Aaa 2,000 2,083,060
-------------------------------------------------------------------
Ohio (State of) Highway
Capital Improvement;
Unlimited Tax Series 1999
D GO
4.50%, 05/01/08 AAA Aa1 2,000 1,948,580
-------------------------------------------------------------------
Ohio (State of);
(Elementary & Secondary
Education Facilities);
Special Obligation Series
1997 A RB
5.10%, 12/01/05 AA- Aa2 1,500 1,534,065
-------------------------------------------------------------------
8,543,700
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OKLAHOMA-1.28%
Mustang (City of)
Improvement Authority;
Utility Series 1999 RB
5.25%, 10/01/09(b) -- Aaa $1,130 $ 1,153,775
-------------------------------------------------------------------
Norman (City of) Regional
Hospital Authority;
Refunding Series 1996 A
RB
5.20%, 09/01/06(b) AAA Aaa 310 318,854
-------------------------------------------------------------------
5.30%, 09/01/07(b) AAA Aaa 1,090 1,124,727
-------------------------------------------------------------------
Oklahoma (State of) Capitol
Improvement Authority;
State Facilities Series
1999 A RB
5.00%, 09/01/09(b) AAA Aaa 1,000 1,001,500
-------------------------------------------------------------------
Oklahoma (State of) Housing
Finance Agency;
Single Family Mortgage
Series 1991 A RB
6.55%, 03/01/00(b) AAA Aaa 80 80,800
-------------------------------------------------------------------
Southern Oklahoma Memorial
Hospital Authority;
Hospital Series 1993 A RB
5.60%, 02/01/00(d) NRR NRR 1,250 1,256,925
-------------------------------------------------------------------
4,936,581
-------------------------------------------------------------------
OREGON-1.22%
Cow Creek Band (Umpqua
Tribe of Indians);
Series 1998 B RB
4.25%, 07/01/03(b)(f)
(Acquired 08/18/98; Cost
$980,000) AAA Aaa 980 973,258
-------------------------------------------------------------------
Grande Ronde (City of)
Community Confederated
Tribes (Governmental
Facilities and
Infrastructure);
Unlimited Tax Series 1997
GO
5.00%, 12/01/07(b) AAA Aaa 1,145 1,158,694
-------------------------------------------------------------------
Portland (City of);
Sewer System Series 1994
A RB
5.45%, 06/01/03 A+ A1 1,065 1,101,955
-------------------------------------------------------------------
5.55%, 06/01/04 A+ A1 500 520,945
-------------------------------------------------------------------
Salem (City of) Hospital
Facilities Authority
(Salem Hospital);
Series 1998 RB
4.20%, 08/15/08 AA- -- 1,000 928,320
-------------------------------------------------------------------
4,683,172
-------------------------------------------------------------------
PENNSYLVANIA-5.50%
Fayette (County of)
Hospital Authority (Union
Town Hospital);
Refunding Series 1996 RB
4.85%, 06/15/01(b) AAA -- 1,000 1,010,950
-------------------------------------------------------------------
Lackawanna (County of);
Unlimited Tax Series 1999
A GO
4.40%, 01/01/09(b) AAA Aaa 510 485,005
-------------------------------------------------------------------
</TABLE>
FS-16
<PAGE> 111
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
PENNSYLVANIA-(CONTINUED)
Lehigh (County of) General
Purpose Authority
(Kidspeace Obligation
Group);
Series 1998 RB
5.70%, 11/01/09(b) A -- $1,000 $ 1,004,510
-------------------------------------------------------------------
Pennsylvania (State of)
Higher Educational
Facilities Authority;
Series 1999 RB
4.40%, 07/01/07(b) AAA Aaa 1,595 1,547,038
-------------------------------------------------------------------
4.50%, 07/01/08(b) AAA Aaa 1,525 1,474,583
-------------------------------------------------------------------
4.55%, 07/01/09(b) AAA Aaa 750 720,263
-------------------------------------------------------------------
Pennsylvania (State of)
Higher Educational
Facilities Authority
(UPMC Health System);
Series A RB
5.00%, 08/01/09(b) AAA Aaa 4,000 3,963,000
-------------------------------------------------------------------
Philadelphia (City of)
Hospitals and Higher
Education Facilities
Authority (St. Agnes
Medical Center);
Series 1996 A RB
5.00%, 07/01/05(b) AAA Aaa 865 865,571
-------------------------------------------------------------------
Philadelphia (City of) Gas
Works;
Sixteenth Series 1999 RB
5.25%, 07/01/08(b) AAA Aaa 4,000 4,078,280
-------------------------------------------------------------------
York (City of) General
Authority;
Variable Rate Demand
Pooled Financing Series
1996 RB
(LOC-First Union National
Bank)
3.85%, 09/01/26(e) A-1 -- 5,978 5,978,000
-------------------------------------------------------------------
21,127,200
-------------------------------------------------------------------
RHODE ISLAND-0.28%
Rhode Island (State of);
Refunding Unlimited Tax
Series 1992 GO
6.10%, 06/15/03(b) AAA Aaa 1,000 1,058,360
-------------------------------------------------------------------
SOUTH CAROLINA-2.60%
Charleston (County of)
(Care Alliance Health
Services);
Series 1999 A RB
4.40%, 08/15/08(b) AAA Aaa 3,000 2,886,810
-------------------------------------------------------------------
Medical University of South
Carolina;
Hospital Facilities
Series 1999 RB
5.50%, 07/01/09 A A3 1,000 991,000
-------------------------------------------------------------------
Piedmont (City of)
Municipal Power Agency;
Refunding Series 1996 B
RB
5.25%, 01/01/09(b) AAA Aaa 5,000 5,072,700
-------------------------------------------------------------------
South Carolina (State of)
Public Service Authority;
Series 1999 A RB
5.25%, 01/01/10(b) AAA Aaa 1,000 1,030,710
-------------------------------------------------------------------
9,981,220
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
SOUTH DAKOTA-0.52%
Rapid City (City of);
Sales Tax Series 1995 A
RB
5.60%, 06/01/05(b) AAA Aaa $ 255 $ 266,651
-------------------------------------------------------------------
South Dakota Health and
Educational Facility
(McKennan Hospital);
Refunding Series 1996 RB
5.40%, 07/01/06(b) AAA Aaa 1,680 1,735,373
-------------------------------------------------------------------
2,002,024
-------------------------------------------------------------------
TENNESSEE-1.85%
Franklin Special School
District;
Limited Tax School Series
1999 GO
5.25%, 06/01/09 -- Aa2 1,160 1,181,912
-------------------------------------------------------------------
Nashville and Davidson
(County of) Health and
Education Facilities
Board (Welch Bend
Apartments);
Multifamily Housing
Series 1996 A RB
5.50%, 01/01/07(c) AAA -- 2,700 2,749,896
-------------------------------------------------------------------
Nashville and Davidson
(County of) Metropolitan
Government Health and
Educational Facilities
Board (Meharry Medical
College);
Series 1979 RB
7.875%, 12/01/04(d) NRR Aaa 845 913,876
-------------------------------------------------------------------
Tennergy Corp.;
Gas Series 1999 RB
4.125%, 06/01/09(b) AAA Aaa 1,000 932,120
-------------------------------------------------------------------
Tennessee Housing
Development Agency;
Mortgage Financing
Refunding Series 1993 A
RB
5.65%, 01/01/07 A+ A1 1,325 1,345,604
-------------------------------------------------------------------
7,123,408
-------------------------------------------------------------------
TEXAS-13.81%
Alamo Community College
District;
Limited Tax Series 1990
GO
6.90%, 02/15/00(c)(d) NRR AAA 500 505,600
-------------------------------------------------------------------
Beaumont (City of)
Waterworks and Sewer
System;
Refunding Series 1998 RB
5.25%, 09/01/08(b) AAA Aaa 1,280 1,307,328
-------------------------------------------------------------------
Beaumont (Port of)
Navigation Distribution;
Refunding and Improvement
Unlimited Tax Series 1999
A GO
5.00%, 03/01/09(b) AAA Aaa 1,000 999,210
-------------------------------------------------------------------
Bexar (County of) Housing
Finance Authority
(Fountainhead Apts.);
Refunding Variable Rate
Demand Multifamily Series
RB
3.75%, 09/15/26(e) A-1+ -- 2,827 2,827,000
-------------------------------------------------------------------
</TABLE>
FS-17
<PAGE> 112
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Canadian River Municipal
Water Authority (Bureau
of Reclamation Project);
Refunding Texas Contract
Series 1999 RB
4.35%, 10/01/09(b) AAA Aaa $ 615 $ 579,705
-------------------------------------------------------------------
Canadian River Municipal
Water Authority
(Conjunctive Use
Groundwater);
Refunding Texas Contract
Series 1999 RB
5.00%, 02/15/09(b) -- Aaa 1,955 1,941,901
-------------------------------------------------------------------
5.00%, 02/15/10(b) -- Aaa 2,655 2,625,264
-------------------------------------------------------------------
Central Texas College
District;
Building Series 1999 RB
4.625%, 05/15/09(b) AAA Aaa 1,135 1,099,406
-------------------------------------------------------------------
Cleburne (City of)
Waterworks and Sewer;
Series 1999 RB
5.50%, 02/15/10(b) AAA Aaa 1,395 1,421,086
-------------------------------------------------------------------
Collin (County of);
Limited Tax Permanent
Improvement Series 1999
GO
5.25%, 02/15/08 AA Aa1 720 735,588
-------------------------------------------------------------------
5.25%, 02/15/09 AA Aa1 755 767,797
-------------------------------------------------------------------
Comal County Industrial
Development Authority
(Coleman Company, Inc.
Project);
Series 1980 IDR
9.25%, 08/01/00(d) NRR NRR 170 173,451
-------------------------------------------------------------------
Conroe (City of)
Independent School
District;
Unlimited School Tax
Series 1991 GO
7.375%, 02/01/01(b) AAA Aaa 115 119,760
-------------------------------------------------------------------
Gatesville Independent
School District;
Unlimited Tax School
Refunding and Building
Series 1995 GO
5.80%, 02/01/03(b) -- Aaa 485 506,044
-------------------------------------------------------------------
Harris (County of) (Port of
Houston Authority);
Series 1977 RB
5.75%, 05/01/02 A A2 805 813,622
-------------------------------------------------------------------
5.75%, 05/01/02(b) AAA Aaa 810 819,129
-------------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Christus Health);
Series 1999 A RB
5.375%, 07/01/08 AAA Aaa 1,000 1,022,650
-------------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Memorial Hospital
System Project);
Hospital Series 1992 RB
6.70%, 06/01/00(d) NRR NRR 1,000 1,018,730
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Harris County Health
Facilities Development
Corp. (School Health Care
System Project);
Series 1997 B RB
5.10%, 07/01/06(d) NRR NRR $1,000 $ 1,018,180
-------------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Texas Children's
Hospital Project);
Series 1999 A RB
5.00%, 10/01/08 AA Aa2 1,565 1,536,141
-------------------------------------------------------------------
5.00%, 10/01/09 AA Aa2 1,920 1,867,066
-------------------------------------------------------------------
Keller (City of)
Independent School
District;
Series 1994 COP
5.75%, 08/15/01(b) AAA Aaa 915 941,407
-------------------------------------------------------------------
Kerrville (City of);
Refunding Electric Series
1991 RB
6.375%, 11/01/01(b) AAA Aaa 185 193,236
-------------------------------------------------------------------
Killeen (City of);
Refunding Limited Tax
Series 1999 GO
4.30%, 08/01/09(b) AAA Aaa 1,170 1,097,448
-------------------------------------------------------------------
La Joya Independent School
District;
Unlimited Tax Series 1998
GO
5.375%, 02/15/10(b) AAA Aaa 1,535 1,562,292
-------------------------------------------------------------------
La Marque Independent
School District;
Unlimited Tax Series 1992
GO
7.50%, 08/15/02(b) AAA Aaa 750 814,958
-------------------------------------------------------------------
Lower Colorado River
Authority;
Sixth Supplement Jr. Lien
Series 1996 RB
5.00%, 01/01/09 NRR NRR 850 842,503
-------------------------------------------------------------------
Lubbock (City of);
Series 1999 COP
5.00%, 02/15/10 AA Aa2 680 672,921
-------------------------------------------------------------------
Lubbock Health Facility
Development Corp.
(Methodist Hospital);
Series 1993 B RB
5.40%, 12/01/05(d) AAA Aaa 500 520,385
-------------------------------------------------------------------
Plano Independent School
District;
Unlimited Tax Series 1994
GO
5.80%, 02/15/05(b) AAA Aaa 2,025 2,118,272
-------------------------------------------------------------------
San Antonio (City of);
Refunding and Improvement
Limited Tax Series 1996 A
GO
5.00%, 08/01/09 AA+ Aa2 3,925 3,918,681
-------------------------------------------------------------------
San Antonio (City of)
Electric and Gas;
Refunding Series 1998 A
RB
5.25%, 02/01/10 AA Aa1 8,500 8,566,725
-------------------------------------------------------------------
</TABLE>
FS-18
<PAGE> 113
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Tarrant (County of) Housing
Finance Corp. (Arbors On
the Park II);
Multifamily Housing Series
1990 RB
5.05%, 12/01/07 AAA -- $1,450 $ 1,430,860
-------------------------------------------------------------------
Temple (City of);
Refunding Limited Tax
Series 1992 GO
5.80%, 02/01/01(b) AAA Aaa 250 255,335
-------------------------------------------------------------------
Texas Municipal Power
Agency;
Series 1992 RB
5.75%, 09/01/02(c)(d) AAA Aaa 1,000 1,039,720
-------------------------------------------------------------------
Texas (State of) Turnpike
Authority (Addison
Airport Toll Tunnel
Project);
Dallas North Tollway
Series 1994 RB
6.30%, 01/01/05(b) AAA Aaa 500 537,445
-------------------------------------------------------------------
Texas (State of) Water
Development Board (State
Revolving Fund);
Sr. Lien Series 1999 A RB
5.50%, 07/01/09 AAA Aa1 1,000 1,032,750
-------------------------------------------------------------------
University of Texas
(Financing System);
Series 1996 B RB
4.80%, 08/15/09 AAA Aa1 1,650 1,620,680
-------------------------------------------------------------------
Series 1999 B RB
5.50%, 08/15/09 AAA Aa1 1,000 1,034,550
-------------------------------------------------------------------
Weatherford (City of)
Utility System;
Refunding and Improvement
Series 1999 RB
4.35%, 09/01/09(b) AAA Aaa 1,275 1,202,249
-------------------------------------------------------------------
53,107,075
-------------------------------------------------------------------
UTAH-0.87%
Intermountain Power Agency
(Utah Power Supply);
Refunding Series 1997 B
RB
6.00%, 07/01/07(b) AAA Aaa 1,000 1,074,720
-------------------------------------------------------------------
Utah (State of) Associated
Municipal Power System
(Hunter Project);
Refunding Series 1994 RB
5.00%, 07/01/09(b) AAA Aaa 1,500 1,487,340
-------------------------------------------------------------------
Utah (State of) Housing
Finance Agency;
Single Family Mortgage
Series 1999 E-II RB
4.95%, 07/01/06 AAA Aaa 250 249,555
-------------------------------------------------------------------
Utah (State of) (Board of
Water Resource Program);
Revolving Fund
Recapitalization Series
1992 B RB
6.10%, 04/01/02 AA -- 500 521,145
-------------------------------------------------------------------
3,250 3,332,760
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
VIRGINIA-0.64%
Hampton Roads Medical
College;
Refunding General Series
1991 A RB
6.00%, 11/15/99 A- -- $ 605 $ 606,440
-------------------------------------------------------------------
Norfolk (City of)
Redevelopment and Housing
Authority (Tidewater
Community College
Campus);
Educational Facility
Series 1995 RB
5.30%, 11/01/04 AA A2 535 553,463
-------------------------------------------------------------------
5.40%, 11/01/05 AA A2 500 518,820
-------------------------------------------------------------------
Portsmouth (City of);
Refunding Unlimited Tax
Port Improvement Series
1992 GO
6.40%, 11/01/03 AA- A3 450 465,826
-------------------------------------------------------------------
Portsmouth (City of);
Refunding Unlimited Tax
Public Utility Series
1992 GO
5.90%, 11/01/01 AA- A3 300 317,415
-------------------------------------------------------------------
2,461,964
-------------------------------------------------------------------
WASHINGTON-2.57%
King (County of);
Sewer Series 1994 A RB
5.80%, 01/01/04(c)(d) NRR Aaa 1,000 1,063,750
-------------------------------------------------------------------
Lewis (County of) Public
Utility District #1
(Cowlitz Falls
Hydroelectronics);
Refunding Series 1993 RB
5.375%, 10/01/08 AA- Aa1 1,000 1,022,830
-------------------------------------------------------------------
Seattle (City of);
Refunding Limited Tax
Series GO
6.40%, 10/01/01(d) NRR NRR 250 260,485
-------------------------------------------------------------------
Seattle (Port of);
Series 1992 A RB
6.00%, 11/01/01 AA- Aa3 500 517,365
-------------------------------------------------------------------
Snohomish (County of)
Public Utilities District
#1;
Electric Generation
System Series 1993 RB
5.70%, 01/01/06(b) AAA Aaa 4,000 4,196,040
-------------------------------------------------------------------
Washington (State of);
Refunding Unlimited Tax
Series 1999 R 2000A GO
5.25%, 01/01/07 AA+ Aa1 500 512,475
-------------------------------------------------------------------
Washington (State of)
Health Care Facilities
Authority;
Providence Services
Series 1999 RB
5.50%, 12/01/09(b) AAA Aaa 2,275 2,325,642
-------------------------------------------------------------------
9,898,587
-------------------------------------------------------------------
WISCONSIN-1.98%
Oak Creek (City of);
Waterworks Systems Series
1998 BAN
3.90%, 09/01/00 -- MIG1 1,000 1,000,240
-------------------------------------------------------------------
</TABLE>
FS-19
<PAGE> 114
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WISCONSIN-(CONTINUED)
Wisconsin (State of) Health
& Educational Facilities
Authority; (Benedictine
Health);
Health Care Series 1999 B
RB
5.00%, 02/15/09(b) AAA -- $1,185 $ 1,175,319
-------------------------------------------------------------------
Wisconsin (State of) Health
& Educational Facilities
Authority (Charity
Obligation Group);
Hospital Series 1997 D RB
4.90%, 11/01/05(c) NRR NRR 2,190 2,177,429
-------------------------------------------------------------------
Wisconsin (State of) Health
& Educational Facilities
Authority (Marshfield
Clinic);
Series 1997 RB
5.20%, 02/15/07(b) AAA Aaa 3,210 3,278,662
-------------------------------------------------------------------
7,631,650
-------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WYOMING-0.26%
Wyoming Building Corp.;
Series 1998 RB
4.25%, 10/01/01(b) AAA Aaa $1,000 $ 1,002,640
-------------------------------------------------------------------
TOTAL INVESTMENTS-103.70%
(Cost $398,347,455) 398,636,416
-------------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(3.70)% (14,222,339)
-------------------------------------------------------------------
NET ASSETS-100.00% $384,414,077
===================================================================
</TABLE>
Investment Abbreviations:
BAN - Bond Anticipation Notes
COP - Certificates of Participation
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
NRR - Not Re-Rated
RB - Revenue Bonds
RAN - Revenue Anticipation Notes
Sr. - Senior
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.
(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 September 30, 1999.
(f) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of this security has been determined in
accordance with procedures established by the Board of Directors. The market
value of this security at 09/30/99 represented 0.25% of the Fund's net
assets.
See Notes to Financial Statements.
FS-20
<PAGE> 115
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$398,347,455) $ 398,636,416
---------------------------------------------------------
Cash 452
---------------------------------------------------------
Receivables for:
Capital stock sold 2,513,805
---------------------------------------------------------
Interest 4,790,419
---------------------------------------------------------
Investment for deferred compensation plan 25,186
---------------------------------------------------------
Other assets 45,180
---------------------------------------------------------
Total assets 406,011,458
---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 14,218,059
---------------------------------------------------------
Capital stock reacquired 6,792,132
---------------------------------------------------------
Dividends 388,119
---------------------------------------------------------
Deferred compensation plan 25,186
---------------------------------------------------------
Accrued administrative services fees 6,269
---------------------------------------------------------
Accrued advisory fees 94,292
---------------------------------------------------------
Accrued directors' fees 2,000
---------------------------------------------------------
Accrued transfer agent fees 9,074
---------------------------------------------------------
Accrued operating expenses 62,250
---------------------------------------------------------
Total liabilities 21,597,381
---------------------------------------------------------
Net assets applicable to shares
outstanding $ 384,414,077
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 35,544,044
=========================================================
Net asset value and redemption price per
share $ 10.82
=========================================================
Offering price per share:
(Net asset value of $10.82 divided
by 99.00%) $ 10.93
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 7,576,290
--------------------------------------------------------
EXPENSES:
Advisory fees 485,026
--------------------------------------------------------
Administrative services fees 24,949
--------------------------------------------------------
Custodian fees 8,014
--------------------------------------------------------
Transfer agent fees 40,019
--------------------------------------------------------
Registration and filing fees 76,053
--------------------------------------------------------
Directors' fees 4,277
--------------------------------------------------------
Other 67,042
--------------------------------------------------------
Total expenses 705,380
--------------------------------------------------------
Less: Expenses paid indirectly (1,557)
--------------------------------------------------------
Net expenses 703,823
--------------------------------------------------------
Net investment income 6,872,467
--------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (825,433)
--------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (7,716,427)
--------------------------------------------------------
Net gain (loss) on investment
securities (8,541,860)
--------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(1,669,393)
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-21
<PAGE> 116
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 1999 and the year ended March 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
--------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,872,467 $ 9,178,235
---------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (825,433) 409,752
---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (7,716,427) 966,924
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (1,669,393) 10,554,911
---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (6,872,470) (9,191,201)
---------------------------------------------------------------------------------------------
Distributions in excess of net investment income (332,094) (47,638)
---------------------------------------------------------------------------------------------
Net increase from capital stock transactions 148,788,565 42,214,423
---------------------------------------------------------------------------------------------
Net increase in net assets 139,914,608 43,530,495
---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 244,499,469 200,968,974
---------------------------------------------------------------------------------------------
End of period $384,414,077 $244,499,469
=============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $386,032,994 $237,244,429
---------------------------------------------------------------------------------------------
Undistributed net investment income (356,286) (24,189)
---------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (1,551,592) (726,159)
---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 288,961 8,005,388
---------------------------------------------------------------------------------------------
$384,414,077 $244,499,469
=============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
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, 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.
FS-22
<PAGE> 117
B. Securities Transactions and Investment Income -- Securities transactions are
recorded on a trade date basis. Realized gains and losses are computed on the
basis of specific identification of the securities sold. Interest income,
adjusted for amortization of premiums and original issue discounts, is earned
from settlement date and is recorded on the accrual basis.
C. Dividends and Distributions to Shareholders -- It is the policy of the Fund
to declare daily dividends from net investment income. Such dividends are
paid monthly. Net realized capital gains (including net short-term capital
gains and market discounts), if any, are distributed annually.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward (which may be carried forward to offset future taxable capital
gains, if any) of $717,161, 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 pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the six months ended September 30, 1999,
AIM was paid $24,949 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 six months ended September 30,
1999, the AFS was paid $23,192 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
$33,071 from sales of capital stock during the six months ended September 30,
1999. 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 six months ended September 30, 1999, the Fund paid legal fees of
$2,247 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended September 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $1,557 under an expense
offset arrangement. The effect of the above arrangement resulted in a reduction
of the Fund's total expenses of $1,557 during the six months ended September 30,
1999.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to directors who are 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. During the six
months ended September 30, 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 0.09% 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. Prior to May 28, 1999, the commitment fee rate was
0.05%.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended September 30, 1999 was
$188,370,997 and $39,453,463, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of September 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 3,469,977
---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,181,016)
---------------------------------------------------------
Net unrealized appreciation of investment
securities $ 288,961
---------------------------------------------------------
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
FS-23
<PAGE> 118
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended September 30,
1999 and the year ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 22,133,243 $242,634,563 11,532,083 $128,215,321
-------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 456,982 4,887,058 488,076 5,429,472
-------------------------------------------------------------------------------------------------------------------
Reacquired (9,022,360) (98,733,056) (8,238,608) (91,430,370)
-------------------------------------------------------------------------------------------------------------------
13,567,865 $148,788,565 3,781,551 $ 42,214,423
===================================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during the six months ended September 30, 1999 and for each of the
years in the five-year period ended March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, ------------------------------------------------------
1999 1999 1998 1997 1996 1995
--------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.13 $ 11.05 $ 10.73 $10.79 $10.67 $10.62
------------------------------------------------------ -------- -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.24 0.49 0.50 0.50 0.52 0.49
------------------------------------------------------ -------- -------- -------- -------- ------- -------
Net gains (losses) on securities (both realized
and unrealized) (0.30) 0.08 0.32 (0.04) 0.12 0.04
------------------------------------------------------ -------- -------- -------- -------- ------- -------
Total from investment operations (0.06) 0.57 0.82 0.46 0.64 0.53
------------------------------------------------------ -------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income (0.25) (0.49) (0.50) (0.52) (0.52) (0.48)
------------------------------------------------------ -------- -------- -------- -------- ------- -------
Net asset value, end of period $ 10.82 $ 11.13 $ 11.05 $10.73 $10.79 $10.67
====================================================== ======== ======== ======== ======== ======= =======
Total return(a) (0.58)% 5.27% 7.79% 4.33% 6.06% 5.17%
====================================================== ======== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $384,414 $244,499 $200,969 $173,342 $83,066 $82,355
====================================================== ======== ======== ======== ======== ======= =======
Ratio of expenses (exclusive of interest) to average
net assets 0.44%(b) 0.46% 0.45% 0.56% 0.65% 0.59%
====================================================== ======== ======== ======== ======== ======= =======
Ratio of net investment income to average net assets 4.25%(b) 4.43% 4.56% 4.63% 4.81% 4.65%
====================================================== ======== ======== ======== ======== ======= =======
Portfolio turnover rate 13% 32% 22% 26% 32% 75%
====================================================== ======== ======== ======== ======== ======= =======
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are annualized and based on average net assets of $322,466,939.
FS-24
<PAGE> 119
SCHEDULE OF INVESTMENTS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MUNICIPAL
OBLIGATIONS-98.00%
EDUCATION-5.54%
Connecticut Health and
Education Facilities
Authority (Fairfield
University);
Series I RB
5.375%, 07/01/22(b) AAA Aaa $ 250 $ 241,548
----------------------------------------------------------------
Connecticut Regional
School District No. 5;
Unlimited Tax Series
1992 GO
6.00%, 03/01/02(c)(d) AAA Aaa 335 354,470
----------------------------------------------------------------
Connecticut Regional
School District No. 5
(Towns of Bethany,
Orange, and
Woodbridge);
Unlimited Tax Series
1993 GO
5.50%, 02/15/07(b) AAA Aaa 500 518,605
----------------------------------------------------------------
Connecticut State Higher
Education Supplemental
Loan Authority (Family
Education Loan
Program);
Series 1990 A RB
7.50%, 11/15/10(e) -- A1 1,085 1,099,441
----------------------------------------------------------------
2,214,064
----------------------------------------------------------------
ELECTRIC-4.09%
Connecticut Development
Authority (New England
Power Co.);
Series 1985 Fixed Rate
PCR
7.25%, 10/15/99(c)(d) A A1 1,600 1,633,504
----------------------------------------------------------------
GENERAL OBLIGATION-11.58%
Bridgeport (Town of),
Connecticut;
Unlimited Tax Series A
GO
6.00%, 09/01/06(b) AAA Aaa 875 942,978
----------------------------------------------------------------
Brooklyn (City of),
Connecticut;
Unlimited Tax Series GO
5.50%, 05/01/06(b) AAA Aaa 250 260,612
----------------------------------------------------------------
5.70%, 05/01/08(b) AAA Aaa 250 262,033
----------------------------------------------------------------
Chester (Town of),
Connecticut;
Unlimited Tax Series
1989 GO
7.00%, 10/01/05 -- A2 190 196,372
----------------------------------------------------------------
Connecticut (State of)
(General Purpose Public
Improvement);
Unlimited Tax Series
1991 A GO
6.75%, 03/01/01(c)(d) AA -- 200 210,850
----------------------------------------------------------------
Unlimited Tax Series
1992 A GO
6.50%, 03/15/02(c)(d) AA -- 300 320,703
----------------------------------------------------------------
6.75%, 03/01/11(c)(d) AA -- 480 506,040
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GENERAL OBLIGATION-(CONTINUED)
Mansfield (City of),
Connecticut;
Unlimited Tax Series
1990 GO
6.00%, 06/15/07 -- A1 $ 100 $ 107,570
----------------------------------------------------------------
6.00%, 06/15/08 -- A1 100 107,630
----------------------------------------------------------------
6.00%, 06/15/09 -- A1 100 107,680
----------------------------------------------------------------
New Britain (City of),
Connecticut;
Unlimited Tax Series
1992 Various Purpose GO
6.00%, 02/01/11(b) AAA Aaa 400 429,572
----------------------------------------------------------------
North Canaan (City of),
Connecticut;
Unlimited Tax Series
1991 GO
6.50%, 01/15/08 -- A3 125 138,016
----------------------------------------------------------------
6.50%, 01/15/09 -- A3 125 138,478
----------------------------------------------------------------
6.50%, 01/15/10 -- A3 125 138,535
----------------------------------------------------------------
6.50%, 01/15/11 -- A3 125 138,835
----------------------------------------------------------------
Somers (City of),
Connecticut;
Unlimited Tax Series
1990 Various Purpose GO
6.00%, 12/01/10 -- A1 190 204,733
----------------------------------------------------------------
Westbrook (City of),
Connecticut;
Unlimited Tax Series
1992 GO
6.40%, 03/15/10(b) AAA Aaa 380 422,207
----------------------------------------------------------------
4,632,844
----------------------------------------------------------------
HEALTH CARE-19.58%
Connecticut Development
Authority (Elim Park
Baptist Home);
Refunding Series A RB
5.375%, 12/01/18 BBB+ -- 500 457,220
----------------------------------------------------------------
Connecticut Development
Authority (Life Care
Facility-Seabury);
Refunding Series RB
5.00%, 09/01/15(b) AA -- 500 463,195
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Bridgeport
Hospital);
Series 1992 A RB
6.625%, 07/01/18(b) AAA Aaa 500 528,715
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Capital
Asset);
Series 1989 B RB
7.00%, 01/01/00(c) AAA Aaa 200 201,546
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Child Care
Facilities);
Series A RB
5.00%, 07/01/28(b) AAA -- 250 220,580
----------------------------------------------------------------
</TABLE>
FS-25
<PAGE> 120
<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);
Series 1991 E RB
6.50%, 07/01/14(b) AAA Aaa $ 750 $ 783,360
----------------------------------------------------------------
Series G RB
5.625%, 07/01/25(b) AAA Aaa 500 490,950
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Hospital For
Special Care);
Series 1997 B RB
5.375%, 07/01/17 BBB Baa2 500 460,480
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Middlesex
Hospital);
Series 1992 G RB
6.25%, 07/01/02(c)(d) AAA Aaa 1,100 1,176,428
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (New Britain
Memorial Hospital);
Series 1991 A RB
7.75%, 07/01/02(c)(d) AAA -- 500 553,935
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Stamford
Hospital);
Series F RB
5.40%, 07/01/09(b) AAA Aaa 1,000 1,030,100
----------------------------------------------------------------
Series G RB
5.00%, 07/01/24(b) AAA Aaa 200 178,380
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Veteran
Memorial Medical
Center);
Series 1996 A RB
5.50%, 07/01/26(b) AAA Aaa 500 478,390
----------------------------------------------------------------
Connecticut Health and
Education Facilities
Authority (Yale-New
Haven Hospital);
Series 1990 F RB
7.10%, 07/01/00(c)(d) AAA NRR 775 809,231
----------------------------------------------------------------
7,832,510
----------------------------------------------------------------
HOUSING-20.86%
Connecticut Housing
Development Authority
(Housing Mortgage
Finance Program); RB
Series C,
7.00%, 11/15/99(e) AA Aa2 225 225,650
----------------------------------------------------------------
Series 1991 C,
Sub-Series C-3,
6.55%, 11/15/13 AA Aa2 310 325,314
----------------------------------------------------------------
Series D-2,
5.45%, 11/15/24(e) AA Aa2 1,250 1,181,400
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
HOUSING-(CONTINUED)
Connecticut (State of)
(Housing Mortgage
Finance Program); RB
Series A-1, 5.70%,
05/15/08 AA Aa2 $ 100 $ 102,347
----------------------------------------------------------------
Series A-1, 5.00%,
05/15/17 AA Aa2 250 235,463
----------------------------------------------------------------
Series E-1, 5.95%,
05/15/17 AA Aa2 500 512,680
----------------------------------------------------------------
Series 1993 E-1, 6.00%,
05/15/17 AA Aa2 675 687,015
----------------------------------------------------------------
Series C-1, 6.30%,
11/15/17 AA Aa2 1,270 1,325,587
----------------------------------------------------------------
Series C-2, 6.25%,
11/15/18 AA Aa2 750 780,293
----------------------------------------------------------------
Series C-2, 6.70%,
11/15/22(e) AA Aa2 280 290,110
----------------------------------------------------------------
Series C-2, 5.85%,
11/15/28(e)(f) AA Aa2 1,215 1,203,178
----------------------------------------------------------------
Series A-2, 5.20%,
11/15/29(e) AA Aa2 1,250 1,125,750
----------------------------------------------------------------
Waterburg (City of)
Connecticut Housing
Authority;
Refunding Series A RB
5.45%, 07/01/23(b) AAA Aaa 365 349,561
----------------------------------------------------------------
8,344,348
----------------------------------------------------------------
LEASE RENTAL-1.06%
Connecticut (State of)
(Middletown Courthouse
Facilities Project);
Series 1991
Lease-Rental Revenue
COP
6.25%, 12/15/01(c)(d) AAA Aaa 400 425,336
----------------------------------------------------------------
TRANSPORTATION-18.82%
Connecticut State Special
Tax Obligation (Second
Lien-Transportation
Infrastructure);
Series RB
3.75%, 12/01/10(f) A-1+ VMIG1 1,337 1,337,000
----------------------------------------------------------------
Connecticut State Special
Tax Obligation
(Transportation
Infrastructure);
Series 1991 B RB
6.25%, 10/01/01(c)(d) AA- NRR 1,000 1,059,500
----------------------------------------------------------------
Series A
6.80%, 06/01/03(c)(d) AA- A1 1,250 1,350,188
----------------------------------------------------------------
Series 1991 B
6.50%, 10/01/10 AA- A1 530 589,943
----------------------------------------------------------------
Connecticut State Special
Tax Obligation
(Transportation
Infrastructure Sales
and Excise Tax); RB
Series 1991 B
5.90%, 10/01/99(c) AA- NRR 1,000 1,000,000
----------------------------------------------------------------
Series 1989 C
6.80%, 12/01/99(c)(d) AAA -- 500 512,355
----------------------------------------------------------------
Series 1991 B
6.50%, 10/01/12 AA- A1 1,500 1,676,445
----------------------------------------------------------------
7,525,431
----------------------------------------------------------------
</TABLE>
FS-26
<PAGE> 121
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WATER & SEWER-7.42%
Connecticut Development
Authority (Pfizer
Inc.);
Refunding Series 1982
PCR
6.55%, 02/15/13 AAA Aaa $ 250 $ 267,158
----------------------------------------------------------------
Connecticut Development
Authority Water
Facility (Bridgeport
Hydraulic Co. Project);
Refunding Series RB
7.25%, 06/01/20 AA- -- 800 827,360
----------------------------------------------------------------
6.15%, 04/01/35(e) AA- -- 250 252,873
----------------------------------------------------------------
Connecticut State Clean
Water Fund;
Series 1991 RB
7.00%, 01/01/11 AAA Aaa 1,100 1,157,882
----------------------------------------------------------------
Manchester (City of)
Connecticut Eighth
Utilities Fire
District;
Unlimited Tax Series
1991 GO
6.75%, 08/15/06 -- Aa3 180 201,303
----------------------------------------------------------------
South Central Connecticut
Regional Water
Authority;
Eighth Series 1990 A
Water System RB
6.60%, 08/01/00(c)(d) A+ A2 250 260,610
----------------------------------------------------------------
2,967,186
----------------------------------------------------------------
MISCELLANEOUS-9.05%
Connecticut Area
Cooperative Educational
Services (Staff
Development/Administration
Facilities);
Unlimited Tax Series GO
5.625%, 07/15/19(b) A -- 1,060 1,018,363
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MISCELLANEOUS-(CONTINUED)
Connecticut Development
Authority (Economic
Development Projects);
Refunding Series 1992 A
RB
6.00%, 11/15/08 AA Aa $ 500 $ 510,675
----------------------------------------------------------------
Guam (Government of);
Unlimited Tax Series
1995 A GO
5.375%, 09/01/00 BBB -- 250 250,980
----------------------------------------------------------------
Guam (Government of)
Power Authority;
Series A RB
5.25%, 10/01/34 BBB Baa3 1,500 1,328,250
----------------------------------------------------------------
Puerto Rico Commonwealth
(Highway and
Transportation
Authority);
Series X RB
5.20%, 07/01/03 A Baa1 500 511,885
----------------------------------------------------------------
3,620,153
----------------------------------------------------------------
TOTAL INVESTMENTS (Cost
$38,272,661)-98.00% 39,195,376
----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-2.00% 801,779
----------------------------------------------------------------
NET ASSETS-100.00% $39,997,155
================================================================
</TABLE>
Abbreviations:
COP - Certificates of Participation
GO - General Obligation Bonds
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
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.
(b) Secured by bond insurance.
(c) Secured by an escrow fund of U.S. Treasury obligations.
(d) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(e) Security subject to the alternative minimum tax.
(f) Demand security; payable upon demand by the Fund at specified time intervals
usually no greater than thirteen months. Interest rate is redetermined
periodically. Rate shown is the rate in effect on 09/30/99.
See Notes to Financial Statements.
FS-27
<PAGE> 122
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $38,272,661) $ 39,195,376
---------------------------------------------------------
Cash 144,397
---------------------------------------------------------
Receivables for:
Capital stock sold 115,228
---------------------------------------------------------
Interest 736,888
---------------------------------------------------------
Investment for deferred compensation plan 23,862
---------------------------------------------------------
Other assets 4,749
---------------------------------------------------------
Total assets 40,220,500
---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 63,878
---------------------------------------------------------
Dividends 64,914
---------------------------------------------------------
Deferred compensation 23,862
---------------------------------------------------------
Accrued advisory fees 16,624
---------------------------------------------------------
Accrued administrative services fees 4,098
---------------------------------------------------------
Accrued transfer agent fees 1,955
---------------------------------------------------------
Accrued distribution fees 25,679
---------------------------------------------------------
Accrued operating expenses 22,335
---------------------------------------------------------
Total liabilities 223,345
---------------------------------------------------------
Net assets applicable to shares
outstanding $ 39,997,155
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 3,768,613
=========================================================
Net asset value and redemption price per
share $ 10.61
---------------------------------------------------------
Offering price per share:
(Net asset value of $10.61 divided
by 95.25%) $ 11.14
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 1,205,311
---------------------------------------------------------
EXPENSES:
Advisory fees 103,923
---------------------------------------------------------
Administrative services fees 24,944
---------------------------------------------------------
Custodian fees 1,049
---------------------------------------------------------
Transfer agent fees 11,058
---------------------------------------------------------
Professional fees 14,157
---------------------------------------------------------
Distribution fees 51,961
---------------------------------------------------------
Other 19,702
---------------------------------------------------------
Total expenses 226,794
---------------------------------------------------------
Less: Fees waived by advisor (7,570)
---------------------------------------------------------
Expenses paid indirectly (211)
---------------------------------------------------------
Net expenses 219,013
---------------------------------------------------------
Net investment income 986,298
---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (26,170)
---------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (1,477,444)
---------------------------------------------------------
Net gain (loss) on investment securities (1,503,614)
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ (517,316)
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-28
<PAGE> 123
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended September 30, 1999 and the year ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
--------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 986,298 $ 1,969,711
---------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (26,170) 8,698
---------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,477,444) (113,211)
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (517,316) 1,865,198
---------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (988,354) (2,022,076)
---------------------------------------------------------------------------------------------
Net increase from capital stock transactions 63,023 1,030,126
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,442,647) 873,248
---------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 41,439,802 40,566,554
---------------------------------------------------------------------------------------------
End of period $39,997,155 $41,439,802
=============================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $39,322,265 $39,259,242
---------------------------------------------------------------------------------------------
Undistributed net investment income (19,733) (17,677)
---------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (228,093) (201,923)
---------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 922,716 2,400,160
---------------------------------------------------------------------------------------------
$39,997,155 $41,439,802
=============================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
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 exempt from federal taxes and Connecticut taxes by investing at least 80%
of its net assets in 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
FS-29
<PAGE> 124
gains (including net short-term capital gains and market discounts), if any,
are distributed annually.
D. Federal Income Taxes--The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward (which may
be carried forward to offset future taxable gains, if any) of $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 six months ended September 30,
1999, AIM waived advisory fees of $7,570.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the six months ended September 30, 1999,
AIM was paid $24,944 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 six months ended September 30,
1999, AFS was paid $9,582 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 six months ended September 30, 1999, the Fund paid
AIM Distributors $51,961 as compensation under the Plan.
AIM Distributors received commissions of $13,045 from sales of shares of the
Fund's capital stock during the six months ended September 30, 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 six months ended September 30, 1999, the Fund paid legal fees of
$1,989 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3-INDIRECT EXPENSES
During the six months ended September 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $211 under an expense
offset arrangement. The effect of the above arrangement resulted in a reduction
of the Fund's total expenses of $211 during the six months ended September 30,
1999.
NOTE 4-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to directors who are 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. During the six
months ended September 30, 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 0.09% 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. Prior to May 28, 1999, the commitment fee rate was
0.05%.
FS-30
<PAGE> 125
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended September 30, 1999 were
$5,343,543 and $5,727,550, respectively. The amount of unrealized appreciation
(depreciation) of investment securities as of September 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,422,574
------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (499,859)
------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 922,715
========================================================================
Investments have the same cost for tax and financial statement purposes.
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended September 30,
1999 and the year ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold 445,475 $ 4,835,209 634,272 $ 7,019,083
--------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 58,278 628,729 118,804 1,314,072
--------------------------------------------------------------------------------------------------------------
Reacquired (501,272) (5,400,915) (660,290) (7,303,029)
--------------------------------------------------------------------------------------------------------------
2,481 $ 63,023 92,786 $ 1,030,126
==============================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during the six months ended September 30, 1999 and for each of the
years in the five-year period ended March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31,
SEPTEMBER 30, ---------------------------------------------------
1999 1999 1998 1997 1996 1995
-------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.00 $ 11.04 $ 10.77 $ 10.81 $ 10.71 $ 10.69
----------------------------------------------------------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.26 0.53 0.55 0.56 0.56 0.56
----------------------------------------------------------- ------- ------- ------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) (0.39) (0.03) 0.27 (0.05) 0.10 0.04
----------------------------------------------------------- ------- ------- ------- ------- ------- -------
Total from investment operations (0.13) 0.50 0.82 0.51 0.66 0.60
----------------------------------------------------------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.26) (0.54) (0.55) (0.55) (0.56) (0.57)
----------------------------------------------------------- ------- ------- ------- ------- ------- -------
Returns of capital -- -- -- -- -- (0.01)
----------------------------------------------------------- ------- ------- ------- ------- ------- -------
Total distributions (0.26) (0.54) (0.55) (0.55) (0.56) (0.58)
----------------------------------------------------------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.61 $ 11.00 $ 11.04 $ 10.77 $ 10.81 $ 10.71
=========================================================== ======= ======= ======= ======= ======= =======
Total return(a) (1.21)% 4.64% 7.78% 4.84% 6.24% 5.78%
=========================================================== ======= ======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $39,997 $41,440 $40,567 $38,118 $39,355 $38,289
=========================================================== ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets(b) 1.05%(c) 0.99% 0.88% 0.72% 0.66% 0.55%
=========================================================== ======= ======= ======= ======= ======= =======
Ratio of net investment income to average net assets(d) 4.75%(c) 4.78% 5.02% 5.18% 5.16% 5.37%
=========================================================== ======= ======= ======= ======= ======= =======
Portfolio turnover rate 13% 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
1.09% (annualized), 1.11%, 1.11%, 1.09%, 1.16%, and 1.13%, for the periods
1999-1995, respectively.
(c) Ratios are annualized and based on average net assets of $41,455,569.
(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 4.70% (annualized), 4.66%, 4.79%, 4.81%, 4.66%, and
4.79%, for the periods 1999-1995, respectively.
FS-31
<PAGE> 126
SCHEDULE OF INVESTMENTS
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
LONG-TERM MUNICIPAL OBLIGATIONS-95.07%
ALABAMA-1.15%
West Jefferson Amusement & Public Parks
Authority (Visionland Project); First
Mortgage RB
6.375%, 02/01/29 $1,000 $ 833,470
-------------------------------------------------------------
CALIFORNIA-2.63%
Sacramento (City of) Financing
Authority (Convention Center Hotel);
Series A Senior RB
6.25%, 01/01/30 2,000 1,906,800
-------------------------------------------------------------
COLORADO-3.14%
Colorado (District of) (St. Vincent
General Hospital); Series RB
6.00%, 12/01/19 885 828,502
-------------------------------------------------------------
Colorado Health Facilities Authority
(Volunteers of America); Health and
Residential Care Facilities Series A
RB
6.00%, 07/01/29 850 764,558
-------------------------------------------------------------
Colorado Health Facilities Authority
(Volunteers of America); Refunding
and Improvement Series A RB
5.875%, 07/01/28 750 680,707
-------------------------------------------------------------
2,273,767
-------------------------------------------------------------
CONNECTICUT-1.70%
Connecticut (State of) Development
Authority (Lutheran Home Southbury);
First Mortgage Refunding Health Care
Series A RB
6.00%, 12/01/15 750 704,250
-------------------------------------------------------------
Connecticut (State of) Development
Authority (Watson Foods Co., Inc.
Project); IDR
5.90%, 06/01/28(a) 555 524,814
-------------------------------------------------------------
1,229,064
-------------------------------------------------------------
FLORIDA-4.76%
Orange (County of) Housing Finance
Authority (Brentwood Park
Apartments); Multifamily Housing
Series G RB
6.40%, 07/01/32 1,500 1,436,565
-------------------------------------------------------------
Orange (County of) Housing Finance
Authority (Palm West Apartments);
Multifamily Housing Series B RB
6.50%, 03/01/34 1,000 942,580
-------------------------------------------------------------
Sumter (County of) Industrial
Development Authority (Wecare Nursing
Center Project); Health Care
Facilities Series A RB
6.75%, 04/01/29 1,165 1,072,324
-------------------------------------------------------------
3,451,469
-------------------------------------------------------------
GEORGIA-4.36%
Forsyth (County of) Hospital Authority
(Georgia Baptist Health Care System
Project); Anticipation Certificates
6.375%, 10/01/28 1,000 914,800
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
GEORGIA-(CONTINUED)
Fulton (County of) Housing Authority
(Azalea Manor Project); Multifamily
Housing RB
6.50%, 02/01/28 $ 780 $ 752,567
-------------------------------------------------------------
Fulton (County of) Housing Authority
(Washington Court Project);
Multifamily Housing RB
6.40%, 02/01/19 775 753,998
-------------------------------------------------------------
6.50%, 02/01/28 225 217,087
-------------------------------------------------------------
Rockdale (County of) Development
Authority (Visy Paper, Inc. Project);
Solid Waste Disposal RB
7.50%, 01/01/26(a) 500 515,385
-------------------------------------------------------------
3,153,837
-------------------------------------------------------------
HAWAII-0.61%
Hawaii (State of) Department of
Transportation (Continental Airlines,
Inc.); Special Facilities RB
5.625%, 11/15/27(a) 500 442,050
-------------------------------------------------------------
ILLINOIS-5.54%
Clay (County of); Hospital RB
5.70%, 12/01/18 500 458,000
-------------------------------------------------------------
Crestwood (City of); Tax Increment
Revenue Refunding Non-Qualified Bonds
7.25%, 12/01/08 100 104,468
-------------------------------------------------------------
Godfrey (City of) (United Methodist
Village); Series A RB
5.875%, 11/15/29 1,000 885,500
-------------------------------------------------------------
Hoopeston (City of) Hospital Capital
Improvement (Hoopeston Community
Memorial Hospital); Refunding RB
6.55%, 11/15/29 700 670,299
-------------------------------------------------------------
Illinois Health Facilities Authority
(Bohemian-Tabor Hills); Refunding
Series A RB
5.90%, 11/15/24 775 711,473
-------------------------------------------------------------
Illinois Health Facilities Authority
(Lifelink Corp. Obligation Group);
Refunding RB
5.85%, 02/15/20 350 322,441
-------------------------------------------------------------
5.70%, 02/15/24 850 760,657
-------------------------------------------------------------
Saint Charles (City of) (Tri-city
Center Associates Limited Project);
IDR
7.50%, 11/01/13 100 102,014
-------------------------------------------------------------
4,014,852
-------------------------------------------------------------
INDIANA-1.37%
Goshen (Greencroft Obligation Group);
RB
5.75%, 08/15/28 350 313,044
-------------------------------------------------------------
Indiana Health Facilities Financing
Authority (Franciscan Eldercare
Community Services); RB
5.875%, 05/15/29 750 677,790
-------------------------------------------------------------
990,834
-------------------------------------------------------------
</TABLE>
FS-32
<PAGE> 127
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
IOWA-1.95%
Harlan (City of) (American Baptist
Homes Project); RB
5.75%, 05/15/28 $ 750 $ 670,598
-------------------------------------------------------------
Iowa Finance Authority Community
Rehabilitation Providers (Lutheran
Children's Home Society-Bremwood
Project); RB
5.80%, 12/01/24 700 640,339
-------------------------------------------------------------
Iowa Finance Authority (Park West
Housing Project); Multifamily
Refunding RB
8.00%, 10/01/23 100 101,667
-------------------------------------------------------------
1,412,604
-------------------------------------------------------------
KANSAS-1.71%
Atchison (City of) (Atchison Hospital
Association); Hospital RB
5.70%, 11/15/18 525 487,473
-------------------------------------------------------------
Hutchinson (City of) Health Care
Facilities (Wesley Towers Inc.);
Refunding & Improvement Series A RB
6.25%, 11/15/19 750 707,955
-------------------------------------------------------------
Lawrence (City of) (Holiday Inn
Project); Commercial Development
Senior Refunding Series A RB
8.00%, 07/01/16 40 42,538
-------------------------------------------------------------
1,237,966
-------------------------------------------------------------
KENTUCKY-0.91%
Jefferson (County of) Health Facilities
(Beverly Enterprises Inc. Project);
Refunding RB
5.875%, 08/01/07 675 657,808
-------------------------------------------------------------
MASSACHUSETTS-1.65%
Boston (City of) Industrial Development
Financing Authority (Springhouse Inc.
Project); First Mortgage Refunding RB
6.00%, 07/01/28 500 463,320
-------------------------------------------------------------
Massachusetts (State of) Health &
Educational Facilities Authority
(Christopher House); Refunding Series
A RB
6.875%, 01/01/29 750 731,010
-------------------------------------------------------------
1,194,330
-------------------------------------------------------------
MICHIGAN-4.23%
Garden City Hospital Finance Authority
(Garden City Hospital OB Group);
Hospital Refunding Series A RB
5.75%, 09/01/17 1,500 1,361,220
-------------------------------------------------------------
Gogebic (County of) Hospital Finance
Authority (Grand View Health System
Inc.); Refunding RB
5.875%, 10/01/16 920 855,103
-------------------------------------------------------------
Mecosta (County of) General Hospital;
Refunding Unlimited GO
6.00%, 05/15/18 500 475,245
-------------------------------------------------------------
Michigan (State of) Strategic Fund
Limited Obligation (Holland Home
Project); RB
5.75%, 11/15/28 415 372,529
-------------------------------------------------------------
3,064,097
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
MINNESOTA-8.88%
Bloomington (City of) Housing and
Redevelopment Authority (Summerhouse
Bloomington Project); Senior Housing
RB
6.00%, 11/01/16 $ 790 $ 742,426
-------------------------------------------------------------
Columbia Heights (City of) Multifamily
and Health Care Facility (Crest View
Corp. Project); RB
6.00%, 03/01/33 500 466,685
-------------------------------------------------------------
Duluth (City of) Economic Development
Authority (BSM Properties Inc.
Project); Health Care Facilities
Series A RB
5.875%, 12/01/28 500 455,380
-------------------------------------------------------------
Minneapolis (City of) Health Care
Facility (Ebenezer Society Project);
Series A RB
7.00%, 07/01/12 100 100,877
-------------------------------------------------------------
Minneapolis (City of) Health Care
Facility (Shelter Care Foundation);
Series A RB
6.00%, 04/01/10 1,120 1,074,562
-------------------------------------------------------------
Minneapolis (City of) (Walker Methodist
Senior Services); Series A RB
6.00%, 11/15/28 1,000 926,720
-------------------------------------------------------------
Moorhead (City of) Economic Development
Authority (Eventide Housing
Development Project); Multifamily
Refunding RB
Series A, 6.00%, 06/01/18 500 482,025
-------------------------------------------------------------
Senior Series B, 6.00%, 06/01/29 500 462,940
-------------------------------------------------------------
New Hope Housing & Health Care
Facilities (Minnesota Masonic Home
North Ridge); Health Care Facilities
RB
5.875%, 03/01/29 1,040 946,223
-------------------------------------------------------------
Northfield (City of) Health Care
Facilities (Retirement Center);
Refunding and Improvement Series A RB
5.75%, 05/01/16 335 310,183
-------------------------------------------------------------
6.00%, 05/01/28 500 462,215
-------------------------------------------------------------
6,430,236
-------------------------------------------------------------
MISSISSIPPI-0.36%
Ridgeland Urban Renewal (The Orchard
Limited Project); Refunding Series A
RB
7.75%, 12/01/15 250 262,760
-------------------------------------------------------------
MISSOURI-3.15%
Good Shepherd Nursing Home District;
Nursing Home Facilities Refunding RB
5.90%, 08/15/23 500 461,270
-------------------------------------------------------------
Madison (County of); Hospital Refunding
RB
5.875%, 10/01/26 500 456,925
-------------------------------------------------------------
Springfield (City of) Industrial
Development Authority (Bethesda
Living Centers); Refunding Series A
RB
5.625%, 08/15/18 200 182,426
-------------------------------------------------------------
5.70%, 08/15/28 800 713,200
-------------------------------------------------------------
Valley Park Industrial Development
Authority (Cape Albeon Project);
Senior Housing RB
6.15%, 12/01/33 500 464,475
-------------------------------------------------------------
2,278,296
-------------------------------------------------------------
</TABLE>
FS-33
<PAGE> 128
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
NEVADA-3.17%
Boulder (City of) (Boulder City
Hospital Inc. Project); Refunding
Hospital Series RB
5.85%, 01/01/22 $2,000 $ 1,823,260
-------------------------------------------------------------
Clark (County of) (Nevada Power Co.
Project); Refunding Series B IDR
5.90%, 10/01/30(a) 500 472,765
-------------------------------------------------------------
2,296,025
-------------------------------------------------------------
NEW HAMPSHIRE-0.52%
New Hampshire Higher Educational and
Health Facilities Authority (Daniel
Webster College); RB
7.625%, 07/01/04(b)(c) 100 113,716
-------------------------------------------------------------
New Hampshire Higher Educational and
Health Facilities Authority (Franklin
Pierce College); RB
6.00%, 10/01/18 30 27,853
-------------------------------------------------------------
New Hampshire Higher Educational and
Health Facilities Authority
(Monadnock Community Hospital);
Hospital RB
5.70%, 10/01/20 250 231,843
-------------------------------------------------------------
373,412
-------------------------------------------------------------
NEW JERSEY-4.45%
New Jersey Economic Development
Authority (Continental Airlines, Inc.
Project); Special Facilities Series
RB
6.40%, 09/15/23(a) 1,500 1,489,035
-------------------------------------------------------------
6.25%, 09/15/29(a) 500 484,860
-------------------------------------------------------------
New Jersey Health Care Facilities
Financing Authority (Raritan Bay
Medical Center); RB
7.25%, 07/01/14 750 749,880
-------------------------------------------------------------
7.25%, 07/01/27 500 496,960
-------------------------------------------------------------
3,220,735
-------------------------------------------------------------
NEW MEXICO-0.61%
Sante Fe (County of) (El Castillo
Retirement Project); Series A RB
5.625%, 05/15/25 500 442,605
-------------------------------------------------------------
NEW YORK-4.06%
New York Industrial Development Agency
(Field Hotel Associates LP);
Refunding IDR
5.80%, 11/01/13 475 455,055
-------------------------------------------------------------
6.00%, 11/01/28 500 472,840
-------------------------------------------------------------
New York Industrial Development Agency
(Marymount Manhattan College
Project); Civic Facility RB
7.00%, 07/01/23 150 156,043
-------------------------------------------------------------
Onondaga (County of) Industrial
Development Agency (Solvay Paperboard
LLC Project); Solid Waste Disposal
Facility Refunding Series RB
7.00%, 11/01/30(a) 1,500 1,523,550
-------------------------------------------------------------
Suffolk (County of) Industrial
Development Agency (Spellman High
Voltage Facility); Series A IDR
6.375%, 12/01/17(a) 350 331,471
-------------------------------------------------------------
2,938,959
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
NORTH CAROLINA-0.30%
Charlotte (City of) (Charlotte/Douglas
International Airport); Refunding
Special Facilities RB
5.60%, 07/01/27(a) $ 255 $ 215,475
-------------------------------------------------------------
NORTH DAKOTA-0.67%
Grand Forks Senior Housing (4000 Valley
Square Project); Special Term Series
RB
6.375%, 12/01/34 500 486,630
-------------------------------------------------------------
OHIO-6.35%
Belmont (County of) Health Systems
(East Ohio Regional Hospital);
Refunding and Improvement RB
5.80%, 01/01/18 800 727,848
-------------------------------------------------------------
Fairfield (City of) Economic
Development (Beverly Enterprises
Project); Refunding Series RB
8.50%, 01/01/03 150 156,345
-------------------------------------------------------------
Madison (County of) (Madison County
Hospital Project); Hospital
Improvement Refunding Series RB
6.25%, 08/01/18 1,000 933,920
-------------------------------------------------------------
6.40%, 08/01/28 1,000 922,480
-------------------------------------------------------------
Ohio (State of) (CSC Limited Project);
Solid Waste RB
8.50%, 08/01/22(a) 1,860 1,860,856
-------------------------------------------------------------
4,601,449
-------------------------------------------------------------
PENNSYLVANIA-12.33%
Allegheny (County of) Hospital
Development Authority (Villa St.
Joseph of Baden); Health Care
Facilities RB
6.00%, 08/15/28 1,000 906,310
-------------------------------------------------------------
Berks (County of) Municipal Authority
(Phoebe-Devitt Homes Project);
Refunding Series A1 RB
5.50%, 05/15/11 250 234,433
-------------------------------------------------------------
Chartiers Valley Industrial &
Commercial Development Authority
(Asbury Health Center); First
Mortgage Refunding Series RB
6.375%, 12/01/19 1,000 963,150
-------------------------------------------------------------
Columbia (County of) Hospital Authority
(Bloomsburg Hospital Project); Health
Care RB
5.85%, 06/01/24 1,000 922,860
-------------------------------------------------------------
5.90%, 06/01/29 350 321,219
-------------------------------------------------------------
Crawford (County of) Hospital Authority
(Wesbury United Methodist Community);
Senior Living Facilities RB
6.25%, 08/15/29 750 729,195
-------------------------------------------------------------
Cumberland (County of) Industrial
Development Authority (Woods Cedar
Run); First Mortgage Refunding Series
A RB
6.50%, 11/01/18 1,000 930,830
-------------------------------------------------------------
Lancaster (County of) Hospital
Authority (Saint Anne's Home Health
Center); RB
6.625%, 04/01/28 1,000 950,430
-------------------------------------------------------------
</TABLE>
FS-34
<PAGE> 129
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
PENNSYLVANIA-(CONTINUED)
Montgomery (County of) Higher Education
& Health Authority (Temple Continuing
Care Center); RB
6.625%, 07/01/19 $1,250 $ 1,182,213
-------------------------------------------------------------
6.75%, 07/01/29 460 433,614
-------------------------------------------------------------
Philadelphia (City of) Authority for
Industrial Development (Paul's Run
Retirement Community); Health Care
Facilities Series A RB
5.875%, 05/15/28 500 445,405
-------------------------------------------------------------
Philadelphia (City of) Hospital &
Higher Education Facilities Authority
(Chestnut Hill College); RB
6.00%, 10/01/29 500 463,165
-------------------------------------------------------------
Somerset (County of) Hospital Authority
(Allegheny Christian Ministries);
Senior Mortgage RB
5.70%, 11/15/22 500 448,050
-------------------------------------------------------------
8,930,874
-------------------------------------------------------------
TENNESSEE-0.45%
Nashville and Davidson (County of)
Health and Educational Facilities
Board of Metro Government (Blakeford
at Green Hills); Refunding RB
5.65%, 07/01/16 355 324,097
-------------------------------------------------------------
TEXAS-6.46%
Abilene (City of) Health Facilities
Development (Sears Methodist
Retirement); Corporate Retirement
Facilities Series A RB
5.875%, 11/15/18 1,000 928,960
-------------------------------------------------------------
Abilene (City of) Health Facilities
Development (Sears Methodist
Retirement); Corporate Retirement
Facilities RB
5.875%, 11/15/18 450 417,568
-------------------------------------------------------------
6.00%, 11/15/29 550 507,694
-------------------------------------------------------------
Atlanta (City of) Hospital Authority
(Hospital Facility); RB
6.70%, 08/01/19 500 483,980
-------------------------------------------------------------
Austin (City of) (Bergstrom Landhost
Enterprises Inc., Airport Hotel);
Series A Senior RB
6.75%, 04/01/27 1,000 956,890
-------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Villa Madrid/Cumberland Apartments);
Multifamily Housing Series A RB
7.25%, 05/01/16 200 203,378
-------------------------------------------------------------
Guadalupe-Blanco River Texas Sewer &
Solid Waste Disposal Facilities
Authority (E.I. du Pont de Nemours &
Company Project); RB
5.50%, 05/01/29(a) 250 232,130
-------------------------------------------------------------
Meadow Parc Development Inc. (Meadow
Parc Apartments Project); Multifamily
Housing RB
6.50%, 12/01/30 1,000 947,680
-------------------------------------------------------------
4,678,280
-------------------------------------------------------------
VERMONT-1.28%
Vermont Education & Health Buildings
Financing Agency (Copley Manor
Project); Health Care Facilities
Series RB
6.25%, 04/01/29 1,000 929,170
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
VIRGINIA-0.66%
Hampton (City of) Redevelopment and
Housing Authority (Olde Hampton Hotel
Association); First Mortgage
Refunding Series A RB
6.50%, 07/01/16 $ 500 $ 481,400
-------------------------------------------------------------
WEST VIRGINIA-0.63%
Braxton (County of) (Weyerhaeuser Co.
Project); Solid Waste Disposal
Refunding RB
5.40%, 05/01/25(a) 500 456,565
-------------------------------------------------------------
WISCONSIN-5.03%
Wisconsin (State of) Health and
Educational Facilities Authority
(Attic Angel Community Inc.); RB
5.75%, 11/15/27 1,000 883,770
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority
(Beaver Dam Community Hospitals
Inc.); RB
5.80%, 08/15/28 1,000 900,840
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority
(Clement Manor, Inc.); Refunding RB
5.75%, 08/15/24 250 222,790
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority (FH
Healthcare Development, Inc.); RB
6.25%, 11/15/20 750 718,612
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority (St.
Camillus Health Center); RB
5.75%, 07/01/28 500 447,265
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority
(United Lutheran Home); RB
5.70%, 03/01/28 525 468,982
-------------------------------------------------------------
3,642,259
-------------------------------------------------------------
Long-Term Municipal Obligations
(Cost $73,054,193) 68,852,175
-------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATIONS-2.29%(D)
CONNECTICUT-1.08%
Connecticut (State of) (Infrastructure
Purpose S-1); Special Tax Obligation
Variable Rate Demand RB
3.75%, 12/01/10 776 776,000
-------------------------------------------------------------
Connecticut (State of) Health and
Educational Facilities Authority
(Yale University); Variable Rate
Demand Series T-2 RB
3.70%, 07/01/29 6 6,000
-------------------------------------------------------------
782,000
-------------------------------------------------------------
DELAWARE-0.55%
University of Delaware; Variable Rate
Demand RB
3.75%, 11/01/23 398 398,000
-------------------------------------------------------------
FLORIDA-0.02%
Lee (County of) Housing Finance
Authority (Forestwood Apartments
Project); Multifamily Housing
Variable Rate Demand Series A RB
3.20%, 06/15/25(e) 14 14,000
-------------------------------------------------------------
</TABLE>
FS-35
<PAGE> 130
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
ILLINOIS-0.36%
Illinois Development Finance Authority
(American College of Surgeons);
Variable Rate Demand Tax Exempt
Series RB (LOC-Northern Trust
Company) 3.85%, 08/01/26 $ 111 $ 111,000
-------------------------------------------------------------
Illinois Health Facilities Authority;
Revolving Fund Pooled Variable Rate
Demand Series D RB
(LOC-First National Bank)
3.80%, 08/01/15 147 147,000
-------------------------------------------------------------
258,000
-------------------------------------------------------------
PENNSYLVANIA-0.06%
York (City of) General Authority;
Pooled Financing Variable Rate Demand
RB
(LOC-First Union National Bank)
3.85%, 09/01/26 41 41,000
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
TEXAS-0.22%
Bexar (County of) Housing Finance
Authority (Fountainhead Apartments);
Multifamily Refunding Variable Rate
Demand Series RB
3.75%, 09/15/26(e) $ 162 $ 162,000
-------------------------------------------------------------
Short-Term Municipal Obligations
(Cost $1,655,000) 1,655,000
-------------------------------------------------------------
TOTAL INVESTMENTS-97.36% (Cost
$74,709,193) 70,507,175
-------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.64% 1,911,038
-------------------------------------------------------------
NET ASSETS-100.00% $72,418,213
=============================================================
</TABLE>
Investment Abbreviations:
IDR - Industrial Development Revenue Bond
GO - General Obligation Bond
LOC - Letter of Credit
RB - Revenue Bond
Notes to Schedule of Investments:
(a) Security subject to the alternative minimum tax.
(b) Secured by an escrow fund of U.S. Treasury obligations.
(c) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(d) Demand securities; 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 09/30/99.
(e) Secured by bond insurance.
See Notes to Financial Statements.
FS-36
<PAGE> 131
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$74,709,193) $ 70,507,175
---------------------------------------------------------
Receivables for:
Investments sold 185,940
---------------------------------------------------------
Capital stock sold 678,562
---------------------------------------------------------
Interest 1,310,871
---------------------------------------------------------
Investment for deferred compensation
plan 6,428
---------------------------------------------------------
Other assets 82,762
---------------------------------------------------------
Total assets 72,771,738
---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 145,157
---------------------------------------------------------
Dividends 140,948
---------------------------------------------------------
Deferred compensation plan 6,428
---------------------------------------------------------
Accrued administrative services fees 4,372
---------------------------------------------------------
Accrued directors' fees 2,775
---------------------------------------------------------
Accrued distribution fees 52,746
---------------------------------------------------------
Accrued operating expenses 1,099
---------------------------------------------------------
Total liabilities 353,525
---------------------------------------------------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING $ 72,418,213
=========================================================
NET ASSETS:
Class A $ 49,849,391
---------------------------------------------------------
Class B $ 18,015,619
---------------------------------------------------------
Class C $ 4,553,203
---------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Class A:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 5,297,766
---------------------------------------------------------
Class B:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 1,915,907
---------------------------------------------------------
Class C:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 484,190
---------------------------------------------------------
Class A:
Net asset value and redemption price per
share $ 9.41
---------------------------------------------------------
Offering price per share:
(Net asset value of $9.41 divided by
95.25%) $ 9.88
---------------------------------------------------------
Class B:
Net asset value and offering price per
share $ 9.40
---------------------------------------------------------
Class C:
Net asset value and offering price per
share $ 9.40
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 2,167,859
--------------------------------------------------------
EXPENSES:
Advisory fees 211,891
--------------------------------------------------------
Administrative services fees 31,865
--------------------------------------------------------
Distribution fees -- Class A 63,165
--------------------------------------------------------
Distribution fees -- Class B 80,535
--------------------------------------------------------
Distribution fees -- Class C 19,957
--------------------------------------------------------
Transfer agent fees 15,188
--------------------------------------------------------
Registration and filing fees 48,971
--------------------------------------------------------
Other 38,389
--------------------------------------------------------
Total expenses 509,961
--------------------------------------------------------
Less: Fee waivers and expense
reimbursements (270,395)
--------------------------------------------------------
Expenses paid indirectly (355)
--------------------------------------------------------
Net expenses 239,211
--------------------------------------------------------
Net investment income 1,928,648
--------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (430,246)
--------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (4,252,081)
--------------------------------------------------------
Net gain (loss) on investment
securities (4,682,327)
--------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(2,753,679)
========================================================
</TABLE>
See Notes to Financial Statements.
FS-37
<PAGE> 132
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND THE YEAR ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,928,648 $ 2,386,340
-----------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (430,246) 634
-----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (4,252,081) 27,086
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (2,753,679) 2,414,060
-----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (1,418,412) (1,942,603)
-----------------------------------------------------------------------------------------
Class B (389,452) (343,532)
-----------------------------------------------------------------------------------------
Class C (96,530) (78,427)
-----------------------------------------------------------------------------------------
Net increase from capital stock transactions:
Class A 3,568,234 31,696,998
-----------------------------------------------------------------------------------------
Class B 5,255,893 11,184,663
-----------------------------------------------------------------------------------------
Class C 1,815,496 2,281,041
-----------------------------------------------------------------------------------------
Net increase in net assets 5,981,550 45,212,200
-----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 66,436,663 21,224,463
-----------------------------------------------------------------------------------------
End of period $72,418,213 $66,436,663
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $76,994,868 $66,355,245
-----------------------------------------------------------------------------------------
Undistributed net investment income 67,004 42,750
-----------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (441,641) (11,395)
-----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (4,202,018) 50,063
-----------------------------------------------------------------------------------------
$72,418,213 $66,436,663
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-38
<PAGE> 133
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
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. 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 that 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
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 94.60% 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. The Fund has a
capital loss carryforward of $11,395 (which may be carried forward to offset
future taxable capital gains, if any) which expires, if not previously
utilized, through the year 2007.
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 contractually agreed
to limit the Fund's
FS-39
<PAGE> 134
expenses (exclusive of brokerage commissions, taxes, interest, and extraordinary
expense) to the maximum annual rate of 0.60%, 1.35% and 1.35% of the average
daily net assets of the Fund's Class A, Class B and Class C, shares,
respectively. During the six months ended September 30, 1999, AIM waived
advisory fees and reimbursed expenses of $270,395.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the six months ended September 30, 1999,
AIM was paid $31,865 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 six months ended September 30,
1999, AFS was paid $9,195 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 of 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. During the six months ended September 30, 1999, the Class A shares,
Class B shares and Class C shares paid AIM Distributors $63,165, $80,535 and
$19,957, 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 $46,902 from the sales of Class A
shares of the Fund during the six months ended September 30, 1999. 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 six months
ended September 30, 1999, AIM Distributors received $50,358 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.
During the six months ended September 30, 1999, the Fund paid legal fees of
$2,006 for services rendered by Kramer, Levin, Naftalis & Frankel LLP 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 directors who are 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-INDIRECT EXPENSES
During the six months ended September 30, 1999, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $355 under an expense
offset arrangement. The effect of the above arrangement resulted in a reduction
of the Fund's total expenses of $355 during the six months ended September 30,
1999.
FS-40
<PAGE> 135
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. During the six
months ended September 30, 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 0.09% 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. Prior to May 28, 1999, the commitment fee rate was
0.05%.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold during the six months ended September 30, 1999 was
$23,608,344 and $13,970,245, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
as of September 30, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $ 31,720
---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (4,233,738)
---------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities $(4,202,018)
---------------------------------------------------------
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the six months ended September 30,
1999 and the year ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 1,512,953 $ 14,953,936 4,375,932 $ 44,035,445
------------------------------------------------------------------------------------------------------------------------
Class B 727,558 7,135,389 1,198,092 12,077,378
------------------------------------------------------------------------------------------------------------------------
Class C 224,115 2,208,786 299,455 3,014,253
------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 84,241 822,077 111,621 1,125,789
------------------------------------------------------------------------------------------------------------------------
Class B 22,320 217,460 18,956 191,064
------------------------------------------------------------------------------------------------------------------------
Class C 6,111 59,404 4,580 46,173
------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (1,234,607) (12,207,779) (1,332,330) (13,464,236)
------------------------------------------------------------------------------------------------------------------------
Class B (213,806) (2,096,956) (107,492) (1,083,779)
------------------------------------------------------------------------------------------------------------------------
Class C (46,588) (452,694) (77,415) (779,385)
------------------------------------------------------------------------------------------------------------------------
1,082,297 $ 10,639,623 4,491,399 $ 45,162,702
========================================================================================================================
</TABLE>
FS-41
<PAGE> 136
NOTE 8- FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B and
Class C capital stock outstanding during the six months ended September 30,
1999, the year ended March 31, 1999 and the period January 2, 1998 (date
operations commenced) through March 31, 1998.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------
SEPTEMBER 30, MARCH 31, MARCH 31,
1999 1999 1998
------------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.04 $ 9.99 $ 10.00
------------------------------------------------------------ ------- ------- -------
Income from investment operations:
Net investment income 0.28 0.54 0.11
------------------------------------------------------------ ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) (0.63) 0.05 (0.01)
------------------------------------------------------------ ------- ------- -------
Total from investment operations (0.35) 0.59 0.10
------------------------------------------------------------ ------- ------- -------
Less distributions:
Dividends from net investment income (0.28) (0.54) (0.11)
------------------------------------------------------------ ------- ------- -------
Net asset value, end of period $ 9.41 $ 10.04 $ 9.99
============================================================ ======= ======= =======
Total return(a) (3.59)% 6.01% 1.04%
============================================================ ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $49,849 $49,570 $17,787
============================================================ ======= ======= =======
Ratio of expenses to average net assets(b) 0.47%(c) 0.29% 0.25%(d)
============================================================ ======= ======= =======
Ratio of net investment income to average net assets(e) 5.69%(c) 5.41% 4.80%(d)
============================================================ ======= ======= =======
Portfolio turnover rate 21% 30% 21%
============================================================ ======= ======= =======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.24% (annualized), 1.29% and 1.65% (annualized) for the periods 1999-1998.
(c) Ratios are annualized and based on average net assets of $50,393,555.
(d) Annualized.
(e) 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 4.92% (annualized), 4.41% and 3.40% (annualized) for the
periods 1999-1998.
FS-42
<PAGE> 137
NOTE 8- FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------------------- ---------------------------------------
SEPTEMBER 30, MARCH 31, MARCH 31, SEPTEMBER 30, MARCH 31, MARCH 31,
1999 1999 1998 1999 1999 1998
------------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.04 $ 9.99 $ 10.00 $10.04 $ 9.99 $10.00
--------------------------------------------- ------- ------- ------- ------ ------ ------
Income from investment operations:
Net investment income 0.24 0.47 0.09 0.24 0.47 0.09
--------------------------------------------- ------- ------- ------- ------ ------ ------
Net gains (losses) on securities (both
realized and unrealized) (0.64) 0.04 (0.01) (0.64) 0.04 (0.01)
--------------------------------------------- ------- ------- ------- ------ ------ ------
Total from investment operations (0.40) 0.51 0.08 (0.40) 0.51 0.08
--------------------------------------------- ------- ------- ------- ------ ------ ------
Less distributions:
Dividends from net investment income (0.24) (0.46) (0.09) (0.24) (0.46) (0.09)
============================================= ======= ======= ======= ====== ====== ======
Net asset value, end of period $ 9.40 $ 10.04 $ 9.99 $ 9.40 $10.04 $ 9.99
============================================= ======= ======= ======= ====== ====== ======
Total return(a) (4.06)% 5.23% 0.81% (4.06)% 5.23% 0.79%
============================================= ======= ======= ======= ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $18,016 $13,850 $ 2,699 $4,553 $3,017 738
============================================= ======= ======= ======= ====== ====== ======
Ratio of expenses to average net assets(b) 1.22%(c) 1.04% 1.00%(d) 1.22%(c) 1.04% 1.00%(d)
============================================= ======= ======= ======= ====== ====== ======
Ratio of net investment income to average net
assets(e) 4.94%(c) 4.66% 4.05%(d) 4.94%(c) 4.66% 4.05%(d)
============================================= ======= ======= ======= ====== ====== ======
Portfolio turnover rate 21% 30% 21% 21% 30% 21%
============================================= ======= ======= ======= ====== ====== ======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.99% (annualized), 2.04% and 2.44% (annualized) for Class B and Class C for
the periods 1999-1998.
(c) Ratios are annualized and based on average net assets of $16,063,089 and
$3,980,558 for Classes B and C, respectively.
(d) Annualized.
(e) 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 4.17% (annualized), 3.66% and 2.61% (annualized) for
Class B and Class C for the periods 1999-1998.
FS-43
<PAGE> 138
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 Fund (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 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
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 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, 1999, 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 LLP
Houston, Texas
May 7, 1999
FS-44
<PAGE> 139
SCHEDULE OF INVESTMENTS
March 31, 1999
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
SHORT-TERM MUNICIPAL
OBLIGATIONS-89.50%
ALABAMA-2.49%
Alabama Industrial
Development Board
(Industrial Partners
Project); Variable/Fixed
Rate Refunding Series
1989 RB
3.25%, 01/01/07(b)(c) -- VMIG-1 $1,525 $ 1,525,000
------------------------------------------------------------------
ALASKA-1.80%
Alaska Housing Finance
Corp.; General Mortgage
Series 1991 A RB
2.95%, 06/01/26(c) A-1+ VMIG-1 1,100 1,100,000
------------------------------------------------------------------
ARIZONA-1.64%
Arizona (State of)
Transportation Board;
Highway Series A RB
5.90%, 07/01/99 AA Aa 1,000 1,005,848
------------------------------------------------------------------
CALIFORNIA-3.60%
Huntington Beach (City of)
(Seabridge Villas
Project); Floating Rate
Multifamily Housing
Series 1985 A RB
4.00%, 02/01/10(b)(c) -- VMIG-1 2,200 2,200,000
------------------------------------------------------------------
COLORADO-0.33%
Arapahoe (County of) (E-470
Project); Capital
Improvement Trust Fund
Highway Series 1986 RB
4.40%, 08/31/99(b) AAA Aaa 200 200,896
------------------------------------------------------------------
CONNECTICUT-0.16%
Connecticut (State of)
(Infrastructure Purpose
S-1); Special Tax
Obligation Transportation
RB
2.90%, 12/01/10(b)(c) A-1+ VMIG-1 100 100,000
------------------------------------------------------------------
DELAWARE-0.71%
Delaware (University of)
Variable Rate Demand
Series 1998 RB
3.00%, 11/01/23(c) A-1+ -- 433 433,000
------------------------------------------------------------------
FLORIDA-13.41%
Gulf Breeze (City of)
(Florida Municipal Bond
Fund); Variable Rate
Demand Series 1996 A RB
3.10%, 03/31/21(b)(c) A-1+ -- 900 900,000
------------------------------------------------------------------
Hillsborough (County of)
Industrial Development
Authority (Tampa Electric
Co. Gannon Coal
Conversion Project);
Pollution Control Series
1992 RB
3.30%, 05/15/18(c) A-1+ VMIG-1 2,700 2,700,000
------------------------------------------------------------------
Lee (County of) Housing
Finance Authority
(Forestwood Apartments
Project); Housing Series
1995 A RB
3.00%, 06/15/25(b)(c) A-1+ -- 3,200 3,200,000
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
FLORIDA-(CONTINUED)
Orange (County of) Florida
Health Finance Authority;
Pooled Hospital Loan
Refunding Series 1985 RB
2.85%, 06/16/99(b)(c) A-1+ VMIG-1 $1,400 $ 1,400,000
------------------------------------------------------------------
8,200,000
------------------------------------------------------------------
GEORGIA-3.11%
Dekalb Private Hospital
Authority (Egleston
Children's Hospital at
Emory University);
Variable Rate Demand
Revenue Anticipation
Certificates Series 1994
A
2.90%, 03/01/24(b)(c) A-1+ VMIG-1 900 900,000
------------------------------------------------------------------
Elbert & Bowman (Counties
of) Industrial
Development Authority;
(Seaboard Farms of
Elberton); Series 1985
IDR
3.10%, 07/01/05(b)(c) A-1 -- 1,000 1,000,000
------------------------------------------------------------------
1,900,000
------------------------------------------------------------------
ILLINOIS-6.25%
Illinois Development
Finance Authority
(American College of
Surgeons Project); Tax
Exempt Series 1996 RB
3.10%, 08/01/26(b)(c) A-1+ -- 772 772,000
------------------------------------------------------------------
Illinois Health Facilities
Authority; Revolving Fund
Pooled Series D RB
2.95%, 08/01/15(b)(c) A-1+ VMIG-1 1,630 1,630,000
------------------------------------------------------------------
Illinois Health Facilities
Authority (Franciscan
Eldercare Project);
Adjustable Rate Refunding
Series 1996 C RB
3.05%, 05/15/26(b)(c) A-1+ -- 1,420 1,420,000
------------------------------------------------------------------
3,822,000
------------------------------------------------------------------
INDIANA-2.46%
Indiana Development Finance
Authority (USX
Corporation Project);
Variable Rate Refunding
Series 1998 RB
3.00%, 08/05/99(b)(d) A-1+ -- 1,000 1,000,000
------------------------------------------------------------------
New Albany (City of) School
Board First Meeting;
Series 1998 RB
4.10%, 01/15/00(b) AAA Aaa 500 503,863
------------------------------------------------------------------
1,503,863
------------------------------------------------------------------
IOWA-4.10%
Iowa School Corporations
(Iowa School Cash
Anticipation Program);
Warrant Certificate
Series 1998-1999 A TRAN
4.50%, 06/25/99(b) SP-1+ MIG-1 2,500 2,506,054
------------------------------------------------------------------
</TABLE>
FS-45
<PAGE> 140
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
KENTUCKY-6.96%
Kentucky Asset/Liability
Commission; Series 1998 B
General Fund TRAN
4.00%, 06/25/99 SP-1+ MIG-1 $1,000 $ 1,001,524
------------------------------------------------------------------
Kentucky Asset/Liability
Commission; General Fund
Series 1998 A Commercial
Paper Notes
2.90%, 08/12/99(b)(c) -- VMIG-1 1,000 1,000,000
------------------------------------------------------------------
Kentucky Interlocal School
Transport Association;
Series 1998 TRAN
3.90%, 06/30/99 SP-1+ -- 2,250 2,254,454
------------------------------------------------------------------
4,255,978
------------------------------------------------------------------
MAINE-1.31%
Regional Waste System
Industrial Maine; Solid
Waste Residential Series
P RB
5.25%, 07/01/99 AA -- 800 803,607
------------------------------------------------------------------
MICHIGAN-1.14%
Michigan State Hospital
Finance Authority
(Hospital Equipment Loan
Program); Adjustable
Series 1995 A RB
3.15%, 12/01/23(b)(c) -- VMIG-1 500 500,000
------------------------------------------------------------------
Plymouth (Township of)
Economic Development
Corp. (Key International
Project); Variable Rate
Demand Series 1984 RB
2.95%, 07/01/04(b)(c)(e) -- -- 200 200,000
------------------------------------------------------------------
700,000
------------------------------------------------------------------
MINNESOTA-7.72%
Northern Municipal Power
Agency; Electric System
Refunding Series 1998 RB
3.08%, 01/01/16(b)(c) A-1C -- 3,245 3,245,000
------------------------------------------------------------------
Owatonna (City of) (The
Health Central System
Project); Hospital Series
1985 RB
3.05%, 08/01/14(b)(c) A-1+ -- 1,480 1,480,000
------------------------------------------------------------------
4,725,000
------------------------------------------------------------------
MISSISSIPPI-3.11%
Perry (County of) Leaf
River Forest Products;
Series PCR
3.15%, 03/01/02(b)(c) -- P-1 1,900 1,900,000
------------------------------------------------------------------
MONTANA-1.14%
Missoula (County of)
(Washington Corp.
Project); Floating Rate
Monthly Demand Series
1984 IDR
2.91%, 11/01/04(b)(c)(e) -- -- 700 700,000
------------------------------------------------------------------
NEVADA-2.20%
Reno (City of) St. Mary's
Regional Medical Center;
Hospital Series 1998 A RB
4.375%, 05/15/99(b) AAA Aaa 1,345 1,347,124
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW HAMPSHIRE-2.29%
New Hampshire Higher
Education and Health
Facilities Authority;
Variable Rate Hospital
Series 1985 C RB
3.15%, 12/01/25(c)(g) A-1 -- $1,400 $ 1,400,000
------------------------------------------------------------------
NEW YORK-2.12%
Eagle Tax Exempt Trust;
Class A Series 943802 COP
3.11%, 05/01/07(c)(f)(g) A-1+C -- 1,295 1,295,000
------------------------------------------------------------------
OHIO-0.49%
Delaware (County of)
(Radiation Sterilizers,
Inc.); Series 1984 IDR
3.00%, 12/01/04(b)(c) A-1 -- 300 300,000
------------------------------------------------------------------
PENNSYLVANIA-5.20%
Delaware (County of)
Industrial Development
Authority (Scotfoam Corp.
Project); Variable Rate
Demand Series 1985 IDR
2.95%, 10/01/05(b)(c)(e) -- -- 1,000 1,000,000
------------------------------------------------------------------
Harrisburg (City of)
Authority School; Series
A RB
5.00%, 09/01/99(e) AAA Aaa 1,000 1,008,222
------------------------------------------------------------------
Philadelphia (City of)
School District; Series
1998-1999 A TRAN
4.25%, 06/30/99(b) SP-1 MIG-1 1,000 1,001,476
------------------------------------------------------------------
York (City of) General
Authority; Adjustable
Rate Pooled Financing
Series 1996 RB
3.10%, 09/01/26(b)(c) A-1 -- 168 168,000
------------------------------------------------------------------
3,177,698
------------------------------------------------------------------
RHODE ISLAND-0.83%
Providence (City of);
General Obligation Bonds
4.60%, 01/15/00(b) AAA Aaa 500 505,210
------------------------------------------------------------------
TENNESSEE-1.94%
Nashville and Davidson
(Counties of) (Amberwood
Ltd. Project); Metro
Government Multifamily
Housing Refunding Series
1993 A IDR
3.31%, 07/01/13(b)(c) -- VMIG-1 1,185 1,185,000
------------------------------------------------------------------
TEXAS-11.35%
Bexar (County of) Texas
Housing Finance Authority
(Fountainhead Apts.
Project); Multifamily RB
3.00%, 09/15/26(b)(c) A-1+ -- 300 300,000
------------------------------------------------------------------
Harris (County of); General
Obligation Series A
Commercial Paper Notes
3.05%, 08/13/99 A-1+ P-1 715 715,000
------------------------------------------------------------------
Houston (City of) Water and
Sewer; Series A
Commercial Paper Notes
2.65%, 05/11/99 A-1 P-1 1,000 1,000,000
------------------------------------------------------------------
</TABLE>
FS-46
<PAGE> 141
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Lubbock (City of)
Waterworks System Sub
Lien Certificates of
Obligation; Ltd. General
Obligation Series 1991 RB
8.60%, 02/15/00 AA As2 $ 500 $ 522,499
------------------------------------------------------------------
San Antonio (City of)
Electric and Gas System;
Series A Commercial Paper
3.00%, 04/07/99 A-1+ P-1 2,000 2,000,000
------------------------------------------------------------------
Texas (State of); Series
1998 TRAN
4.50%, 08/31/99 SP-1+ MIG-1 1,000 1,004,347
------------------------------------------------------------------
Trinity River Industrial
Development Authority
(Radiation Sterilizers,
Inc. Project); Variable
Rate Demand Series 1985 A
IDR
3.00%, 11/01/05(b)(c) A-1 -- 1,400 1,400,000
------------------------------------------------------------------
6,941,846
------------------------------------------------------------------
VIRGINIA-0.82%
Arlington (County of);
General Obligation Bond
Series 1993
5.00%, 07/15/99 AAA Aaa 500 502,586
------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WASHINGTON-0.82%
Industrial Development
Corp. of Port Townsend
(Port Townsend Paper
Corp. Project); Variable
Rate Refunding Series
1988 A RB
3.00%, 03/01/09(b)(c) -- VMIG-1 $ 500 $ 500,000
------------------------------------------------------------------
Total Short-Term
Municipal Obligations
(Cost $54,735,710) 54,735,710
------------------------------------------------------------------
MASTER NOTE AGREEMENTS(h)-5.72%
Broker/Dealer-5.72%
Merrill Lynch Mortgage
Capital, Inc.
5.405%, 08/16/99(e)(i)
(Cost $3,500,000) -- -- 3,500 3,500,000
------------------------------------------------------------------
REPURCHASE AGREEMENT(h)(j)-7.45%
Goldman, Sachs & Co.
5.10%, 04/01/99(k) (Cost
$4,557,238) -- -- 4,557 4,557,238
------------------------------------------------------------------
TOTAL INVESTMENTS-102.67% 62,792,948(l)
------------------------------------------------------------------
LIABILITIES LESS OTHER
ASSETS-(2.67%) (1,633,950)
------------------------------------------------------------------
NET ASSETS-100.00% $61,158,998
------------------------------------------------------------------
</TABLE>
Abbreviations:
COP - Certificates of Participation
IDR - Industrial Development Revenue Bonds
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
TAN - Tax Anticipation Note
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 03/31/99.
(d)Subject to an irrevocable call or mandatory put by the issuer. Par value and
maturity date reflect such call or put.
(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)The Fund may invest in synthetic municipal instruments the value of and
return on which are derived from underlying securities. The types of
synthetic municipal instruments in which the Fund may invest include variable
rate instruments. These instruments involve the deposit into a trust of one
or more long-term tax-exempt bonds or notes ("Underlying Bonds"), and the
sale of certificates evidencing interests in the trust to investors such as
the Fund. The trustee receives the long-term fixed rate interest payments on
the Underlying Bonds, and pays certificate holders short-term floating or
variable interest rates which are reset periodically. A "variable rate trust
certificate" evidences an interest in a trust entitling the certificate
holder to receive variable rate interest based on prevailing short-term
interest rates and also typically providing the certificate holder with the
conditional right to put its certificate at par value plus accrued interest.
Because synthetic municipal instruments involve a trust and a third party
conditional put feature, they involve complexities and potential risks that
may not be present where a municipal security is owned directly.
(g)Secured by bond insurance.
(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 one business days' notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
03/31/99.
(j)Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market as being 102% of the sales price of the repurchase
agreement. The investments in some repurchase agreements are through
participation in joint accounts with other mutual funds, private accounts,
and certain non-registered investment companies managed by the investment
advisor or its affiliates.
(k)Joint repurchase agreement entered into 03/31/99 with a maturing value of
$500,070,833. Collateralized by $508,704,317 U.S. Government obligations,
5.00% to 7.50% due 02/01/05 to 05/01/36 with an aggregate market value at
03/31/99 of $510,000,000.
(l)Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-47
<PAGE> 142
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (amortized cost) $ 62,792,948
------------------------------------------------------------
Receivables for:
Investments sold 1,400,000
------------------------------------------------------------
Capital stock sold 389,278
------------------------------------------------------------
Interest 500,366
------------------------------------------------------------
Investment for deferred compensation plan 26,901
------------------------------------------------------------
Other assets 26,366
------------------------------------------------------------
Total assets 65,135,859
------------------------------------------------------------
LIABILITIES:
Payables for:
Dividends 17,483
------------------------------------------------------------
Deferred compensation 26,901
------------------------------------------------------------
Capital stock reacquired 3,819,030
------------------------------------------------------------
Accrued administrative services fees 4,515
------------------------------------------------------------
Accrued advisory fees 22,129
------------------------------------------------------------
Accrued distribution fees 19,277
------------------------------------------------------------
Accrued transfer agent fees 14,993
------------------------------------------------------------
Accrued operating expenses 52,533
------------------------------------------------------------
Total liabilities 3,976,861
------------------------------------------------------------
Net assets applicable to shares outstanding $ 61,158,998
------------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 1,000,000,000
------------------------------------------------------------
Outstanding 61,130,831
------------------------------------------------------------
Net asset value, offering and redemption
price per share $ 1.00
------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $2,590,171
-----------------------------------------------------------
EXPENSES:
Advisory fees 250,445
-----------------------------------------------------------
Administrative services fees 49,285
-----------------------------------------------------------
Custodian fees 8,446
-----------------------------------------------------------
Directors' fees and expenses 12,734
-----------------------------------------------------------
Transfer agent fees 69,602
-----------------------------------------------------------
Distribution fees 178,890
-----------------------------------------------------------
Registration and filing fees 53,132
-----------------------------------------------------------
Other 52,381
-----------------------------------------------------------
Total expenses 674,915
-----------------------------------------------------------
Less: Fees waived (107,334)
-----------------------------------------------------------
Expenses paid indirectly (817)
-----------------------------------------------------------
Net expenses 566,764
-----------------------------------------------------------
Net investment income 2,023,407
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 11,634
-----------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities (160)
-----------------------------------------------------------
Net gain on investment securities 11,474
-----------------------------------------------------------
Net increase in net assets resulting from
operations $2,034,881
-----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-48
<PAGE> 143
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,023,407 $ 1,600,784
-----------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 11,634 17,389
-----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (160) 160
-----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,034,881 1,618,333
-----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (2,029,841) (1,598,357)
-----------------------------------------------------------------------------------------
Net increase (decrease) from capital stock transactions 9,220,052 (4,966,262)
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets 9,225,092 (4,946,286)
-----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 51,933,906 56,880,192
-----------------------------------------------------------------------------------------
End of period $61,158,998 $51,933,906
-----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $61,130,831 $51,910,779
-----------------------------------------------------------------------------------------
Undistributed net investment income 29,998 36,432
-----------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (1,831) (13,465)
-----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities -- 160
-----------------------------------------------------------------------------------------
$61,158,998 $51,933,906
-----------------------------------------------------------------------------------------
</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 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 $4,570 (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-49
<PAGE> 144
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, 1999, the Fund
reimbursed AIM $49,285 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, 1999, the Fund paid AFS
$39,222 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, 1999 AIM
Distributors waived fees of $107,334. 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, 1999, the Fund paid AIM Distributors
$71,556 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, 1999, the Fund paid legal fees of $3,479 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-INDIRECT EXPENSES
During the year ended March 31, 1999, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $817 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of the
Fund's total expenses of $817 during the year ended March 31, 1999.
NOTE 5-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 365,487,367 $ 365,487,367 234,334,058 $ 234,334,058
----------------------------------------------------------------------------------
Issued as
reinvestment of
dividends 1,903,872 1,903,872 1,529,845 1,529,845
----------------------------------------------------------------------------------
Reacquired (358,171,187) (358,171,187) (240,830,165) (240,830,165)
----------------------------------------------------------------------------------
9,220,052 $ 9,220,052 (4,966,262) $ (4,966,262)
----------------------------------------------------------------------------------
</TABLE>
FS-50
<PAGE> 145
NOTE 6-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 $ 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 0.03
------------------------------------------------------------ ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.03) (0.03) (0.03) (0.03) (0.03)
------------------------------------------------------------ ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------ ------- ------- ------- ------- -------
Total return 2.90% 3.12% 2.82% 2.92% 2.54%
------------------------------------------------------------ ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $61,159 $51,934 $56,880 $30,014 $30,365
------------------------------------------------------------ ------- ------- ------- ------- -------
Ratio of expenses to average net assets(a) 0.79%(b) 0.83% 1.04% 1.05% 1.01%
------------------------------------------------------------ ------- ------- ------- ------- -------
Ratio of net investment income to average net assets(c) 2.83%(b) 3.07% 2.78% 2.97% 2.53%
------------------------------------------------------------ ------- ------- ------- ------- -------
</TABLE>
(a) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
0.94%, 0.98%, 1.19%, 1.20% and 1.16% for the periods 1999-1995 respectively.
(b) Ratios are based on average net assets of $71,555,805.
(c) After fee waivers and/or expense reimbursements. Ratios of income to average
net assets prior to fee waivers and/or expense reimbursements were 2.68%,
2.92%, 2.63%, 2.82% and 2.38%, for the periods 1999-1995 respectively.
FS-51
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
The Board of Trustees 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, 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 and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of AIM Tax-Free
Intermediate Fund as of March 31, 1999, 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 LLP
Houston, Texas
May 7, 1999
FS-52
<PAGE> 147
SCHEDULE OF INVESTMENTS
March 31, 1999
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALABAMA-1.41%
Alabama State Municipal
Electric Authority;
Power Supply Series A
RB
6.30%, 09/01/01(b) AAA Aaa $ 400 $ 425,200
----------------------------------------------------------------
Birmingham (City of)
Special Care Facilities
Financing Authority
(Charity Obligation
Group); Hospital Series
1997 D RB
4.95%, 11/01/07(c) AA+ Aa2 970 1,009,120
----------------------------------------------------------------
McIntosh Alabama
Industrial Development
Board Environmental
Improvement; RB
5.00%, 06/01/08 AA- A2 2,000 2,013,240
----------------------------------------------------------------
3,447,560
----------------------------------------------------------------
ALASKA-3.22%
Alaska State Housing
Financing Corp.; Series
A RB
2.95%, 06/01/26(d) A1+ VMIG-1 4,728 4,728,000
----------------------------------------------------------------
Anchorage (City of);
School Series 1994 GO
5.50%, 07/01/06(b) AAA Aaa 1,950 2,104,070
----------------------------------------------------------------
Matanuska-Susitna
Borough; School
District Series A GO
5.00%, 03/01/09(b) AAA Aaa 1,000 1,047,700
----------------------------------------------------------------
7,879,770
----------------------------------------------------------------
ARIZONA-4.27%
Maricopa County (Gilbert
Unified School District
#41 Project of 1988);
School Improvement
Series 1992 E GO
6.20%, 07/01/02(e) AAA Aaa 1,250 1,344,400
----------------------------------------------------------------
Maricopa County School
District #90 (Ruth
Fisher Elementary);
Series 1997 GO
4.70%, 07/01/99 -- A2 1,300 1,304,446
----------------------------------------------------------------
Maricopa County (Phoenix
Unified High School
District #210 Project
of 1995); School
Improvement Series C GO
4.00%, 07/01/00 AA Aa3 2,500 2,522,750
----------------------------------------------------------------
Mohave County Unified
School District #1
(Lake Havasu); Series A
GO
5.40%, 07/01/06(b) AAA Aaa 200 216,124
----------------------------------------------------------------
Navajo County Unified
School District; Series
1997 A GO
5.00%, 07/01/07(b) AAA Aaa 450 474,818
----------------------------------------------------------------
Nogales Municipal
Development Authority;
RB
4.20%, 06/01/08(b) AAA Aaa 710 701,998
----------------------------------------------------------------
4.30%, 06/01/09(b) AAA Aaa 530 527,387
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ARIZONA-(CONTINUED)
Phoenix (City of); Senior
Lien Street and Highway
User; Refunding Series
1992 RB
6.20%, 07/01/02 AA A1 $ 1,000 $ 1,075,520
----------------------------------------------------------------
Prescott (City of) Water
District; RB
4.25%, 01/01/09(b) AAA Aaa 500 492,525
----------------------------------------------------------------
Yuma County School
District #13 (Crane
Elementary); Refunding
Series GO
5.25%; 07/01/01(b) -- Aaa 675 700,157
----------------------------------------------------------------
Yuma Industrial
Development Authority
(Yuma Regional Medical
Center Project); Health
Care Facilities Series
1997 Refunding RB
5.70%, 08/01/06(b) AAA Aaa 1,000 1,090,330
----------------------------------------------------------------
10,450,455
----------------------------------------------------------------
ARKANSAS-3.14%
Arkansas State
Development Financial
Authority; Correction
Facility Series 1996 RB
6.25%, 10/01/06(b) AAA Aaa 1,800 2,042,334
----------------------------------------------------------------
Conway (City of); Sales
and Use Tax Capital
Improvement Series 1997
A RB
4.80%, 12/01/07(b) AAA Aaa 825 852,093
----------------------------------------------------------------
Little Rock (City of)
(Baptist Medical
Center); Health
Facility Hospital
Series RB
6.70%, 11/01/04(b) AAA Aaa 1,400 1,575,854
----------------------------------------------------------------
North Little Rock (City
of); Electric System
Refunding Series 1992 A
RB
6.00%, 07/01/01(b) AAA Aaa 500 526,630
----------------------------------------------------------------
Pulaski Special School
District; Refunding
Series GO
4.50%, 02/01/02 -- A3 1,065 1,086,417
----------------------------------------------------------------
Sebastian (County of)
(Arkansas Community Jr.
College District);
Refunding & Improvement
Series 1997 GO
5.10%, 04/01/06(b) -- Aaa 500 531,665
----------------------------------------------------------------
5.20%, 04/01/07(b) -- Aaa 1,000 1,070,750
----------------------------------------------------------------
7,685,743
----------------------------------------------------------------
CALIFORNIA-2.53%
California Health Care
Facilities Financing
Authority (Casa De Las
Campanas); Hospital
Series A RB
4.875%, 08/01/08 A+ -- 700 726,236
----------------------------------------------------------------
</TABLE>
FS-53
<PAGE> 148
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
CALIFORNIA-(CONTINUED)
California Intercommunity
Hospital Financing
Authority; Certificates
of Participation
4.60%, 11/01/08(b) A -- $ 1,210 $ 1,211,815
----------------------------------------------------------------
California State Public
Works Board (Department
of Corrections) (State
Prison-Madera County);
Lease Series 1990 A RB
7.00%, 09/01/00 A A 100 104,985
----------------------------------------------------------------
Folsom (City of) (School
Facilities Project);
Series 1994 B GO
6.00%, 08/01/02(b) Aaa Aaa 500 539,150
----------------------------------------------------------------
Inglewood (City of)
(Daniel Freeman
Hospital Inc.); Insured
Hospital Series 1991 RB
6.50%, 05/01/01(e) NRR NRR 400 424,564
----------------------------------------------------------------
Orange (County of);
Refunding Recovery
Series A RB
5.50%, 06/01/06(b) AAA Aaa 1,000 1,093,100
----------------------------------------------------------------
Parking Authority of the
City and County of San
Francisco; Parking
Meter Series 1994 RB
6.75%, 06/01/05(b) AAA Aaa 500 577,545
----------------------------------------------------------------
South San Francisco
Capital Improvement
Financing Authority;
Redevelopment Series A
RB
4.30%, 09/01/08(b) A -- 1,255 1,242,513
----------------------------------------------------------------
West End Water
Development, Treatment,
and Conservation Joint
Powers Authority; Water
Facilities Series 1990
Certificates of
Participation
7.00%, 10/01/00(e) NRR NRR 250 263,007
----------------------------------------------------------------
6,182,915
----------------------------------------------------------------
COLORADO-0.49%
Highlands Ranch
Metropolitan District
#3; Refunding Series B
RB
4.50%; 12/01/04(b) A -- 1,175 1,199,628
----------------------------------------------------------------
CONNECTICUT-0.99%
Connecticut (State of);
Special Tax Obligation
RB
2.90%, 12/01/10(d) A1+ VMIG-1 20 20,000
----------------------------------------------------------------
Connecticut (State of)
Developing Authority
(Independent Living
Project); RB
2.80%, 07/01/15(d) -- VMIG-1 128 128,000
----------------------------------------------------------------
New Haven (City of);
Series 1997 GO
6.00%, 02/15/06(b) AAA Aaa 2,050 2,278,104
----------------------------------------------------------------
2,426,104
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
DELAWARE-1.63%
Delaware Transportation
Authority; Senior Lien
Transportation System
Series 1991 RB
6.00%, 07/01/01(c)(e) AAA Aaa $ 750 $ 789,945
----------------------------------------------------------------
University of Delaware;
RB
3.00%, 11/23/23(d) -- A-1+ 3,187 3,187,000
----------------------------------------------------------------
3,976,945
----------------------------------------------------------------
DISTRICT OF
COLUMBIA-4.24%
District of Columbia;
Refunding Unlimited Tax
Series B GO
6.125%, 06/01/02(c)(e) AAA Aaa 60 65,264
----------------------------------------------------------------
6.125%, 06/01/03(b) AAA Aaa 2,960 3,201,240
----------------------------------------------------------------
5.50%, 06/01/07(b) AAA Aaa 3,000 3,221,730
----------------------------------------------------------------
District of Columbia
(American Association
Advancement Science);
Series 1997 RB
5.00%, 01/01/05(b) AAA Aaa 800 837,256
----------------------------------------------------------------
District of Columbia
(Medlantic Healthcare
Group); RB
5.50%, Refunding Series
1993 A, 08/15/06(e) AAA Aaa 500 541,410
----------------------------------------------------------------
6.00%, Series 1996 A,
08/15/06(e) AAA Aaa 1,550 1,727,025
----------------------------------------------------------------
6.00%, Series 1996 A,
08/15/07(e) AAA Aaa 500 559,865
----------------------------------------------------------------
District of Columbia (The
Howard University
Issue); University
Series 1990 A RB
6.90%, 10/01/00(e) AAA NRR 200 209,762
----------------------------------------------------------------
10,363,552
----------------------------------------------------------------
FLORIDA-2.19%
Broward (County of)
Expressway Authority;
Refunding Series A GO
6.50%, 07/01/04 AA+ Aa2 1,000 1,001,740
----------------------------------------------------------------
Lee (County of) Housing
Financial Authority
(Forestwood Apartments
Project); Series A RB
2.90%, 06/15/25(d) AAA -- 58 58,000
----------------------------------------------------------------
Miami Beach (City of)
Health Facilities
Authority (South
Shore); Hospital Series
A RB
4.80%, 08/01/08 A -- 1,000 1,022,570
----------------------------------------------------------------
Palm Beach County Solid
Waste Authority;
Refunding Series 1997 A
RB
5.50%, 10/01/06(b) AAA Aaa 3,000 3,272,430
----------------------------------------------------------------
5,354,740
----------------------------------------------------------------
GEORGIA-3.76%
Albany (City of); Sewer
System Series 1992 RB
6.30%, 07/01/02(e) AAA Aaa 500 539,270
----------------------------------------------------------------
</TABLE>
FS-54
<PAGE> 149
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GEORGIA-(CONTINUED)
De Kalb (County of)
Private Hospital
Authority (Egleston
Childrens' Hospital);
Revenue Anticipation
Certificates Series A
RB
2.90%, 03/01/24(d) A1+ VMIG-1 $ 141 $ 141,000
----------------------------------------------------------------
Fulton (County of); Water
and Sewer Refunding
Series 1992 RB
5.75%, 01/01/02(b) AAA Aaa 715 753,145
----------------------------------------------------------------
Georgia (State of);
Series 1988 D GO
7.10%, 06/01/99 AAA Aaa 2,000 2,012,240
----------------------------------------------------------------
Georgia State Municipal
Electric Authority; RB
4.75%, Refunding Sub-
Series A, 01/01/08(b) AAA Aaa 3,000 3,099,480
----------------------------------------------------------------
6.00%, Series V,
01/01/01(b) AAA Aaa 1,000 1,040,830
----------------------------------------------------------------
Metropolitan Atlanta
Rapid Transportation
Authority; Sales Tax
Refunding Series M RB
6.15%, 07/01/02 AA- A1 500 535,235
----------------------------------------------------------------
Savannah (City of)
Hospital Authority (St.
Joseph's Candler Health
System); Refunding
Series A RB
5.25%, 07/01/08(b) -- Aaa 1,000 1,068,570
----------------------------------------------------------------
9,189,770
----------------------------------------------------------------
HAWAII-3.39%
Hawaii (State of);
Refunding Series 1997
GO
6.00%, 03/01/07(b) AAA Aaa 5,000 5,553,550
----------------------------------------------------------------
Hawaii (State of)
(Kapolei State Office
Building); Series A
Certificates of
Participation
4.50%, 05/01/09(b) AAA Aaa 2,725 2,735,873
----------------------------------------------------------------
8,289,423
----------------------------------------------------------------
ILLINOIS-7.76%
Chicago (City of); Series
1997 GO
6.00%, 01/01/06(b) AAA Aaa 500 552,290
----------------------------------------------------------------
Chicago (City of) School
Financial Authority;
Refunding Series A GO
5.10%, 06/01/04(b) AAA Aaa 10,000 10,516,600
----------------------------------------------------------------
Hoffman Estates Illinois
Multifamily Housing
(Park Place Apartments
Project); Refunding
Series 1996 RB
5.75%, 06/01/06(c) AAA Aaa 1,250 1,327,813
----------------------------------------------------------------
Illinois Development
Financial Authority
(American College
Surgeons); Series 1996
RB
3.10%, 08/01/26(d) A1+ -- 53 53,000
----------------------------------------------------------------
Illinois Development
Financial Authority;
Series 1997 IDR
4.80%, 08/01/25 AA- -- 1,000 1,027,560
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ILLINOIS-(CONTINUED)
Illinois Educational
Facilities Authority
(Augustana College);
Series 1997 RB
4.80%, 10/01/99(b) AAA -- $ 375 $ 378,139
----------------------------------------------------------------
Illinois Health
Facilities Authority;
Series D RB
2.95%, 08/01/15(d) A1+ VMIG-1 315 315,000
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Alexian Brothers
Health System); RB
5.00%, 01/01/06(b) AAA Aaa 1,000 1,041,680
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Edward Obligated
Group); Series 1997 A
RB
4.90%, 02/15/08(b) AAA Aaa 835 863,448
----------------------------------------------------------------
Illinois Health
Facilities Authority
(Highland Park
Hospital); Series 1991
A RB
4.80%, 10/01/99(b) AAA Aaa 255 257,134
----------------------------------------------------------------
5.55%, 10/01/06(b) AAA Aaa 500 540,305
----------------------------------------------------------------
Illinois Regional Transit
Authority; Series B RB
6.30%, 06/01/04(c)(e) AAA Aaa 1,000 1,128,390
----------------------------------------------------------------
Joliet (City of);
Waterworks and Sewer
Series 1991 RB
6.95%, 01/01/01(b) AAA Aaa 250 263,998
----------------------------------------------------------------
Kane (County of) Public
Building Commission;
Unlimited Tax Public
Building Series B GO
6.20%, 12/01/99(c)(e) NRR NRR 700 713,881
----------------------------------------------------------------
18,979,238
----------------------------------------------------------------
INDIANA-4.39%
Frankfort Middle School
Building Corp.;
Refunding Series 1996
RB
5.20%, 01/10/07(b) AAA Aaa 295 313,143
----------------------------------------------------------------
Hamilton (County of);
Optional Income Tax
Revenue Series 1998 RB
5.00%, 07/10/08(b) AAA Aaa 1,095 1,152,126
----------------------------------------------------------------
Indiana Health Facilities
Financing Authority
(Charity Obligated
Group); Series 1997 D
RB
5.00%, 11/01/07(c) AA+ Aa2 2,470 2,565,836
----------------------------------------------------------------
Indiana Municipal Power
Agency (Power Supply
System); Refunding
Special Obligation
1st-Crossover B RB
4.80%, 01/01/09(b) AAA Aaa 2,000 2,027,760
----------------------------------------------------------------
Indiana Transportation
Finance Authority;
Airport Facilities
Lease Series A RB
6.00%, 11/01/01 A A1 500 527,925
----------------------------------------------------------------
Indiana Transportation
Finance Authority;
Highway Series A RB
5.50%, 06/01/07(b) AAA Aaa 1,000 1,084,590
----------------------------------------------------------------
</TABLE>
FS-55
<PAGE> 150
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
INDIANA-(CONTINUED)
Warren (City of) School
Building Corp;
Refunding First
Mortgage RB
4.30%, 01/05/01(b) AAA Aaa $ 1,500 $ 1,519,590
----------------------------------------------------------------
4.50%, 01/05/03(b) AAA Aaa 1,500 1,536,270
----------------------------------------------------------------
10,727,240
----------------------------------------------------------------
IOWA-1.38%
Iowa Student Loan
Liquidity Corp.;
Student Loan Series
1992 A RB
6.25%, 03/01/00 -- Aa1 500 510,970
----------------------------------------------------------------
Muscatine Iowa Electric;
Refunding Series RB
5.00%, 01/01/08 A A3 2,855 2,857,398
----------------------------------------------------------------
3,368,368
----------------------------------------------------------------
KANSAS-1.34%
Burlington (City of)
Environmental
Improvement (Power and
Lighting Project);
Refunding Series K PCR
4.35%, 09/01/01(c) A- A2 1,250 1,253,913
----------------------------------------------------------------
4.50%, 09/01/03(c) A- A2 2,000 2,019,020
----------------------------------------------------------------
3,272,933
----------------------------------------------------------------
KENTUCKY-0.88%
Carrollton & Henderson
Public Energy
Authority; Gas Series B
RB
4.20%, 01/01/06(b) AAA Aaa 1,000 1,002,280
----------------------------------------------------------------
Kentucky Economic
Development Finance
Authority (Ashland
Hospital Corp); Medical
Center Refunding and
Improvement Series RB
4.50%, 02/01/02(b) AAA Aaa 850 866,864
----------------------------------------------------------------
Kentucky State Turnpike
Authority (Economic
Development Road
Revitalization
Project); RB
7.125%, 05/15/00(c)(e) AAA Aaa 260 274,485
----------------------------------------------------------------
2,143,629
----------------------------------------------------------------
LOUISIANA-4.74%
Jefferson Parish School
Board; Sales and Use
Tax RB
6.00%, 02/01/04(b) AAA Aaa 1,720 1,872,461
----------------------------------------------------------------
Louisiana (State of);
Series A GO
6.00%, 04/15/07(b) AAA Aaa 5,000 5,582,450
----------------------------------------------------------------
Louisiana Offshore
Terminal Authority
(Loop, Inc.); Deepwater
Port Refunding Series
1992 RB
6.00%, 09/01/01 A A3 1,000 1,041,380
----------------------------------------------------------------
6.20%, 09/01/03 A A3 1,000 1,072,530
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
LOUISIANA-(CONTINUED)
New Orleans (City of);
Refunding Certificates
of Indebtedness Series
A GO
4.15%, 08/01/01(b) AAA Aaa $ 2,000 $ 2,028,640
----------------------------------------------------------------
11,597,461
----------------------------------------------------------------
MAINE-1.19%
Maine Financial
Authority; Electric
Rate Stabilization
Refunding Series A RB
4.50%, 07/01/08(b) AAA Aaa 1,830 1,850,588
----------------------------------------------------------------
Regional Waste System
Inc.; Solid Waste
Resource Recovery
Series P RB
5.25%, 07/01/03 AA -- 1,000 1,052,580
----------------------------------------------------------------
2,903,168
----------------------------------------------------------------
MASSACHUSETTS-1.03%
Massachusetts State
Health and Educational
Facilities Authority
(Eye and Ear
Infirmary); Series B RB
5.00%, 07/01/05 A -- 1,000 1,037,870
----------------------------------------------------------------
Massachusetts Turnpike
Authority; Metropolitan
Highway System
Sub-Series A RB
5.125%, 01/01/09(b) -- Aaa 1,000 1,058,470
----------------------------------------------------------------
New England Education
Loan Marketing Corp.;
Student Loan Refunding
Senior Issue 1992 D RB
6.20%, 09/01/00 -- Aaa 400 413,864
----------------------------------------------------------------
2,510,204
----------------------------------------------------------------
MICHIGAN-1.65%
Dearborn (City of)
Economic Development
Corp. (Oakwood
Obligated Group);
Hospital Series 1991 A
RB
6.95%, 08/15/01(c)(e) AAA Aaa 1,000 1,094,620
----------------------------------------------------------------
Detroit (City of) School
District; GO
5.60%, 05/01/01 AA+ Aa2 765 796,778
----------------------------------------------------------------
Michigan State Building
Authority; Refunding
Series I RB
6.40%, 10/01/04 AA Aa2 2,000 2,157,180
----------------------------------------------------------------
4,048,578
----------------------------------------------------------------
MINNESOTA-0.32%
Southern Minnesota
Municipal Power Agency;
Power Supply System
Series A RB
5.60%, 01/01/04 A+ A2 745 793,604
----------------------------------------------------------------
MISSISSIPPI-0.44%
Gulfport (City of);
Refunding GO
4.50%, 05/01/07(b) -- Aaa 515 523,704
----------------------------------------------------------------
4.55%, 05/01/08(b) -- Aaa 550 560,219
----------------------------------------------------------------
1,083,923
----------------------------------------------------------------
</TABLE>
FS-56
<PAGE> 151
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MISSOURI-0.80%
Fort Osage Reorganization
School District #1
(Missouri School
District Direct Deposit
Program); Series 1997
GO
4.95%, 03/01/06 AA Aa2 $ 405 $ 424,505
----------------------------------------------------------------
Missouri State Health and
Educational Facilities
Authority (Freeman
Health Systems
Project); Hospital
Series RB
4.85%, 02/15/07(b) A -- 1,000 1,011,670
----------------------------------------------------------------
5.00%, 02/15/08(b) A -- 515 525,310
----------------------------------------------------------------
1,961,485
----------------------------------------------------------------
MONTANA-0.18%
Montana Higher Education
Assistance Corp.;
Student Loan Series
1992 A RB
6.60%, 12/01/00 -- A 420 436,859
----------------------------------------------------------------
NEVADA-0.20%
Clark County Improvement
District No. 65 (Lamb
Boulevard III); Series
1992 GO
6.20%, 12/01/02 AA- A1 120 124,015
----------------------------------------------------------------
Nevada (State of) (Nevada
Municipal Bond Bank
Project Nos. 38-39);
Limited Tax Series 1992
A GO
6.00%, 07/01/01(e) NRR NRR 350 368,256
----------------------------------------------------------------
492,271
----------------------------------------------------------------
NEW JERSEY-1.75%
Gloucester County
Utilities Authority;
Sewer Refunding Series
1991 RB
6.10%, 01/01/00 AA- A1 225 229,696
----------------------------------------------------------------
Jersey City (City of)
(Qualified School
Bond); GO
6.40%, 02/15/00 AA Aa3 1,000 1,027,690
----------------------------------------------------------------
New Jersey Transportation
Trust Fund Authority;
Transportation System
Series 1992 A RB
5.90%, 06/15/99(e) NRR Aaa 1,000 1,005,330
----------------------------------------------------------------
Ocean City (City of); GO
5.00%, 04/01/09(b) AAA Aaa 1,400 1,473,066
----------------------------------------------------------------
Trenton (City of); Fiscal
Year Adjustment GO
6.10%, 08/15/02(b) AAA Aaa 500 538,360
----------------------------------------------------------------
4,274,142
----------------------------------------------------------------
NEW MEXICO-1.07%
Albuquerque (City of);
Joint Water and Sewer
Series 1990 A RB
6.00%, 07/01/00(c)(e) AAA -- 1,000 1,032,380
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW MEXICO-(CONTINUED)
Farmington (City of) (San
Juan Regional Medical
Center); Hospital
Series A RB
5.00%, 06/01/01(b) -- Aaa $ 1,015 $ 1,044,983
----------------------------------------------------------------
Santa Fe (City of);
Series 1994 A RB
5.50%, 06/01/03(e) AAA Aaa 500 533,335
----------------------------------------------------------------
2,610,698
----------------------------------------------------------------
NEW YORK-8.49%
Long Island Power
Authority (New York
Electrical Systems);
Series A RB
5.25%, 12/01/02 A- Baa1 1,250 1,306,875
----------------------------------------------------------------
Nassau (County of);
General Improvement
Series V GO
5.15%, 03/01/07(b) AAA Aaa 5,000 5,282,000
----------------------------------------------------------------
New York (City of);
Refunding Series D GO
5.60%, 11/01/05 A- A3 5,000 5,389,150
----------------------------------------------------------------
New York (City of);
Series G GO
5.90%, 02/01/05 A- A3 1,150 1,248,072
----------------------------------------------------------------
New York (State of)
Dormitory Authority;
Mental Health
Facilities Series A RB
6.00%, 02/15/05 A- A3 1,000 1,093,650
----------------------------------------------------------------
6.00%, 08/15/07 A- A3 1,775 1,973,037
----------------------------------------------------------------
New York (State of)
Dormitory Authority
(Pace University
Issue); Series 1997 RB
6.00%, 07/01/07(b) AAA Aaa 1,275 1,428,586
----------------------------------------------------------------
New York (State of)
Dormitory Authority
(Upstate Community
Colleges); Series A RB
4.375%, 07/01/09(b) AAA Aaa 1,000 997,900
----------------------------------------------------------------
New York (State of)
Medical Care Facilities
(Hospital & Nursing
Home); Financial Agency
Series 1995 A RB
5.60%, 02/15/05(b) AAA -- 1,190 1,251,059
----------------------------------------------------------------
Syracuse (City of);
Public Improvement
Series B GO
4.30%, 10/01/03(b) AAA Aaa 775 790,841
----------------------------------------------------------------
20,761,170
----------------------------------------------------------------
NORTH CAROLINA-0.43%
North Carolina Municipal
Power Agency No. 1
(Catawba Electric);
Electrical Refunding
Series RB
5.25%, 01/01/07(b) AAA Aaa 1,000 1,059,860
----------------------------------------------------------------
NORTH DAKOTA-0.40%
Fargo (City of);
Refunding Water Series
1997 RB
5.50%, 01/01/08(b) AAA Aaa 905 979,907
----------------------------------------------------------------
</TABLE>
FS-57
<PAGE> 152
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OHIO-2.77%
Franklin (County of);
1991 Issue GO
6.30%, 12/01/01(c)(e) NRR NRR $ 1,500 $ 1,630,800
----------------------------------------------------------------
Greene (County of); Water
System Series A RB
5.45%, 12/01/06(b) AAA Aaa 585 634,795
----------------------------------------------------------------
Hilliard City School
District; School
Improvement Refunding
Series 1992 GO
6.05%, 12/01/00(b) AAA Aaa 500 521,670
----------------------------------------------------------------
6.15%, 12/01/01(b) AAA Aaa 250 266,305
----------------------------------------------------------------
Lucas County (St.
Vincent's Medical
Center); Hospital
Series A RB
6.75%, 08/15/20(b) AAA Aaa 2,000 2,122,160
----------------------------------------------------------------
Ohio (State of)
(Elementary & Secondary
Education Facilities);
Series 1997 RB
5.10%, 12/01/05 AA- Aa3 1,500 1,593,660
----------------------------------------------------------------
6,769,390
----------------------------------------------------------------
OKLAHOMA-1.18%
Norman (City of) Hospital
Authority; Refunding
Series A RB
5.20%, 09/01/06(b) AAA Aaa 310 331,774
----------------------------------------------------------------
5.30%, 09/01/07(b) AAA Aaa 1,090 1,174,911
----------------------------------------------------------------
Oklahoma Housing Finance
Agency; Single Family
Mortgage Series A RB
6.55%, 03/01/00(b) AAA Aaa 95 97,634
----------------------------------------------------------------
Southern Oklahoma
Memorial Hospital
Authority; Hospital
Series 1993 A RB
5.60%, 02/01/00(e) NRR NRR 1,250 1,274,525
----------------------------------------------------------------
2,878,844
----------------------------------------------------------------
OREGON-2.11%
Cow Creek Band (Umpqua
Tribe of Indians);
Series B RB
4.25%, 07/01/03(b) AAA Aaa 1,265 1,288,504
----------------------------------------------------------------
Grande Ronde (City of)
Community Confederated
Tribes (Governmental
Facilities and
Infrastructure);
Unlimited Tax Series
1997 GO
5.00%, 12/01/07(b) AAA Aaa 1,145 1,211,673
----------------------------------------------------------------
Portland (City of); Sewer
System Series 1994 A RB
5.45%, 06/01/03 A+ A1 1,065 1,131,861
----------------------------------------------------------------
5.55%, 06/01/04 A+ A1 500 537,180
----------------------------------------------------------------
Salem Oregon Hospital
Facilities Authority
(Salem Hospital);
Series RB
4.20%, 08/15/08 AA- -- 1,000 988,520
----------------------------------------------------------------
5,157,738
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
PENNSYLVANIA-2.45%
Fayette County
Pennsylvania Hospital
Authority (Union Town
Hospital); Refunding
Series RB
4.85%, 06/15/01(b) AAA -- $ 1,000 $ 1,026,070
----------------------------------------------------------------
Lackawanna (County of);
Series A GO
4.40%, 01/01/09(b) AAA Aaa 510 509,969
----------------------------------------------------------------
Pennsylvania (State of)
Higher Educational
Facilities Authority
(UPMC Health System);
Series A RB
5.00%, 08/01/09(b) AAA Aaa 2,000 2,086,740
----------------------------------------------------------------
York (City of) General
Authority; RB
3.10%, 09/01/26(d) A1 -- 2,369 2,369,000
----------------------------------------------------------------
5,991,779
----------------------------------------------------------------
RHODE ISLAND-0.44%
Rhode Island (State of);
Refunding Series 1992 A
GO
6.10%, 06/15/03(b) AAA Aaa 1,000 1,084,610
----------------------------------------------------------------
SOUTH CAROLINA-1.24%
Charleston (County of)
(Care Alliance Health
Services); Series A RB
4.40%, 08/15/08(b) AAA Aaa 3,000 3,025,080
----------------------------------------------------------------
SOUTH DAKOTA-0.85%
Rapid City (City of);
Sales Tax Series 1995 A
RB
5.60%, 06/01/05(b) AAA Aaa 255 275,599
----------------------------------------------------------------
South Dakota Health and
Education Facility
(McKennan Hospital);
Refunding Series 1996
RB
5.40%, 07/01/06(b) AAA Aaa 1,680 1,799,146
----------------------------------------------------------------
2,074,745
----------------------------------------------------------------
TENNESSEE-2.36%
Monroe (County of); High
School Refunding Series
GO
4.25%, 05/01/03(b) -- Aaa 500 509,345
----------------------------------------------------------------
Nashville and Davidson
(County of) Health and
Education Facilities
Board (Meharry Medical
College); RB
7.875%, 12/01/04(e) NRR Aaa 890 993,694
----------------------------------------------------------------
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 2,847,474
----------------------------------------------------------------
</TABLE>
FS-58
<PAGE> 153
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TENNESSEE-(CONTINUED)
Tennessee Housing
Development Agency;
Mortgage Financing
Refunding Series 1993 A
RB
5.65%, 01/01/07 A+ A1 $ 1,360 $ 1,415,610
----------------------------------------------------------------
5,766,123
----------------------------------------------------------------
TEXAS-7.72%
Alamo Community College
District; Series 1990
GO
6.90%, 02/15/00(c)(e) -- Aaa 500 515,730
----------------------------------------------------------------
Beaumont (City of)
Waterworks & Sewer
System; Refunding RB
5.25%, 09/01/08(b) AAA Aaa 1,280 1,368,077
----------------------------------------------------------------
Bexar (County of) Housing
Financial Authority;
Multifamily Refunding
Series RB
3.00%, 09/15/26(d) A1+ -- 374 374,000
----------------------------------------------------------------
Comal County Industrial
Development Authority
(The Coleman Company,
Inc. Project); Series
1980 IDR
9.25%, 08/01/00(e) NRR NRR 315 328,312
----------------------------------------------------------------
Conroe (City of)
Independent School
District; Unlimited
School Tax GO
7.375%, 02/01/01(b) -- Aaa 115 122,570
----------------------------------------------------------------
Gatesville Independent
School District;
Unlimited Tax School
Building and Refunding
Series 1995 RB
5.80%, 02/01/03(b) -- Aaa 485 517,733
----------------------------------------------------------------
Harris (County of) (Port
of Houston Authority);
RB
5.75%, 05/01/02 A A 1,070 1,081,973
----------------------------------------------------------------
5.75%, 05/01/02(b) AAA Aaa 1,055 1,067,312
----------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (Memorial
Hospital System
Project); Hospital
Series 1992 RB
6.70%, 06/01/00(e) NRR NRR 1,000 1,036,940
----------------------------------------------------------------
Harris County Health
Facilities Development
Corp. (School Health
Care System Project);
Series B RB
5.10%, 07/01/06 AA Aa3 1,000 1,041,650
----------------------------------------------------------------
Katy (City of)
Independent School
District; Refunding
Series A GO
5.00%, 02/15/09(b) AAA Aaa 1,000 1,045,810
----------------------------------------------------------------
Keller (City of)
Independent School
District; Series 1994
Certificates of
Participation
5.75%, 08/15/01(b) AAA Aaa 915 959,048
----------------------------------------------------------------
Kerrville (City of);
Electric System
Refunding Series 1991
RB
6.375%, 11/01/01(b) AAA Aaa 185 197,909
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <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 $ 583,901
----------------------------------------------------------------
7.50%, 08/15/02(b) AAA Aaa 750 837,173
----------------------------------------------------------------
Lubbock Health Facility
Development Corp.;
Methodist Hospital
Refunding Series 1993 B
RB
5.40%, 12/01/05(b) AAA Aaa 500 541,115
----------------------------------------------------------------
Plano Independent School
District; GO
5.80%, 02/15/05(b) AAA Aaa 2,025 2,176,065
----------------------------------------------------------------
Tarrant (County of)
Housing Finance Corp.
(Arbors on Park II);
Multifamily Housing
Series RB
5.05%, 12/01/07 AAA -- 1,465 1,492,293
----------------------------------------------------------------
Temple (City of) (Bell
County); Refunding
Series 1992 GO
5.80%, 02/01/01(b) AAA Aaa 250 259,587
----------------------------------------------------------------
Texas Municipal Power
Agency; RB
5.75%, 09/01/02(c)(e) AAA Aaa 1,000 1,064,940
----------------------------------------------------------------
Texas Turnpike Authority
(Addison Airport Toll
Tunnel Project); Dallas
North Tollway Series
1994 RB
6.30%, 01/01/05(b) AAA Aaa 500 555,680
----------------------------------------------------------------
University Texas
(Financing System);
Series B RB
4.80%, 08/15/09 AAA Aa1 1,650 1,706,496
----------------------------------------------------------------
18,874,314
----------------------------------------------------------------
UTAH-0.87%
Intermountain Power
Agency (Utah Power
Supply); Refunding
Series 1997 B RB
6.00%, 07/01/07(b) AAA Aaa 1,000 1,116,780
----------------------------------------------------------------
Utah (State of) (Board of
Water Resources
Program); Revolving
Fund Recapitalization
Series 1992 B RB
6.10%, 04/01/02 AA -- 500 534,355
----------------------------------------------------------------
Utah Municipal Finance
Cooperative (Pooled
Capital Improvement
Financing Program)
(University Hospital
Project); Local
Government Series 1991
RB
6.50%, 05/15/99(e) NRR NRR 475 476,705
----------------------------------------------------------------
2,127,840
----------------------------------------------------------------
</TABLE>
FS-59
<PAGE> 154
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
VIRGINIA-1.03%
Medical College of
Hampton Roads; General
Refunding Series 1991 A
RB
6.00%, 11/15/99 A- -- $ 605 $ 614,916
----------------------------------------------------------------
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 535 571,326
----------------------------------------------------------------
5.40%, 11/01/05 AA Aa 500 537,685
----------------------------------------------------------------
Portsmouth (City of);
Port Improvement
Unlimited Tax Refunding
GO
6.40%, 11/01/03 AA- A3 300 324,900
----------------------------------------------------------------
Portsmouth (City of);
Public Utility
Refunding Series 1992
GO
5.90%, 11/01/01 AA- A3 450 476,874
----------------------------------------------------------------
2,525,701
----------------------------------------------------------------
WASHINGTON-2.53%
King (County of); Series
A RB
5.80%, 01/01/04(c)(e) NRR NRR 1,000 1,096,660
----------------------------------------------------------------
Seattle (City of);
Limited Tax Refunding
Series GO
6.40%, 10/01/01(e) NRR NRR 250 266,810
----------------------------------------------------------------
Seattle (Port of); Series
1992 A RB
6.00%, 11/01/01 AA- Aa3 500 529,815
----------------------------------------------------------------
Snohomish (County of)
Public Utilities
District #1; RB
5.70%, 01/01/06(b) AAA Aaa 4,000 4,288,080
----------------------------------------------------------------
6,181,365
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WISCONSIN-3.14%
Oak Creek (City of)
(Waterworks Systems);
Bond Anticipation Notes
3.90%, 09/01/00 -- MIG-1 $ 1,000 $ 1,007,910
----------------------------------------------------------------
Wisconsin (State of);
Series A GO
5.75%, 05/01/99 AA Aa2 1,000 1,001,850
----------------------------------------------------------------
Wisconsin (State of)
Health & Educational
Facilities Authority
(Charity Obligation
Group); Hospital Series
1997 D RB
4.90%, 11/01/05(c) AA+ VMIG-1 2,190 2,269,519
----------------------------------------------------------------
Wisconsin (State of)
Health & Educational
Facilities Authority
(Marshfield Clinic); RB
5.20%, 02/15/07(b) AAA Aaa 3,210 3,394,157
----------------------------------------------------------------
7,673,436
----------------------------------------------------------------
WYOMING-0.42%
Wyoming Building Corp.;
RB,
4.25%, 10/01/01 AAA Aaa 1,000 1,018,660
----------------------------------------------------------------
TOTAL INVESTMENTS-98.81%
(Total Cost
$233,595,580) 241,600,968
----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-1.19% 2,898,501
----------------------------------------------------------------
NET ASSETS-100.00% $244,499,469
----------------------------------------------------------------
</TABLE>
Investment 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) Payable on demand by the Fund at specified frequencies no greater than
thirteen months. Interest rate is redetermined periodically. Rate shown is
the rate in effect on March 31, 1999.
(e) Secured by an escrow fund of U.S. Treasury obligations.
See Notes to Financial Statements.
FS-60
<PAGE> 155
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$233,595,580) $ 241,600,968
---------------------------------------------------------
Receivables for:
Capital stock sold 1,917,967
---------------------------------------------------------
Interest 3,175,789
---------------------------------------------------------
Investment for deferred compensation plan 23,346
---------------------------------------------------------
Other assets 37,321
---------------------------------------------------------
Total assets 246,755,391
---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,507,514
---------------------------------------------------------
Capital stock reacquired 239,462
---------------------------------------------------------
Dividends 389,802
---------------------------------------------------------
Deferred compensation plan 23,346
---------------------------------------------------------
Accrued administrative services fees 4,368
---------------------------------------------------------
Accrued advisory fees 60,336
---------------------------------------------------------
Accrued directors' fees 2,335
---------------------------------------------------------
Accrued transfer agent fees 5,793
---------------------------------------------------------
Accrued operating expenses 22,966
---------------------------------------------------------
Total liabilities 2,255,922
---------------------------------------------------------
Net assets applicable to shares
outstanding $ 244,499,469
---------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 21,976,179
---------------------------------------------------------
Net asset value and redemption price per
share $ 11.13
---------------------------------------------------------
Offering price per share:
(Net asset value of $11.13 divided
by 99.00%) $ 11.24
---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $10,136,837
--------------------------------------------------------
EXPENSES:
Advisory fees 623,357
--------------------------------------------------------
Administrative services fees 50,951
--------------------------------------------------------
Custodian fees 10,503
--------------------------------------------------------
Transfer agent fees 64,498
--------------------------------------------------------
Registration and filing fees 78,837
--------------------------------------------------------
Directors' fees 11,207
--------------------------------------------------------
Interest 22,020
--------------------------------------------------------
Other 99,598
--------------------------------------------------------
Total expenses 960,971
--------------------------------------------------------
Less: Expenses paid indirectly (2,369)
--------------------------------------------------------
Net expenses 958,602
--------------------------------------------------------
Net investment income 9,178,235
--------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 409,752
--------------------------------------------------------
Net unrealized appreciation of investment
securities 966,924
--------------------------------------------------------
Net gain on investment securities 1,376,676
--------------------------------------------------------
Net increase in net assets resulting from
operations $10,554,911
--------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-61
<PAGE> 156
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,178,235 $ 8,621,404
--------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 409,752 (31,582)
--------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 966,924 5,402,954
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 10,554,911 13,992,776
--------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (9,191,201) (8,634,206)
--------------------------------------------------------------------------------------------
Distributions in excess of net investment income (47,638) (3,932)
--------------------------------------------------------------------------------------------
Net increase from capital stock transactions 42,214,423 22,272,556
--------------------------------------------------------------------------------------------
Net increase in net assets 43,530,495 27,627,194
--------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 200,968,974 173,341,780
--------------------------------------------------------------------------------------------
End of period $244,499,469 $200,968,974
--------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $237,244,429 $195,083,906
--------------------------------------------------------------------------------------------
Undistributed net investment income (24,189) (17,485)
--------------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (726,159) (1,135,911)
--------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 8,005,388 7,038,464
--------------------------------------------------------------------------------------------
$244,499,469 $200,968,974
--------------------------------------------------------------------------------------------
</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, 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, 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-62
<PAGE> 157
of premiums and original issue discounts, is earned from settlement date
and is recorded on the accrual basis. On March 31, 1999, undistributed
income was increased and paid-in capital was decreased by $53,900 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 reclassification 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 $717,161, 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, 1999, the Fund reimbursed
AIM $50,951 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 $41,409 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
$28,272 from sales of capital stock during the year ended March 31, 1999. 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, 1999, the Fund paid legal fees of $3,745 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
For the year ended March 31, 1999, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $2,369, under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of the
Fund's total expenses of $2,369 for 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 borrowings 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
borrow minimal amounts under the line of credit agreement. Interest expense for
the year ended March 31, 1999 was $22,020. 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 was $101,993,570 and
$63,844,331, 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 $8,027,965
---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (22,577)
---------------------------------------------------------
Net unrealized appreciation of investment
securities $8,005,388
---------------------------------------------------------
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
FS-63
<PAGE> 158
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 11,532,083 $128,215,321 4,891,415 $ 53,561,920
-------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends 488,076 5,429,472 411,422 4,509,891
-------------------------------------------------------------------------------------------------------------------
Reacquired (8,238,608) (91,430,370) (3,262,778) (35,799,255)
-------------------------------------------------------------------------------------------------------------------
3,781,551 $ 42,214,423 2,040,059 $ 22,272,556
-------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8- FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of capital stock
outstanding during and 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 $ 11.05 $ 10.73 $10.79 $10.67 $10.62
------------------------------------------------------------ -------- -------- -------- ------- -------
Income from investment operations:
Net investment income 0.49 0.50 0.50 0.52 0.49
------------------------------------------------------------ -------- -------- -------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 0.08 0.32 (0.04) 0.12 0.04
------------------------------------------------------------ -------- -------- -------- ------- -------
Total from investment operations 0.57 0.82 0.46 0.64 0.53
------------------------------------------------------------ -------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income (0.49) (0.50) (0.52) (0.52) (0.48)
------------------------------------------------------------ -------- -------- -------- ------- -------
Total distributions (0.49) (0.50) (0.52) (0.52) (0.48)
------------------------------------------------------------ -------- -------- -------- ------- -------
Net asset value, end of period $ 11.13 $ 11.05 $10.73 $10.79 $10.67
============================================================ ======== ======== ======== ======= =======
Total return(a) 5.27% 7.79% 4.33% 6.06% 5.17%
============================================================ ======== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $244,499 $200,969 $173,342 $83,066 $82,355
============================================================ ======== ======== ======== ======= =======
Ratio of expenses (exclusive of interest) to average net
assets 0.46% 0.45% 0.56% 0.65% 0.59%
============================================================ ======== ======== ======== ======= =======
Ratio of net investment income to average net assets 4.43% 4.56% 4.63% 4.81% 4.65%
============================================================ ======== ======== ======== ======= =======
Portfolio turnover rate 32% 22% 26% 32% 75%
============================================================ ======== ======== ======== ======= =======
</TABLE>
(a) Does not deduct sales charges.
(b) Ratios are based on average net assets of $207,785,779.
--------------------------------------------------------------------------------
FS-64
<PAGE> 159
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
FS-65
<PAGE> 160
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>
FS-66
<PAGE> 161
<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>
FS-67
<PAGE> 162
<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.
FS-68
<PAGE> 163
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.
FS-69
<PAGE> 164
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.
FS-70
<PAGE> 165
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>
FS-71
<PAGE> 166
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.
FS-72
<PAGE> 167
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, 1999, and the
related statement of operations for the year then ended,
the statement of changes in net assets and the financial
highlights for the year ended March 31, 1999 and 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 financial highlights
based on our audits.
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
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 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 High
Income Municipal Fund as of March 31, 1999, the results
of its operations for the year then ended, changes in its
net assets and financial highlights for the year ended
March 31, 1999 and the period January 2, 1998 (date
operations commenced) through March 31, 1998 in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
May 7, 1999
FS-73
<PAGE> 168
SCHEDULE OF INVESTMENTS
March 31, 1999
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
LONG-TERM MUNICIPAL OBLIGATIONS-96.19%
ALABAMA-3.03%
West Jefferson Amusement & Public Parks
Authority (Visionland Project); First
Mortgage RB
6.375%, 02/01/29 $2,000 $ 2,011,579
-------------------------------------------------------------
COLORADO-2.36%
Colorado Health Facilities Authority
(Volunteers of America); Refunding
and Improvement Series A RB
5.875%, 07/01/28 750 735,547
-------------------------------------------------------------
Colorado Health Facilities Authority
(Volunteers of America); Health and
Residential Care Facilities Series A
RB
6.00%, 07/01/29 850 832,260
-------------------------------------------------------------
1,567,807
-------------------------------------------------------------
CONNECTICUT-2.73%
Connecticut (State of) Development
Authority (Lutheran Home Southbury);
First Mortgage Health Care Refunding
Series A RB
6.00%, 12/01/15 750 746,879
-------------------------------------------------------------
Connecticut (State of) Development
Authority (Watson Foods Co., Inc.
Project); IDR
5.90%, 06/01/28(a) 1,075 1,068,678
-------------------------------------------------------------
1,815,557
-------------------------------------------------------------
FLORIDA-3.74%
Orange (County of) Housing Finance
Authority (Brentwood Park
Apartments); Multifamily Housing
Series G RB
6.40%, 07/01/32 1,500 1,514,144
-------------------------------------------------------------
Sumter (County of) Industrial
Development Authority (Wecare Nursing
Center Project); Health Care
Facilities Series A RB
6.75%, 04/01/29 1,000 971,259
-------------------------------------------------------------
2,485,403
-------------------------------------------------------------
GEORGIA-5.00%
Forsyth (County of) Hospital Authority
(Georgia Baptist Health Care System
Project); Anticipation Certificates
6.375%, 10/01/28 1,000 984,969
-------------------------------------------------------------
Fulton (County of) Housing Authority
(Azalea Manor Project); Multifamily
Housing RB
6.50%, 02/01/28 780 789,586
-------------------------------------------------------------
Fulton (County of) Housing Authority
(Washington Court Project);
Multifamily Housing RB
6.40%, 02/01/19 775 788,237
-------------------------------------------------------------
6.50%, 02/01/28 225 228,823
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
GEORGIA-(CONTINUED)
Rockdale (County of) Development
Authority (Visy Paper, Inc. Project);
Solid Waste Disposal RB
7.50%, 01/01/26(a) $ 500 $ 530,345
-------------------------------------------------------------
3,321,960
-------------------------------------------------------------
HAWAII-0.74%
Hawaii (State of) Department of
Transportation (Continental Airlines,
Inc.); Special Facilities RB
5.625%, 11/15/27(a) 500 490,555
-------------------------------------------------------------
ILLINOIS-7.46%
Chicago (City of) O'Hare International
Airport (United Airlines Project);
Special Facilities Series A RB
5.35%, 09/01/16 1,350 1,344,641
-------------------------------------------------------------
Clay (County of); Hospital RB
5.70%, 12/01/18 500 491,830
-------------------------------------------------------------
Crestwood (City of); Tax Increment
Revenue Refunding Non-Qualified Bonds
7.25%, 12/01/08 100 107,053
-------------------------------------------------------------
Godfrey (City of) (United Methodist
Village); Series A RB
5.875%, 11/15/29 1,000 959,540
-------------------------------------------------------------
Illinois Health Facilities Authority
(Bohemian-Tabor Hills); Refunding
Series B RB
5.90%, 11/15/24 775 776,201
-------------------------------------------------------------
Illinois Health Facilities Authority
(Lifelink Corp. Obligation Group);
Refunding RB
5.85%, 02/15/20 350 349,762
-------------------------------------------------------------
5.70%, 02/15/24 850 823,599
-------------------------------------------------------------
Saint Charles (City of) (Tri-city
Center Associates Limited Project);
IDR
7.50%, 11/01/13 100 104,925
-------------------------------------------------------------
4,957,551
-------------------------------------------------------------
INDIANA-1.61%
Goshen (Greencroft Obligation Group);
RB
5.75%, 08/15/28 350 335,860
-------------------------------------------------------------
Indiana Health Facilities Financing
Authority (Franciscan Eldercare
Community Services); RB
5.875%, 05/15/29 750 732,863
-------------------------------------------------------------
1,068,723
-------------------------------------------------------------
IOWA-2.31%
Harlan (City of) (American Baptist
Homes Project); RB
5.75%, 05/15/28 750 728,798
-------------------------------------------------------------
</TABLE>
FS-74
<PAGE> 169
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
IOWA-(CONTINUED)
Iowa Finance Authority (Park West
Housing Project); Multifamily
Refunding RB
8.00%, 10/01/23 $ 100 $ 103,648
-------------------------------------------------------------
Iowa Finance Authority Community
Rehabilitation Providers (Lutheran
Children's Home Society-Bremwood
Project); RB
5.80%, 12/01/24 700 700,238
-------------------------------------------------------------
1,532,684
-------------------------------------------------------------
KANSAS-0.86%
Atchison (City of) (Atchison Hospital
Association); Hospital RB
5.70%, 11/15/18 525 525,347
-------------------------------------------------------------
Lawrence (City of) (Holiday Inn
Project); Commercial Development
Senior Refunding Series A RB
8.00%, 07/01/16 40 44,012
-------------------------------------------------------------
569,359
-------------------------------------------------------------
MARYLAND-0.30%
Fredrick (County of) Retirement
Community (Buckingham's Choice Inc.
Facility); Series A RB
5.90%, 01/01/17 200 199,978
-------------------------------------------------------------
MASSACHUSETTS-1.77%
Boston (City of) Industrial Development
Financing Authority (Springhouse Inc
Project); First Mortgage Refunding RB
6.00%, 07/01/28 500 501,975
-------------------------------------------------------------
Massachusetts (State of) Health &
Educational Facilities Authority
(Caritas Christian Obligation Group);
Series A RB
5.625%, 07/01/20 680 675,356
-------------------------------------------------------------
1,177,331
-------------------------------------------------------------
MICHIGAN-4.20%
Garden City Hospital Finance Authority
(Garden City Hospital OB Group);
Hospital Refunding Series A RB
5.75%, 09/01/17 1,500 1,475,670
-------------------------------------------------------------
Gogebic (County of) Hospital Finance
Authority (Grand View Health System
Inc.); Refunding RB
5.875%, 10/01/16 920 908,629
-------------------------------------------------------------
Michigan (State of) Strategic Fund
Limited Obligation (Holland Home
Project); RB
5.75%, 11/15/28 415 404,036
-------------------------------------------------------------
2,788,335
-------------------------------------------------------------
MINNESOTA-8.69%
Andover (City of) (Presbyterian Homes
Inc. Project); Elderly Housing RB
6.25%, 12/01/27 500 504,770
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
MINNESOTA-(CONTINUED)
Bloomington (City of) Housing and
Redevelopment Authority (Summerhouse
Bloomington Project); Senior Housing
RB
6.00%, 11/01/16 $ 790 $ 788,934
-------------------------------------------------------------
Columbia Heights (City of) Multifamily
and Health Care Facility (Crest View
Corp. Project); RB
6.00%, 03/01/33 500 506,510
-------------------------------------------------------------
Duluth (City of) Economic Development
Authority (BSM Properties Inc
Project); Health Care Facilities
Series A RB
5.875%, 12/01/28 500 498,560
-------------------------------------------------------------
Minneapolis (City of) (Walker Methodist
Senior Services); Series A RB
6.00%, 11/15/28 1,000 1,009,080
-------------------------------------------------------------
Minneapolis (City of) Health Care
Facility (Ebenezer Society Project);
Series A RB
7.00%, 07/01/12 100 103,923
-------------------------------------------------------------
Moorhead (City of) Economic Development
Authority (Eventide Housing
Development Project); Multifamily
Refunding Series A RB
6.00%, 06/01/18 500 505,850
-------------------------------------------------------------
New Hope Housing & Health Care
Facilities (Minnesota Masonic Home
North Ridge); Health Care Facilities
RB
5.875%, 03/01/29 1,040 1,026,095
-------------------------------------------------------------
Northfield (City of) Health Care
Facilities (Retirement Center);
Refunding and Improvement Series A RB
5.75%, 05/01/16 335 331,215
-------------------------------------------------------------
6.00%, 05/01/28 500 500,220
-------------------------------------------------------------
5,775,157
-------------------------------------------------------------
MISSISSIPPI-0.41%
Ridgeland Urban Renewal (The Orchard
Limited Project); Refunding Series A
RB
7.75%, 12/01/15 250 270,308
-------------------------------------------------------------
MISSOURI-4.46%
Bolivar (City of) Industrial
Development Authority (Citizens
Memorial Health Care Foundation);
Refunding and Improvement RB
5.75%, 07/01/17 500 491,910
-------------------------------------------------------------
Good Shepherd Nursing Home District;
Nursing Home Facilities Refunding RB
5.90%, 08/15/23 500 500,165
-------------------------------------------------------------
Madison (County of); Hospital Refunding
RB
5.875%, 10/01/26 500 497,635
-------------------------------------------------------------
Springfield (City of) Industrial
Development Authority (Bethesda
Living Centers); Refunding Series A
RB
5.625%, 08/15/18 200 195,830
-------------------------------------------------------------
5.70%, 08/15/28 800 782,648
-------------------------------------------------------------
</TABLE>
FS-75
<PAGE> 170
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
MISSOURI-(CONTINUED)
Valley Park Industrial Development
Authority (Cape Albeon Project);
Senior Housing RB
6.15%, 12/01/33 $ 500 $ 495,695
-------------------------------------------------------------
2,963,883
-------------------------------------------------------------
NEVADA-3.72%
Boulder (City of) (Boulder City
Hospital Inc. Project); Refunding
Hospital RB
5.85%, 01/01/22 1,500 1,466,100
-------------------------------------------------------------
Clark (County of) (Nevada Power Co.
Project); Refunding IDR
Series C 5.50%, 10/01/30 500 496,295
-------------------------------------------------------------
Series B 5.90%, 10/01/30(a) 500 510,710
-------------------------------------------------------------
2,473,105
-------------------------------------------------------------
NEW HAMPSHIRE-0.59%
New Hampshire Higher Educational and
Health Facilities Authority (Daniel
Webster College); RB
7.625%, 07/01/16 100 109,128
-------------------------------------------------------------
New Hampshire Higher Educational and
Health Facilities Authority (Franklin
Pierce College); RB
6.00%, 10/01/18 30 30,186
-------------------------------------------------------------
New Hampshire Higher Educational and
Health Facilities Authority
(Monadnock Community Hospital);
Hospital RB
5.70%, 10/01/20 250 251,960
-------------------------------------------------------------
391,274
-------------------------------------------------------------
NEW JERSEY-1.51%
New Jersey Economic Development
Authority (Franciscan Oaks Project);
First Mortgage RB
5.75%, 10/01/23 500 505,280
-------------------------------------------------------------
New Jersey Economic Development
Authority (Keswick Pines Inc.); First
Mortgage Refunding RB
5.75%, 01/01/24 500 499,490
-------------------------------------------------------------
1,004,770
-------------------------------------------------------------
NEW MEXICO-0.73%
Sante Fe (County of) (El Castillo
Retirement Project); Series A RB
5.625%, 05/15/25 500 484,670
-------------------------------------------------------------
NEW YORK-4.59%
New York Industrial Development Agency
(Field Hotel Associates LP);
Refunding IDR
5.80%, 11/01/13 475 476,601
-------------------------------------------------------------
6.00%, 11/01/28 500 502,080
-------------------------------------------------------------
New York Industrial Development Agency
(Marymount Manhattan College
Project); Civic Facility RB
7.00%, 07/01/23 150 160,289
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
NEW YORK-(CONTINUED)
Onondaga (County of) Industrial
Development Agency (Solvay Paperboard
LLC Project); Solid Waste Disposal
Facility Refunding RB
7.00%, 11/01/30(a) $1,500 $ 1,562,250
-------------------------------------------------------------
Suffolk (County of) Industrial
Development Agency (Spellman High
Voltage Facility); Series A IDR
6.375%, 12/01/17(a) 350 350,123
-------------------------------------------------------------
3,051,343
-------------------------------------------------------------
NORTH CAROLINA-3.09%
Charlotte (City of) (Charlotte/Douglas
International Airport); Refunding
Special Facilities RB
5.60%, 07/01/27(a) 755 752,803
-------------------------------------------------------------
North Carolina Medical Care Community
Health Care Facilities (Deerfield
Episcopal Retirement); First Mortgage
Series RB
6.00%, 11/01/19 300 303,450
-------------------------------------------------------------
North Carolina Medical Care Community
Health Care Facilities (Glenaire
Project); First Mortgage Series RB
5.75%, 07/01/19 500 493,770
-------------------------------------------------------------
5.85%, 07/01/27 500 499,535
-------------------------------------------------------------
2,049,558
-------------------------------------------------------------
NORTH DAKOTA-0.77%
Grand Forks Senior Housing (4000 Valley
Square Project); Special Term Series
RB
6.375%, 12/01/34 500 513,495
-------------------------------------------------------------
OHIO-7.32%
Belmont (County of) Health Systems
(East Ohio Regional Hospital);
Refunding and Improvement RB
5.80%, 01/01/18 800 778,544
-------------------------------------------------------------
Fairfield (City of) Economic
Development (Beverly Enterprises
Project); Refunding Series RB
8.50%, 01/01/03 150 159,684
-------------------------------------------------------------
Madison (County of) (Madison County
Hospital Project); Hospital
Improvement Refunding RB
6.25%, 08/01/18 1,000 994,350
-------------------------------------------------------------
6.40%, 08/01/28 1,000 993,340
-------------------------------------------------------------
Ohio (State of) (CSC Limited Project);
Solid Waste RB
8.50%, 08/01/22(a) 1,860 1,938,157
-------------------------------------------------------------
4,864,075
-------------------------------------------------------------
OREGON-0.80%
Clackamas (County of) Hospital
Facilities Authority (Odd Fellows
Home); Refunding Series A RB
5.875%, 09/15/21 540 534,076
-------------------------------------------------------------
</TABLE>
FS-76
<PAGE> 171
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
PENNSYLVANIA-8.80%
Allegheny (County of) Hospital
Development Authority (Villa St.
Joseph of Baden); Health Care
Facilities RB
6.00%, 08/15/28 $1,000 $ 980,970
-------------------------------------------------------------
Allegheny (County of) Industrial
Development Authority (USX Corp.);
Refunding Environmental Improvement
RB
5.60%, 09/01/30 500 499,235
-------------------------------------------------------------
Berks (County of) Municipal Authority
(Phoebe-Devitt Homes Project);
Refunding Series A1 RB
5.50%, 05/15/11 250 249,998
-------------------------------------------------------------
5.75%, 05/15/22 500 488,715
-------------------------------------------------------------
Cumberland (County of) Industrial
Development Authority (Woods Cedar
Run); First Mortgage Refunding Series
A RB
6.50%, 11/01/18 1,000 990,110
-------------------------------------------------------------
Dauphin (County of) General Authority
(Hyatt Regency Hotel and Conference
Center); RB
6.20%, 01/01/29 1,000 991,830
-------------------------------------------------------------
Doylestown Hospital Authority (Pine Run
Retirement Hospital); Hospital Series
A RB
7.20%, 07/01/03(b)(c) 150 171,170
-------------------------------------------------------------
Philadelphia (City of) Authority for
Industrial Development (Paul's Run
Retirement Community); Health Care
Facilities Series A RB
5.875%, 05/15/28 500 490,395
-------------------------------------------------------------
Philadelphia (City of) Hospital &
Higher Education Facilities Authority
(Chestnut Hill College); RB
6.00%, 10/01/29 500 498,265
-------------------------------------------------------------
Somerset (County of) Hospital Authority
(Allegheny Christian Ministries);
Senior Mortgage RB
5.70%, 11/15/22 500 484,830
-------------------------------------------------------------
5,845,518
-------------------------------------------------------------
TENNESSEE-1.39%
Nashville and Davidson (County of)
Health and Educational Facilities
Board of Metro Government (Blakeford
at Green Hills); Refunding RB
5.65%, 07/01/16 355 350,729
-------------------------------------------------------------
5.65%, 07/01/24 590 572,583
-------------------------------------------------------------
923,312
-------------------------------------------------------------
TEXAS-6.96%
Abilene (City of) Health Facilities
Development (Sears Methodist
Retirement); Corporate Retirement
Facilities RB
5.875%, Series A 11/15/18 1,000 973,820
-------------------------------------------------------------
5.875%, 11/15/18 450 440,991
-------------------------------------------------------------
6.000%, 11/15/29 550 543,120
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
TEXAS-(CONTINUED)
Austin (City of) (Bergstrom Landhost
Enterprises Inc.; Airport Hotel);
Series A Senior RB
6.75%, 04/01/27 $1,000 $ 1,010,010
-------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Villa Madrid/Cumberland Apartments);
Multifamily Housing Series A RB
7.25%, 05/01/16 200 210,894
-------------------------------------------------------------
7.50%, 05/01/28 415 437,323
-------------------------------------------------------------
Meadow Parc Development Inc. (Meadow
Parc Apartments Project); Multifamily
Housing RB
6.50%, 12/01/30 1,000 1,004,150
-------------------------------------------------------------
4,620,308
-------------------------------------------------------------
VIRGINIA-0.76%
Hampton (City of) Redevelopment and
Housing Authority (Olde Hampton Hotel
Association); First Mortgage
Refunding Series A RB
6.50%, 07/01/16 500 505,740
-------------------------------------------------------------
WEST VIRGINIA-0.75%
Braxton (County of) (Weyerhaeuser Co.
Project); Refunding Solid Waste
Disposal RB
5.40%, 05/01/25(a) 500 497,690
-------------------------------------------------------------
WISCONSIN-4.74%
Wisconsin (State of) Health and
Educational Facilities Authority
(Attic Angel Community Inc.); RB
5.75%, 11/15/27 1,000 954,120
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority
(Beaver Dam Community Hospitals
Inc.); RB
5.80%, 08/15/28 1,000 964,710
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority
(Clement Manor, Inc.); Refunding RB
5.75%, 08/15/24 250 237,063
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority (St.
Camillus Health Center); RB
5.75%, 07/01/28 500 480,750
-------------------------------------------------------------
Wisconsin (State of) Health and
Educational Facilities Authority
(United Lutheran Home); RB
5.70%, 03/01/28 525 511,550
-------------------------------------------------------------
3,148,193
-------------------------------------------------------------
Long-Term Municipal Obligations
(Cost $63,853,234) 63,903,297
-------------------------------------------------------------
SHORT-TERM MUNICIPAL OBLIGATIONS-1.36%(d)
ALASKA-0.08%
Alaska (State of) Housing Finance
Corp.; Variable Rate Demand Series A
RB
2.95%, 06/01/26 52 52,000
-------------------------------------------------------------
</TABLE>
FS-77
<PAGE> 172
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
CONNECTICUT-0.18%
Connecticut (State of); Special Tax
Obligation Variable Rate Demand RB
2.90%, 12/01/10 $ 53 $ 53,000
-------------------------------------------------------------
Connecticut (State of) Development
Authority (Independent Living
Project); Health Care Variable Rate
Demand RB
2.80%, 07/01/15 66 66,000
-------------------------------------------------------------
119,000
-------------------------------------------------------------
DELAWARE-0.07%
University of Delaware; Variable Rate
Demand RB
3.00%, 11/23/23 45 45,000
-------------------------------------------------------------
FLORIDA-0.23%
Lee (County of) Housing Finance
Authority (Forestwood Apartments
Project); Multifamily Housing
Variable Rate Demand RB
2.90%, 06/15/25 155 155,000
-------------------------------------------------------------
GEORGIA-0.01%
De Kalb Private Hospital Authority
(Egleston Children's Hospital);
Variable Rate Demand Series A
Anticipation Certificates
2.90%, 03/01/24 7 7,000
-------------------------------------------------------------
ILLINOIS-0.02%
Illinois Development Finance Authority
(American College Surgeons); Variable
Rate Demand RB
3.10%, 08/01/26 2 2,000
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
(000) VALUE
<S> <C> <C>
ILLINOIS-(CONTINUED)
Illinois Health Facilities Authority;
Revolving Pooled Fund Variable Rate
Demand Series D
2.95%, 08/01/15 $ 13 $ 13,000
-------------------------------------------------------------
15,000
-------------------------------------------------------------
PENNSYLVANIA-0.12%
York General Authority (Investing
Agreement with Societe Generale);
Pooled Financing Variable Rate Demand
RB
3.10%, 09/01/26 84 84,000
-------------------------------------------------------------
TEXAS-0.65%
Bexar (County of) Housing Finance
Authority (Fountainhead Apartments);
Multifamily Refunding Variable Rate
Demand RB
3.00%, 09/15/26 431 431,000
-------------------------------------------------------------
Short-Term Municipal Obligations
(Cost $908,000) 908,000
-------------------------------------------------------------
TOTAL INVESTMENTS-97.55% (Cost
$64,761,234) 64,811,297
-------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.45% 1,625,366
-------------------------------------------------------------
NET ASSETS-100.00% $66,436,663
=============================================================
</TABLE>
Investment Abbreviations:
IDR - Industrial Development Revenue Bonds
RB - Revenue Bonds
Notes to Schedule of Investments:
(a)Security subject to the alternative minimum tax.
(b)Secured by an escrow fund of U.S. Treasury obligations.
(c)Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(d)Demand securities; 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 03/31/99.
See Notes to Financial Statements.
FS-78
<PAGE> 173
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$64,761,234) $ 64,811,297
---------------------------------------------------------
Cash 880
---------------------------------------------------------
Receivables for:
Investments sold 497,833
---------------------------------------------------------
Capital stock sold 240,386
---------------------------------------------------------
Interest 1,028,907
---------------------------------------------------------
Investment for deferred compensation
plan 3,756
---------------------------------------------------------
Other assets 37,920
---------------------------------------------------------
Total assets 66,620,979
---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 12,530
---------------------------------------------------------
Dividends 112,583
---------------------------------------------------------
Deferred compensation plan 3,756
---------------------------------------------------------
Accrued administrative services fees 6,165
---------------------------------------------------------
Accrued directors' fees 2,948
---------------------------------------------------------
Accrued distribution fees 44,093
---------------------------------------------------------
Accrued operating expenses 2,241
---------------------------------------------------------
Total liabilities 184,316
---------------------------------------------------------
Net assets applicable to shares
outstanding $ 66,436,663
=========================================================
NET ASSETS:
Class A $ 49,569,511
=========================================================
Class B $ 13,850,306
=========================================================
Class C $ 3,016,846
=========================================================
CAPITAL STOCK, $0.001 PAR VALUE PER
SHARE:
Class A:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 4,935,179
=========================================================
Class B:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 1,379,835
=========================================================
Class C:
Authorized 1,000,000,000
---------------------------------------------------------
Outstanding 300,552
=========================================================
Class A:
Net asset value and redemption price per
share $ 10.04
=========================================================
Offering price per share:
(Net asset value of $10.04
divided by 95.25%) $ 10.54
=========================================================
Class B:
Net asset value and offering price per
share $ 10.04
=========================================================
Class C:
Net asset value and offering price per
share $ 10.04
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 2,585,785
--------------------------------------------------------
EXPENSES:
Advisory fees 272,006
--------------------------------------------------------
Administrative services fees 69,125
--------------------------------------------------------
Distribution fees -- Class A 90,468
--------------------------------------------------------
Distribution fees -- Class B 74,401
--------------------------------------------------------
Distribution fees -- Class C 17,071
--------------------------------------------------------
Transfer agent fees 15,381
--------------------------------------------------------
Registration and filing fees 44,983
--------------------------------------------------------
Other 73,487
--------------------------------------------------------
Total expenses 656,922
--------------------------------------------------------
Less: Fee waivers and expense
reimbursements (456,945)
--------------------------------------------------------
Expenses paid indirectly (532)
--------------------------------------------------------
Net expenses 199,445
--------------------------------------------------------
Net investment income 2,386,340
--------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 634
--------------------------------------------------------
Net unrealized appreciation of investment
securities 27,086
--------------------------------------------------------
Net gain on investment securities 27,720
--------------------------------------------------------
Net increase in net assets resulting from
operations $ 2,414,060
========================================================
</TABLE>
See Notes to Financial Statements.
FS-79
<PAGE> 174
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED MARCH 31, 1999 AND THE PERIOD JANUARY 2, 1998 (DATE
OPERATIONS COMMENCED) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,386,340 $ 163,175
-----------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 634 (12,029)
-----------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 27,086 22,977
-----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,414,060 174,123
-----------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
Class A (1,942,603) (147,248)
-----------------------------------------------------------------------------------------
Class B (343,532) (10,991)
-----------------------------------------------------------------------------------------
Class C (78,427) (3,590)
-----------------------------------------------------------------------------------------
Net increase from capital stock transactions:
Class A 31,696,998 17,776,038
-----------------------------------------------------------------------------------------
Class B 11,184,663 2,698,087
-----------------------------------------------------------------------------------------
Class C 2,281,041 738,044
-----------------------------------------------------------------------------------------
Net increase in net assets 45,212,200 21,224,463
-----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 21,224,463 --
-----------------------------------------------------------------------------------------
End of period $66,436,663 $21,224,463
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $66,355,245 $21,212,169
-----------------------------------------------------------------------------------------
Undistributed net investment income 42,750 1,346
-----------------------------------------------------------------------------------------
Undistributed realized gain (loss) on sales of investment
securities (11,395) (12,029)
-----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 50,063 22,977
-----------------------------------------------------------------------------------------
$66,436,663 $21,224,463
=========================================================================================
</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 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. 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
questionable are valued at fair value as determined in good faith by or under
the supervision of the Company's officers in a
FS-80
<PAGE> 175
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 97.94% 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. On March 31, 1999,
paid in capital was decreased by $19,626 and undistributed net income was
increased by $19,626 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. 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. The Fund has a
capital loss carryforward of $11,395 (which may be carried forward to offset
future taxable capital gains, if any) which expires, if not previously
utilized, through the year 2007.
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 year ended March 31, 1999, AIM waived
advisory fees and reimbursed expenses of $456,945.
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 $69,125 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 $8,935 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 of 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. During the year ended March 31, 1999, the Class A shares, Class B
shares and Class C shares paid AIM Distributors $90,468, $74,401 and $17,071,
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 $42,929 from the sales of Class A
shares of the Fund 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 Class A shares. During the year ended March 31, 1999, AIM
Distributors received $13,087 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.
During the year ended March 31, 1999, the Fund paid legal fees of $3,426 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-INDIRECT EXPENSES
For the year ended March 31, 1999, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $532 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of the
Fund's total expenses of $532 for the year ended March 31, 1999.
FS-81
<PAGE> 176
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 borrowings 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 was $56,086,621 and
$12,772,831, 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 $ 337,955
--------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (287,892)
--------------------------------------------------------
Net unrealized appreciation of investment
securities $ 50,063
========================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
NOTE 7-CAPITAL STOCK
Changes in capital stock outstanding during the year ended March 31, 1999 and
the period January 2, 1998 (date operations commenced) through March 31, 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 4,375,932 $ 44,035,445 1,830,454 $18,280,746
--------------------------------------------------------------------------
Class B 1,198,092 12,077,378 270,282 2,698,095
--------------------------------------------------------------------------
Class C 299,455 3,014,253 73,780 736,528
--------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 111,621 1,125,789 7,600 75,970
--------------------------------------------------------------------------
Class B 18,956 191,064 457 4,564
--------------------------------------------------------------------------
Class C 4,580 46,173 152 1,516
--------------------------------------------------------------------------
Reacquired:
Class A (1,332,330) (13,464,236) (58,098) (580,678)
--------------------------------------------------------------------------
Class B (107,492) (1,083,779) (460) (4,572)
--------------------------------------------------------------------------
Class C (77,415) (779,385) - -
--------------------------------------------------------------------------
4,491,399 $ 45,162,702 2,124,167 $21,212,169
==========================================================================
</TABLE>
NOTE 8- FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A, Class B and
Class C capital stock outstanding during the year ended March 31, 1999 and the
period January 2, 1998 (date operations commenced) through March 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.99 $ 10.00 $ 9.99 $10.00 $ 9.99 $10.00
----------------------------------------------------- ------- ------- ------- ------ ------ ------
Income from investment operations:
Net investment income 0.54 0.11 0.47 0.09 0.47 0.09
----------------------------------------------------- ------- ------- ------- ------ ------ ------
Net gains (losses) on securities (both realized
and unrealized) 0.05 (0.01) 0.04 (0.01) 0.04 (0.01)
----------------------------------------------------- ------- ------- ------- ------ ------ ------
Total from investment operations 0.59 0.10 0.51 0.08 0.51 0.08
----------------------------------------------------- ------- ------- ------- ------ ------ ------
Less distributions:
Dividends from net investment income (0.54) (0.11) (0.46) (0.09) (0.46) (0.09)
----------------------------------------------------- ------- ------- ------- ------ ------ ------
Net asset value, end of period $ 10.04 $ 9.99 $ 10.04 $ 9.99 $10.04 $ 9.99
===================================================== ======= ======= ======= ====== ====== ======
Total return(a) 6.01% 1.04% 5.23% 0.81% 5.23% 0.79%
===================================================== ======= ======= ======= ====== ====== ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $49,570 $17,787 $13,850 $2,699 $3,017 $ 738
===================================================== ======= ======= ======= ====== ====== ======
Ratio of expenses to average net assets(b) 0.29%(c) 0.25%(d) 1.04%(c) 1.00%(d) 1.04%(c) 1.00%(d)
===================================================== ======= ======= ======= ====== ====== ======
Ratio of net investment income to average net
assets(e) 5.41%(c) 4.80%(d) 4.66%(c) 4.05%(d) 4.66%(c) 4.05%(d)
===================================================== ======= ======= ======= ====== ====== ======
Portfolio turnover rate 30% 21% 30% 21% 30% 21%
===================================================== ======= ======= ======= ====== ====== ======
</TABLE>
(a) Does not deduct sales charges and is not annualized for periods less than
one year.
(b) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.29% and 1.65% (annualized) for Class A, 2.04% and 2.44% (annualized) for
Class B and Class C for the periods 1999-1998, respectively.
(c) Ratios are based on average net assets of $36,187,210, $7,440,053 and
$1,707,096 for Classes A, B and C, respectively.
(d) Annualized.
(e) 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 4.41% and 3.40% (annualized) for Class A, 3.66% and
2.61% (annualized) for Class B and Class C for the periods 1999-1998,
respectively.
FS-82
