As filed with the Securities and Exchange Commission on August 13, 2003
Securities Act Registration No. 811-5686
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. _______ Post-effective Amendment No. ______
(Check appropriate box or boxes)
AIM INVESTMENT SECURITIES FUNDS
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, Texas 77046
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
NANCY L. MARTIN, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1735 Market Street
Suite 100 51st Floor
Houston, TX 77046 Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
The titles of the securities being registered are AIM High Yield Fund
Classes A, B, C and Investor Class; AIM Income Fund Classes A, B, C and Investor
Class; AIM Intermediate Government Fund Classes A, B, C and Investor Class; AIM
Money Market Fund AIM Cash Reserve Shares and Classes B, C and Investor Class;
and AIM Municipal Bond Fund Classes A, B, C and Investor Class. No filing fee is
due in reliance on Section 24(f) of the Investment Company Act of 1940.
(INVESCO LOGO)
INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that
A I M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and
AIM Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO BOND FUNDS, INC.
INVESCO HIGH YIELD FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO High Yield Fund and the Shareholders of
INVESCO Bond Funds, Inc. ("Company"):
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") under
which all of the assets of your Fund, an investment portfolio of Company, will
be transferred to AIM High Yield Fund ("Buying Fund"), an investment portfolio
of AIM Investment Securities Funds ("Buyer"), Buying Fund will assume the
liabilities of your Fund and Buyer will issue shares of each class of Buying
Fund to shareholders of the corresponding class of shares of your Fund and, in
connection therewith, the sale of all of Company's assets and the dissolution of
Company as a Maryland corporation.
2. Elect 16 directors to the Board of Directors of Company, each of whom
will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors, Inc.
for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust and,
in connection therewith, the sale of all of Company's assets and the dissolution
of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO BOND FUNDS, INC. AIM HIGH YIELD FUND,
INVESCO HIGH YIELD FUND, A PORTFOLIO OF
A PORTFOLIO OF AIM INVESTMENT SECURITIES FUNDS
INVESCO BOND FUNDS, INC. 11 GREENWAY PLAZA, SUITE 100
4350 SOUTH MONACO STREET HOUSTON, TEXAS 77046-1173
DENVER, COLORADO 80237 (800) 347-4246
(800) 525-8085
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO High Yield Fund (your Fund) and INVESCO Bond Funds, Inc. ("Company").
The Special Meeting will be held on October 21, 2003. We intend to mail this
Proxy Statement/Prospectus, the enclosed Notice of Special Meeting of
Shareholders and the enclosed proxy card on or about August 25, 2003 to all
shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund and
shareholders of Company to vote on four proposals. The first Proposal to be
voted on is an Agreement and Plan of Reorganization (the "Agreement") which
provides for the combination of your Fund, an investment portfolio of Company,
with AIM High Yield Fund ("Buying Fund"), an investment portfolio of AIM
Investment Securities Funds ("Buyer") (the "Reorganization") and, in connection
therewith, the sale of all of Company's assets and the dissolution of Company as
a Maryland corporation.
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
The investment objective of Buying Fund is similar to that of your Fund in
that both Buying Fund and your Fund seek a high level of current income,
although your Fund also seeks capital appreciation. See "Comparison of
Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated December 31, 2002, as supplemented June
30, 2003 and August 14, 2003 (the "Selling Fund Prospectus"), together with the
related Statement of Additional Information dated December 31, 2002, as
supplemented June 12, 2003 and August 14, 2003, are on file with the Securities
and Exchange Commission (the "SEC"). The Selling Fund Prospectus is incorporated
by reference into this
i
Proxy Statement/Prospectus. The Prospectus of Buying Fund dated July 21, 2003,
as supplemented August 14, 2003 (the "Buying Fund Prospectus"), and the related
Statement of Additional Information dated July 21, 2003, as supplemented July
28, 2003, and the Statement of Additional Information relating to the
Reorganization, dated August 15, 2003, are on file with the SEC. The Buying Fund
Prospectus is incorporated by reference into this Proxy Statement/Prospectus and
a copy of the Buying Fund Prospectus is attached as Appendix II to this Proxy
Statement/Prospectus. The Statement of Additional Information relating to the
Reorganization dated August 15, 2003 also is incorporated by reference into this
Proxy Statement/Prospectus. The SEC maintains a website at www.sec.gov that
contains the Prospectuses and Statements of Additional Information described
above, material incorporated by reference, and other information about Company
and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 5
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 7
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 8
Description of Buying Fund Shares......................... 8
Management's Discussion of Fund Performance............... 9
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 9
Board Considerations...................................... 10
Other Terms............................................... 11
Federal Income Tax Consequences........................... 12
Accounting Treatment...................................... 12
RIGHTS OF SHAREHOLDERS...................................... 13
General................................................... 13
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 13
Removal of Directors/Trustees............................. 14
Meetings of Shareholders.................................. 14
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 15
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 16
INTERESTS OF CERTAIN PERSONS................................ 16
LEGAL MATTERS............................................... 16
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 18
Background................................................ 18
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
The Board's Recommendation on Proposal 2.................. 22
Current Committees of the Board........................... 22
Board and Committee Meeting Attendance.................... 24
</Table>
iii
<Table>
<Caption>
PAGE
----
Future Committee Structure................................ 24
Director's Compensation................................... 25
Current Retirement Plan For Directors..................... 25
Current Deferred Compensation Plan........................ 26
New Retirement Plan For Directors......................... 26
New Deferred Compensation Agreements...................... 27
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 27
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 28
Background................................................ 28
Your Fund's Current Investment Advisor.................... 28
The Proposed New Investment Advisor for Your Fund......... 29
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 29
Terms of the Current Advisory Agreement................... 29
Additional Services Provided by INVESCO and its
Affiliates............................................. 31
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 31
Terms of the Proposed Advisory Agreement.................. 31
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 35
The Board's Recommendation on Proposal 3.................. 37
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 37
Background................................................ 37
Reasons for the Proposed Redomestication.................. 37
What the Proposed Redomestication Will Involve............ 38
The Federal Income Tax Consequences of the
Redomestication........................................ 39
Appraisal Rights.......................................... 40
The Trust Compared to Company............................. 40
The Board's Recommendation on Proposal 4.................. 41
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 41
Proxy Statement/Prospectus................................ 41
Time and Place of Special Meeting......................... 41
Voting in Person.......................................... 41
Voting by Proxy........................................... 41
Voting by Telephone or the Internet....................... 42
Quorum Requirement and Adjournment........................ 42
Vote Necessary to Approve Each Proposal................... 43
Proxy Solicitation........................................ 43
Other Matters............................................. 43
Shareholder Proposals..................................... 43
Ownership of Shares....................................... 44
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 44
Fees Paid to the Auditor Related to Company............ 44
Fees Paid to the Auditor Not Related to Company........ 44
</Table>
EXHIBIT A.....Classes of Shares of Your Fund and Corresponding Classes of Shares
of Buying Fund
EXHIBIT B.................Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C...............................Comparison Fee Table and Expense Example
EXHIBIT D............................................Director Compensation Table
EXHIBIT E....................................................Officers of Company
EXHIBIT F.......................................Security Ownership of Management
EXHIBIT G......................................Director Ownership of Fund Shares
iv
EXHIBIT H......Principal Executive Officer and Directors of A I M Advisors, Inc.
EXHIBIT I..............................Compensation to INVESCO Funds Group, Inc.
EXHIBIT J...Fees Paid to INVESCO Funds Group, Inc. and Affiliates in Most Recent
Fiscal Year
EXHIBIT K.............................Advisory Fee Schedules for Other AIM Funds
EXHIBIT L..........................Proposed Compensation to A I M Advisors, Inc.
EXHIBIT M...........Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT N.......................................Ownership of Shares of Your Fund
EXHIBIT O.....................................Ownership of Shares of Buying Fund
APPENDIX I.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Reorganization)
APPENDIX II............................................Prospectus of Buying Fund
APPENDIX III............................Discussion of Performance of Buying Fund
APPENDIX IV......Form of Investment Advisory Agreement with A I M Advisors, Inc.
APPENDIX V.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Redomestication)
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, 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, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(K) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
v
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as that term is defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these directors/trustees agreed to combine
the separate boards and create a unified board of directors/trustees. Proposal 2
relates to the election of directors of your Fund.
1
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders approve the Agreement by the Combined Shareholder Vote (as
defined under "Information About the Special Meeting and Voting -- Vote
Necessary to Approve Each Proposal") and other closing conditions are satisfied,
all of the assets of your Fund will be transferred to Buying Fund and Buying
Fund will assume the liabilities of your Fund, and Buyer will issue shares of
each class of Buying Fund to shareholders of the corresponding class of shares
of your Fund, as set forth on Exhibit A. For a description of certain of the
closing conditions that must be satisfied, see "Additional Information About the
Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain would be included in a taxable distribution. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
2
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue similar investment objectives in that both
Buying Fund and your Fund seek a high level of current income, although your
Fund also seeks capital appreciation. Your Fund and Buying Fund also invest in
similar types of securities. As a result, the Reorganization is not expected to
cause significant portfolio turnover or transaction expenses from the sale of
securities that are incompatible with the investment objective of Buying Fund.
The investment objectives or goals of your Fund are classified as
fundamental, which means that the Board cannot change them without shareholder
approval. The investment objective of Buying Fund is not classified as
fundamental, which means that the Board of Trustees of Buyer can change it
without shareholder approval. Having the ability to change the investment
objective without shareholder approval allows the Board of Trustees to respond
more quickly and efficiently to changing market conditions and to save Buying
Fund and its shareholders money by eliminating the need to solicit proxies to
obtain shareholder approval to change an investment objective to respond to
changing market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
3
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
<Caption>
INVESCO HIGH YIELD FUND AIM HIGH YIELD FUND
(YOUR FUND) (BUYING FUND)
------------------------------------------- -------------------------------------------
Investment Objective
- high level of current income and capital - high level of current income
appreciation
Investment Strategies
- invests, normally, at least 80% of its - invests primarily in publicly traded non-
net assets in a diversified portfolio of investment grade securities, i.e., "junk
high yield corporate bonds rated below bonds"
investment grade, or bonds deemed by - invests, normally, at least 80% of its
INVESCO to be of comparable quality, assets in non-investment grade debt
commonly known as "junk bonds," and securities, i.e., "junk bonds"
preferred stocks with below investment - in complying with the foregoing
grade ratings or those deemed by INVESCO requirement, Buying Fund's investments
to be of comparable quality may include synthetic instruments such as
warrants, futures, options,
exchange-traded funds and American
Depositary Receipts
- will principally invest in junk bonds
rated B or above by Moody's Investors
Service, Inc. or Standard & Poor's
Ratings Services or deemed by AIM to be
of comparable quality
- may invest in preferred stock
- may invest up to 25% of its assets in - may invest up to 25% of its total assets
foreign debt securities; securities of in foreign securities
Canadian issuers and American Depositary
Receipts are not subject to this 25%
limitation
- investment objective includes capital - AIM focuses on debt securities it
appreciation believes have favorable prospects for
high current income, and also considers
the possibility of growth of capital of
the security
- may invest in companies that have similar - no corresponding strategy
lines of business (for example, financial
services, health, or technology) and are
grouped together in broad categories
called sectors
</Table>
4
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
------------------------------------------------------------
INVESCO HIGH YIELD FUND AIM HIGH YIELD FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ----------------------------- ----------------------------
Investment Advisor............. INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Distributor.................... A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator.................. INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian...................... State Street Bank and Trust State Street Bank and Trust
Company Company
Transfer Agent and Dividend
Disbursing Agent............. INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Independent Auditors........... PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this Proxy Statement/Prospectus
by reference. For more information regarding the total return of Buying Fund,
see "Information About Buying Fund -- Financial Highlights." Past performance
cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of August 31, 2002, and Buying Fund, as of July
31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can be
found at Exhibit C. Pro forma estimated Expense Ratios for each class of shares
of Buying Fund after giving effect to the Reorganization are also provided as of
July 31, 2002 as part of Exhibit C.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. For
information regarding the features of the various share classes of your Fund and
Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
5
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C
- ------------------------ ------------------------ ------------------------
- - subject to an initial - not subject to an - not subject to an
sales charge* initial sales charge initial sales charge
- - may be subject to a - subject to a CDSC on - subject to a CDSC on
CDSC on redemptions certain redemptions certain redemptions
made within 18 months made within 6 years made within 12 months
from the date of from the date of from the date of
certain large purchase purchase***
purchases**
</Table>
<Table>
<Caption>
CLASS K
(YOUR FUND ONLY) INVESTOR CLASS
- ----------------------------- -----------------------------
- - not subject to an initial - not subject to an initial
sales charge sales charge
- - may be subject to a CDSC on - not subject to a CDSC
redemptions made within 12
months from the date of
certain purchases
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of your Fund is computed based on
their original purchase price. This method of computation changes to conform to
Buying Fund's method of computation effective August 18, 2003.
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
6
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
Shareholders of your Fund currently pay a 2% fee on redemptions or
exchanges of Investor Class shares of your Fund held for three months or less,
other than shares acquired through reinvestment of dividends and distributions.
Shareholders of Buying Fund currently do not pay this 2% fee on any class of
shares of Buying Fund. Both the Board and the Board of Trustees of Buyer have
approved the addition of a new 2% fee on redemptions, including redemptions by
exchange, out of your Fund and Buying Fund, respectively, within 30 days of
purchase. This new redemption fee, which is expected to be implemented in
mid-November 2003, will be imposed on Class A shares and Investor Class shares
of your Fund and Buying Fund and will be paid to your Fund or Buying Fund, as
applicable. It is intended to offset the trading costs, market impact and other
costs associated with short-term movements in and out of your Fund and Buying
Fund. The current 2% redemption fee applicable to Investor Class shares of your
Fund will be terminated upon the implementation of this new redemption fee.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund and that the income you may receive from your investment may vary.
The value of your investment in Buying Fund will go up and down with the prices
of the securities in which Buying Fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease; junk bonds are
less sensitive to this risk than are higher-quality bonds. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
Compared to higher-quality debt securities, junk bonds involve greater risk
of default or price changes due to changes in the credit quality of the issuer
and because they are generally unsecured and may be subordinated to other
creditors' claims. The value of junk bonds often fluctuates in response to
company, political or economic developments and can decline significantly over
short periods of time or during periods of general or regional economic
difficulty. During those times, the bonds could be difficult to value or to sell
at a fair price. Credit ratings on junk bonds do not necessarily reflect their
actual market risk.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about issuers,
relatively low market liquidity and the potential lack of strict financial and
accounting controls and standards.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to those
described above for Buying Fund because of the similarities in their investment
objectives and strategies. Set forth below is a discussion of certain risks that
differ between Buying Fund and your Fund. You can find more detailed
descriptions of specific risks associated with your Fund in the Selling Fund
Prospectus.
Your Fund may also focus its investments in one or more sectors, resulting
in the risk that a certain sector may underperform other sectors or the market
as a whole. If the portfolio managers allocate more of your Fund's portfolio
holdings to a particular economic sector, as compared to Buying Fund, your
Fund's overall performance will be more susceptible to the economic, business,
or other developments which generally affect that sector.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund 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 Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
8
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended July 31, 2002 is set forth in Appendix
III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the Closing and (b) all of your Fund's net capital gain recognized in
its taxable year ended August 31, 2003 and in such short taxable year (after
reduction for any capital loss carryover).
In addition to the Special Meeting to vote on the Reorganization, the Board
has called special meetings for the shareholders of each of Company's three
other series portfolios to approve for each such series portfolio an agreement
and plan of reorganization that is similar to the Agreement, under which all of
the assets of each such series portfolio will be sold to a series portfolio of
Buyer, resulting in the combination of the two series portfolios. If the
Reorganization and all three other reorganizations are approved by shareholders
by the 1940 Act Vote (as defined under "Information About the Special Meeting
and Voting -- Vote Necessary to Approve Each Proposal"), the resulting
transactions will constitute a sale of all of Company's assets and, under
applicable Maryland law and Company's Charter, the Reorganization and all three
other reorganizations will require approval by shareholders by the Maryland Law
Vote in addition to the 1940 Act Vote.
If the Agreement and all three other reorganizations are approved by
shareholders by the Combined Shareholder Vote, the Reorganization and all three
other reorganizations will be consummated and Company
9
and Buyer will cause Articles of Transfer to be filed with the State Department
of Assessments and Taxation of Maryland to transfer all of the assets of Company
as soon as reasonably practicable after the Closing. Following the filing of
Articles of Transfer, Company will file Articles of Dissolution with the State
Department of Assessments and Taxation of Maryland to dissolve Company as a
Maryland corporation and an application for deregistration on Form N-8F under
the 1940 Act with the Securities and Exchange Commission to deregister Company
as an investment company.
The Reorganization will also be consummated if shareholders approve the
Agreement by the 1940 Act Vote and the Maryland Law Vote is ultimately not
required because one or more of the three other reorganizations are not approved
by the 1940 Act Vote. If shareholders approve the Agreement and all three other
reorganizations by the 1940 Act Vote, but not by the Maryland Law Vote, the
Board will determine whether to consummate the Reorganization and/or one or more
of the other three reorganizations; provided, however, that in no event may the
Reorganization and all three other reorganizations be consummated.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at an in-person meeting of the
Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund, particularly
for the past year.
- Management's representation that AIM's fixed income department could
provide more depth and resources than INVESCO's fixed income department.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
10
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders shall have approved the Agreement by the Combined
Shareholder Vote; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund and Company do not approve the Agreement or if the Closing does not
occur on or before the Termination Date.
11
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Company and Buyer upon which Ballard Spahr Andrews &
Ingersoll, LLP will rely in rendering its opinion. The conclusions reached in
that opinion could be jeopardized if the representations of Company or Buyer are
incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
12
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements, amendments and
supplements thereto (the "Articles of Incorporation"), and applicable Maryland
law. The operations of Buyer, as a Delaware statutory trust, are governed by its
Amended and Restated Agreement and Declaration of Trust, as amended (the
"Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be subject to any personal liability for acts or obligations of the
Trust and that every written agreement, obligation or other undertaking made or
issued by the Trust shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his or her investment due to shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations and
the express disclaimer of shareholder liabilities is determined not to be
effective. Given the nature of the assets and operations of the Trust, the
possibility of the Trust being unable to meet its obligations is considered
remote, and even if a claim were brought against the Trust and a court
determined that shareholders were personally liable, it would likely not impose
a material obligation on a shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
13
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the holders of a majority of the
outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be called by the president
or, in his or her absence, the vice-president or by a majority of the Board of
Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting need be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
14
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust; and (vii) approval
of such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS K SHARES(1) CLASS A SHARES CLASS A SHARES
-------------- ----------------- -------------- --------------
Net Assets......................... $12,251,737 $4,891,545 $561,903,834 $579,047,116
Shares Outstanding................. 3,559,425 1,436,550 145,815,268 150,268,010
Net Asset Value Per Share.......... $ 3.44 $ 3.41 $ 3.85 $ 3.85
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
Net Assets......................................... $1,157,197 $457,573,972 $458,731,169
Shares Outstanding................................. 340,274 118,382,868 118,681,817
Net Asset Value Per Share.......................... $ 3.40 $ 3.87 $ 3.87
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
-------------- -------------- --------------
Net Assets.......................................... $12,836,536 $56,341,562 $69,178,098
Shares Outstanding.................................. 3,780,976 14,628,019 17,967,063
Net Asset Value Per Share........................... $ 3.40 $ 3.85 $ 3.85
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR CLASS INVESTOR CLASS INVESTOR
SHARES SHARES(2) CLASS SHARES
-------------- -------------- --------------
Net Assets.......................................... $276,772,146 0 $276,772,146
Shares Outstanding.................................. 81,129,155 0 71,857,252
Net Asset Value Per Share........................... $ 3.41 $3.85 $ 3.85
</Table>
- ---------------
(1) Shareholders of Class K shares of your Fund are receiving Class A shares of
Buying Fund in the Reorganization.
(2) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $308 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
16
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-2674. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-5686. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/ Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Company and Buyer and other registrants that file
electronically with the SEC.
PROPOSAL 2 -- ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders
17
of all the AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 11 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Richard W. Healey, Gerald L. Lewis, John W. McIntyre, Larry Soll,
Ph.D. and Mark H. Williamson. Eight of the current directors are "independent,"
meaning they are not "interested persons" of Company within the meaning of the
1940 Act. Three of the current directors are "interested persons" because of
their business and financial relationships with Company and INVESCO, its
investment advisor, and/or INVESCO's parent, AMVESCAP. Six of the current
directors have declined to stand for re-election as directors of Company.
Therefore, their terms as directors of Company will end upon the election and
qualification of their successor directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 11 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- -------------------------- --------------------------
Bob R. Baker -- 1936...... 1983 Consultant (2000-present); None
formerly, President and
Chief Executive Officer
(1988-2000) of AMC Cancer
Research Center, Denver,
Colorado; until mid-
December 1988, Vice
Chairman of the Board of
First Columbia Financial
Corporation, Englewood,
Colorado; formerly,
Chairman of the Board and
Chief Executive Officer of
First Columbia Financial
Corporation.
James T. Bunch -- 1942.... 2000 Co-President and Founder None
of Green, Manning & Bunch
Ltd., Denver, Colorado
(1988-present) (investment
banking firm); Director
and Vice President of
Western Golf Association
and Evans Scholars
Foundation; Executive
Committee, United States
Golf Association;
formerly, General Counsel
and Director of Boettcher
& Co., Denver, Colorado;
and formerly, Chairman and
Managing Partner, law firm
of Davis, Graham & Stubbs,
Denver, Colorado.
Gerald J. Lewis -- 1933... 2000 Chairman of Lawsuit General Chemical Group,
Resolution Services, San Inc., Hampdon, New
Diego, California Hampshire (1996-present),
(1987-present); formerly, Wheelabrator Technologies,
Associate Justice of the Inc. (waste management
California Court of company), Fisher
Appeals; and Of Counsel, Scientific, Inc.
law firm of Latham & (laboratory supplies),
Watkins, San Diego, Henley Manufacturing,
California (1987-1997). Inc., and California
Coastal Properties, Inc.
Larry Soll,
Ph.D. -- 1942........... 1997 Retired; formerly, Synergen Inc. (since
Chairman of the Board incorporation in 1982) and
(1987-1994), Chief Isis Pharmaceuticals, Inc.
Executive Officer
(1982-1989 and 1993-1994)
and President (1982-1989)
of Synergen Inc.
(biotechnology company);
and formerly, trustee of
INVESCO Global Health
Sciences Fund.
</Table>
19
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ---------------------------- -------------------------------
Mark H.
Williamson(1) -- 1951..... 1998 Director, President and Director/trustee of each of the
Chief Executive Officer, 17 AIM Funds
A I M Management Group Inc.;
Director, Chairman and
President, A I M Advisors,
Inc. (registered investment
advisor); Director, A I M
Distributors, Inc.
(registered broker dealer);
and Chief Executive Officer
of the AIM Division of
AMVESCAP PLC (2003-present);
formerly, Chief Executive
Officer, Managed Products
Division, AMVESCAP PLC
(2001-2002); Chairman of the
Board (1998-2002), President
(1998-2002) and Chief
Executive Officer
(1998-2002) of INVESCO Funds
Group, Inc. (registered
investment advisor) and
INVESCO Distributors, Inc.
(registered broker dealer);
Chief Operating Officer and
Chairman of the Board of
INVESCO Global Health
Sciences Fund; Chairman and
Chief Executive Officer of
NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
20
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------------- -----------------------------
Frank S. Bayley -- 1939...... Of Counsel, law firm of Baker Badgley Funds, Inc.
& McKenzie (registered investment
company)
Bruce L. Crockett -- 1944.... Chairman, Crockett Technology ACE Limited (insurance
Associates (technology company); Captaris, Inc.
consulting company) and (unified messaging provider)
Captaris, Inc. (unified
messaging provider)
Albert R. Dowden -- 1941..... Director of a number of Cortland Trust, Inc.
public and private business (Chairman) (registered
corporations, including the investment company); Annuity
Boss Group, Ltd. (private and Life Re (Holdings), Ltd.
investment and management) (insurance company)
and Magellan Insurance
Company; formerly, President,
Chief Executive Officer and
Director, Volvo Group North
America, Inc.; Senior Vice
President, AB Volvo and
director of various
affiliated Volvo Group
companies
Edward K. Dunn, Formerly, Chairman, None
Jr. -- 1935................ Mercantile Mortgage Corp.;
President and Chief Operating
Officer, Mercantile-Safe
Deposit & Trust Co.; and
President, Mercantile
Bankshares Corp.
Jack M. Fields -- 1952....... Chief Executive Officer, Administaff
Twenty First Century Group,
Inc. (government affairs
company) and Texana Timber LP
Carl Frischling -- 1937...... Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel LLP (registered investment
company)
Prema Mathai-Davis -- 1950... Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock -- 1942..... Partner, law firm of Pennock None
& Cooper
Ruth H. Quigley -- 1935...... Retired None
Louis S. Sklar -- 1939....... Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
21
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------------- -----------------------------
Robert H. Graham(1) -- 1946.. Director and Chairman, A I M None
Management Group Inc.
(financial services holding
company); and Director and
Vice Chairman, AMVESCAP PLC
(parent of AIM and a global
investment management firm)
and Chairman, AMVESCAP
PLC -- AIM Division;
formerly, President and Chief
Executive Officer, A I M
Management Group Inc.;
Director, Chairman and
President, A I M Advisors,
Inc. (registered investment
advisor); Director and
Chairman, A I M Capital
Management, Inc. (registered
investment advisor), A I M
Distributors, Inc.
(registered broker dealer),
A I M Fund Services, Inc.
(registered transfer agent),
and Fund Management Company
(registered broker dealer);
and Chief Executive Officer,
AMVESCAP PLC -- Managed
Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
22
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
23
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended August 31, 2002, the Board met eight times,
the audit committee met four times, the investments and management liaison
committee met four times, the brokerage committee met four times, the
derivatives committee met four times, the nominating committee met two times,
the legal committee met three times, the compensation committee met four times,
and the executive, valuation and retirement plan committees did not meet. All of
the current directors then serving attended at least 75% of the meetings of the
Board or applicable committee during the most recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
24
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor'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.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
25
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of months. The Account value continues to fluctuate as long as monthly
payments are made. If a Participating Qualified Director becomes disabled or
dies prior to his or her retirement and if, at the time of disability or death,
the value of a Participating Qualified Director's Account is less than $340,000,
the Director or the Director's beneficiary or estate will not be paid the value
in the Account but will receive $34,000 per annum for ten years. If, at the time
of the Participating Qualified Director's death or disability prior to
retirement, the value in the director's Account is $340,000 or more, the
Participating Qualified Director or his or her estate or beneficiary will
receive the value in the Account either in a lump sum or in quarterly
installments. The cost of providing the initial dollar amount to be allocated to
a Participating Qualified Director's Account and the cost of payment of any
death or disability benefit that aggregates more than the Account value will be
allocated among the INVESCO Funds in a manner determined to be fair and
equitable by a committee appointed to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited service as a director (including service
to a predecessor fund) for a Covered Fund. The retirement benefits will equal
75% of the director's annual retainer paid or accrued by any Covered Fund to
such director during the twelve-
26
month period prior to retirement, including the amount of any retainer deferred
under a separate deferred compensation agreement between the Covered Fund and
the director. The annual retirement benefits will be payable in quarterly
installments for a number of years equal to the lesser of (i) ten or (ii) the
number of such director's credited years of service. A death benefit will also
be available under the New Retirement Plan that will provide a surviving spouse
with a quarterly installment of 50% of a deceased director's retirement benefits
for the same length of time that the director would have received the benefits
based on his or her service. A director must have attained the age of 65 (55 in
the event of death or disability) to receive any retirement benefit. Payment of
benefits under the New Retirement Plan will not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director 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. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds and the AIM Funds complex can be found in Exhibit G.
27
PROPOSAL 3 -- APPROVAL OF A
NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund. The portfolio management
team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on
February 28, 1997. Your Fund's shareholders last voted on the agreement on
January 31, 1997, for the purpose of approving a new investment advisory
agreement for your Fund, with the same parties and on terms substantially
identical to your Fund's then-existing investment advisory agreement. Such
approval was necessary because your Fund's then-existing investment advisory
agreement terminated automatically by operation of law upon the consummation on
February 28, 1997, of the merger of A I M Management Group Inc. and INVESCO PLC,
which at that time was the ultimate parent
28
company of your Fund's investment advisor. The Board, including a majority of
the independent directors, last approved the current advisory agreement on May
15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A 1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised, and calculates the net asset value of your Fund, subject to
such procedures established by the Board and based upon information provided by
your Fund, the custodian of your Fund or other source as designated by the
Board. INVESCO provides sub-accounting, recordkeeping and administrative
services to your Fund under an administrative services agreement. Under the
advisory agreement, as administrator, INVESCO also provides, at its expense and
at the request of your Fund, executive, statistical, administrative, internal
accounting and clerical services and office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund and each other series portfolio of
Company, and (ii) the vote of a majority of the directors of Company who are not
interested persons of INVESCO or Company by votes cast in person at a meeting
called for such purpose. The current advisory agreement provides that the Board,
a majority of the outstanding voting securities of your Fund and each other
series portfolio of Company or INVESCO may terminate the agreement with respect
to your Fund on 60 days' written notice without penalty. The agreement
terminates automatically in the event of its assignment, unless an order is
issued by the SEC conditionally or unconditionally exempting such assignment
from the applicable provisions of the 1940 Act.
29
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
30
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, 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 trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and each other series portfolio of Company
(each, an "Investing Fund") to invest their uninvested cash in money market
31
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 the Investing Fund. AIM
will receive advisory fees from the Affiliated Money Market Fund to the extent
an Investing Fund invests uninvested cash in such Affiliated Money Market Fund.
If the Board approves AIM's use of the exemptive order for Company, AIM intends
to waive a portion of the advisory fees payable by each Investing Fund in an
amount equal to 25% of the advisory fee AIM receives from the Affiliated Money
Market Fund as a result of such Investing Fund's investment of uninvested cash
in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a security transaction will be to obtain the best
execution. In selecting broker-dealers to execute particular
32
transactions, AIM will consider the best net price available, the reliability,
integrity and financial condition of the broker-dealer, the size of and
difficulty in executing the order and the value of the expected contribution of
the broker-dealer to the investment performance of Company's portfolio funds on
a continuing basis. Accordingly, the price to your Fund in any transaction may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the fund execution
services offered by the broker-dealer. The broker-dealer relationship provisions
of the current advisory agreement with INVESCO for your Fund do not specify
these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative 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 loans; (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.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
33
TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940 Act
and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
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LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor. The limitation of
liability provisions of the 1940 Act also apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an
35
investment objective and strategies similar to those of your Fund and is
able, therefore, to provide advisory and administrative services to your
Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they believe to
be in your best interests. In so doing, they were advised by independent
counsel, retained by the independent directors and paid for by Company, as to
the nature of the matters to be considered and the standards to be used in
reaching their decision.
36
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 -- APPROVAL OF THE PLAN
TO REDOMESTICATE COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix V.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's
37
Articles of Incorporation would typically require shareholder approval. Under
Delaware law, unless the Declaration of Trust of a Delaware statutory trust
provides otherwise, amendments to it may be made without first obtaining
shareholder approval. In addition, unlike Maryland corporate law, which
restricts the delegation of a board of directors' functions, Delaware law
permits the board of trustees of a Delaware statutory trust to delegate certain
of its responsibilities. For example, the board of trustees of a Delaware
statutory trust may delegate the responsibility of declaring dividends to duly
empowered committees of the board or to appropriate officers. Finally, Delaware
law permits the trustees to adapt a Delaware statutory trust to future
contingencies. For example, the trustees may, without a shareholder vote, change
a Delaware statutory trust's domicile or organizational form. In contrast, under
Maryland corporate law, a company's board of directors would be required to
obtain shareholder approval prior to changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive compliance with any condition
contained in the Plan, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with
38
INVESCO that is substantially identical to the corresponding Current
Fund's existing administrative services agreement with INVESCO for the
interim period between the consummation of the Redomestication and
November 5, 2003. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
administrative services agreement with AIM that is substantially
identical to such Current Fund's existing administrative services
agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on accounts of shareholders under the Current Funds will be
replicated on the New Fund account. No sales charges will be imposed in
connection with the Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication in light of their
individual circumstances and as to state and local consequences, if any, of the
Redomestication.
39
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing discussion
and the discussion under the caption "Rights of Shareholders" in Proposal 1
above is only a summary of certain differences and is not a complete description
of all the differences. Shareholders should refer to the provisions of the
governing documents of Company and Trust and state law directly for a more
thorough comparison. Copies of the Articles of Incorporation and Amended and
Restated Bylaws of
40
Company and of the Declaration of Trust and the Trust's Amended and Restated
Bylaws are available to shareholders without charge upon written request to
Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
41
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposal 1 if (a) shareholders entitled to vote one-third of the
issued and outstanding shares of Company on the Record Date and (b) shareholders
entitled to vote one-third of the issued and outstanding shares of your Fund on
the Record Date are present at the Special Meeting in person or by proxy. A
quorum will exist for Proposals 2 and 4 if shareholders entitled to vote
one-third of the issued and outstanding shares of Company on the Record Date are
present at the Special Meeting in person or by proxy. A quorum will exist for
Proposal 3 if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approvals of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund (the "1940 Act Vote"). Applicable
Maryland law and the Charter of Company may also require that Proposal 1 be
approved by the affirmative vote of a majority of the issued and outstanding
shares of Company, which includes the shares of your Fund and the shares of the
three other series portfolios of Company, all voting together (the "Maryland Law
Vote" and together with the 1940 Act Vote, the "Combined Shareholder Vote"). See
"Additional Information About the Agreement -- The Reorganization." Abstentions
and broker non-votes are counted as present but are not considered votes cast at
the Special Meeting. As a result, they have the same effect as a vote against
Proposals 1 and 3 because approval of Proposals 1 and 3 requires the affirmative
vote of a percentage of the voting securities present or represented by proxy or
a percentage of the outstanding voting securities or the issued and outstanding
shares, as applicable.
42
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $21,800. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. AMVESCAP, on behalf of INVESCO, will bear the costs and expenses
incurred in connection with the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending August 31, 2003. A representative of the Auditor is expected to be
available at the Special Meeting and to have the opportunity to make a statement
and respond to appropriate questions from the shareholders. The audit committee
of the Board has
43
considered whether the provisions of the services below is compatible with
maintaining the Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of four separate series portfolios)
aggregate fees for professional services rendered for the 2002 fiscal year as
follows:
<Table>
Audit Fees.................................................. $79,950
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $12,137
-------
Total Fees.................................................. $92,087
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2002 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $149,083
--------
Total Fees.................................................. $149,083
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
44
EXHIBIT A
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF YOUR FUND SHARES OF BUYING FUND
------------------------------ ------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Class K shares Class A shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO HIGH YIELD FUND (YOUR FUND)
Performance information in the bar chart below is that of the Fund's
Investor Class shares which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class shares actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade. The table below shows the pre-tax and after-tax average
annual total returns of Investor Class for various periods ended December 31,
2001 compared to the Merrill Lynch High Yield Master Trust Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption returns assume you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption returns assume payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rates in effect
at the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax return shown is not relevant.
The information in the chart and table illustrates the variability of the
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how a Fund will perform in the future.
HIGH YIELD FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)
<Table>
'92......................................................... 14.53%
'93......................................................... 15.81%
'94......................................................... (4.98%)
'95......................................................... 17.90%
'96......................................................... 14.08%
'97......................................................... 17.10%
'98......................................................... 0.15%
'99......................................................... 9.30%
'00......................................................... (12.06%)
'01......................................................... (19.01%)
</Table>
Best Calendar Qtr. 9/97 6.99%
Worst Calendar Qtr. 9/01 (15.03%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/01
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
High Yield Fund(1)(2)
Return Before Taxes.................... (19.01)% (1.81)% 4.46%
Return After Taxes on Distributions.... (22.82)% (6.12)% 0.37%
Return After Taxes on Distributions and
Sale of Fund Shares................. (11.29)% (3.04)% 1.87%
Merrill Lynch High Yield Master Trust
Index(3) (reflects no deduction for
fees, expenses, or taxes).............. 6.20% 3.95% 8.26%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class's expenses.
(2) Returns before taxes for Investor Class shares of High Yield Fund
year-to-date as of the calendar quarter ended September 30, 2002 was
(9.36%).
(3) The Merrill Lynch High Yield Master Trust Index is an unmanaged index
indicative of the high yield bond market. Please keep in mind that the index
does not pay brokerage, management, administrative, or distribution
expenses, all of which are paid by the classes and are reflected in their
annual returns. Index returns also do not include sales charges or CDSC that
may be paid by the shareholder.
AIM HIGH YIELD FUND (BUYING FUND)
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 18.40%
1994................................................................... -1.68%
1995................................................................... 16.86%
1996................................................................... 15.44%
1997................................................................... 12.52%
1998................................................................... -5.10%
1999................................................................... 2.08%
2000................................................................... -23.81%
2001................................................................... -3.59%
2002................................................................... -10.38%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
17.71%.
During the periods shown in the bar chart, the highest quarterly return was
6.62% (quarter ended March 31, 1993) and the lowest quarterly return was -13.88%
(quarter ended December 31, 2000).
B-2
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads. The indices do
not reflect payment of fees, expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
INCEPTION
1 YEAR 5 YEARS 10 YEARS DATE
------ ------- -------- ---------
Class A 07/11/78
Return Before Taxes................. (14.64)% (9.49)% 0.71%
Return After Taxes on
Distributions.................... (18.27) (13.33) (3.35)
Return After Taxes on Distributions
and Sale of Fund Shares.......... (8.94) (8.54) (0.96)
Lehman Brothers U.S. Aggregate Bond
Index(1)............................ 10.25 7.55 7.51
Lehman Brothers High Yield Index(2)... (1.41) 0.38 5.86
Lipper High Yield Bond Fund
Index(3)............................ (2.41) (1.80) 4.69
</Table>
- ---------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
(1) The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index
generally considered representative of treasury issues, agency issues,
corporate bond issues and mortgage-backed securities. The fund has elected
to use the Lehman Brothers U.S. Aggregate Bond Index as its broad-based
index rather than the Lehman Brothers High Yield Index because the Lehman
Brothers U.S. Aggregate Bond Index is such a widely recognized gauge of U.S.
stock market performance. The fund has also included the Lehman Brothers
High Yield Index, which the fund believes more closely reflects the
performance of the securities in which the fund invests. In addition, the
Lipper High Yield Bond Fund Index (which may or may not include the fund) is
included for comparison to a peer group.
(2) The Lehman Brothers High Yield Index is an index that includes all
fixed-income securities having a maximum quality rating of Ba1 (including
defaulted issues), a minimum amount outstanding of $100 million, and at
least one year to maturity.
(3) The Lipper High Yield Bond Fund Index is an equally weighted representation
of the 30 largest funds within the Lipper High Yield category. The funds
have no credit rating restriction, but tend to invest in fixed-income
securities with lower credit ratings.
B-3
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class K and Investor Class shares of INVESCO High Yield Fund ("Selling
Fund"), and of Class A, Class B and Class C shares of AIM High Yield Fund
("Buying Fund"). Pro Forma Combined Expense Ratios of Buying Fund giving effect
to the reorganization of Selling Fund into Buying Fund are also provided.
<Table>
<Caption>
SELLING FUND BUYING FUND
(AS OF 8/31/02) (AS OF 7/31/02)
--------------------------------------------------- ------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS K CLASS CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------- ------- ------- -------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.75% None None None None 4.75% None None
Maximum Deferred Sales Charge
(Load)(1)....................... None (2)(3) 5.00% 1.00% None (4) None None (2)(5) 5.00% 1.00%
Redemption Fee (as a percentage of
amount redeemed)................ None None None None 2.00% (6) None None None
Exchange Fee...................... None None None None 2.00% (6) None None None
ANNUAL FUND OPERATING EXPENSES(7)
(expenses that are deducted from
fund assets)
Management Fees................... 0.48% 0.48% 0.48% 0.48% 0.48% 0.52% 0.52% 0.52%
Distribution and/or Service
(12b-1) Fees(8)................. 0.35% 1.00% 1.00% 0.45% 0.25% 0.25% 1.00% 1.00%
Other Expenses(9)................. 0.43% 0.39% 0.60% 1.69% 0.63% 0.30% 0.30% 0.30%
Total Annual Fund Operating
Expenses(10).................... 1.26% 1.87% 2.08% 2.62% 1.36% 1.07% 1.82% 1.82%
Fee Waivers/Reimbursements........ None None None 0.42% None None None None
Net Expenses...................... 1.26% 1.87% 2.08% 2.20% 1.36% 1.07% 1.82% 1.82%
<Caption>
PRO FORMA COMBINED
(AS OF 7/31/02)
-----------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS
SHARES SHARES SHARES SHARES
------- ------- ------- --------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.75% None None None
Maximum Deferred Sales Charge
(Load)(1)....................... None (2)(5) 5.00% 1.00% None
Redemption Fee (as a percentage of
amount redeemed)................ None None None None
Exchange Fee...................... None None None None
ANNUAL FUND OPERATING EXPENSES(7)
(expenses that are deducted from
fund assets)
Management Fees................... 0.50% 0.50% 0.50% 0.50%
Distribution and/or Service
(12b-1) Fees(8)................. 0.25% 1.00% 1.00% 0.25%
Other Expenses(9)................. 0.30% 0.30% 0.30% 0.30%
Total Annual Fund Operating
Expenses(10).................... 1.05% 1.80% 1.80% 1.05%
Fee Waivers/Reimbursements........ None None None None
Net Expenses...................... 1.05% 1.80% 1.80% 1.05%
</Table>
(footnotes on next page)
C-1
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price.
For Buying Fund and Buying Fund Pro Forma Combined, calculated as a
percentage of original purchase price or redemption proceeds, whichever is
less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Selling Fund Class A shares, you may pay a
CDSC of 1% on your Class A shares if the plan is redeemed within 12 months
from initial deposit in the plan's INVESCO account.
(4) For qualified plans investing in Class K shares, you may pay a CDSC of
0.70% on your Class K shares if the plan is redeemed within 12 months from
initial deposit in the plan's INVESCO account.
(5) Effective November 1, 2002, if you are a retirement plan participant and
you bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(6) A 2% fee is charged on redemptions or exchanges of shares held three months
or less, other than shares acquired through reinvestment of dividends and
distributions.
(7) There is no guarantee that actual expenses will be the same as those shown
in the table.
(8) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own shares for a long period of time, you
pay more than the economic equivalent of the maximum front-end sales charge
permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(9) Other Expenses for Selling Fund's Class A and Class B are based on
estimated expenses for the current fiscal year.
(10) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating
Expenses (excluding interest, taxes, brokerage commissions, extraordinary
expenses and increases in expenses due to expense offset arrangements, if
any) to 2.10%, 2.75%, 2.75% and 2.20% on Class A, Class B, Class C and
Class K shares, respectively. INVESCO has also voluntarily agreed to limit
Total Annual Operating Expenses (excluding interest, taxes, brokerage
commissions, extraordinary expenses and increases in expenses due to
expense offset arrangements, if any) to 1.35%, 2.00%, 2.00%, 1.45% and
1.25% on Class A, Class B, Class C, Class K and Investor Class shares,
respectively. The voluntary expense limitations cannot be revoked by
INVESCO prior to May 2004. Effective June 1, 2002, INVESCO is entitled to
reimbursement from the classes for fees and expenses absorbed pursuant to
voluntary and contractual expense limitation commitments between INVESCO
and Selling Fund if such reimbursements do not cause a class to exceed
expense limitations and the reimbursement is made within three years after
INVESCO incurred the expense.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $597 $856 $1,134 $1,925
Assuming no redemption.................................... $597 $856 $1,134 $1,925
Class B shares
Assuming complete redemption at end of period(2)(3)....... $690 $888 $1,211 $2,031
Assuming no redemption(3)................................. $190 $588 $1,011 $2,031
Class C shares
Assuming complete redemption at end of period(2).......... $311 $652 $1,119 $2,410
Assuming no redemption.................................... $211 $652 $1,119 $2,410
Class K shares
Assuming complete redemption at end of period............. $223 $733 $1,313 $2,890
Assuming no redemption.................................... $223 $733 $1,313 $2,890
Investor Class shares
Assuming complete redemption at end of period............. $138 $431 $ 745 $1,635
Assuming no redemption.................................... $138 $431 $ 745 $1,635
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $579 $799 $1,037 $1,719
Assuming no redemption.................................... $579 $799 $1,037 $1,719
Class B shares
Assuming complete redemption at end of period(2)(3)....... $685 $873 $1,185 $1,940
Assuming no redemption(3)................................. $185 $573 $ 985 $1,940
Class C shares
Assuming complete redemption at end of period(2).......... $285 $573 $ 985 $2,137
Assuming no redemption.................................... $185 $573 $ 985 $2,137
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period............. $577 $793 $1,027 $1,697
Assuming no redemption.................................... $577 $793 $1,027 $1,697
Class B shares
Assuming complete redemption at end of period(2)(3)....... $683 $866 $1,175 $1,919
Assuming no redemption(3)................................. $183 $566 $ 975 $1,919
Class C shares
Assuming complete redemption at end of period(2).......... $283 $566 $ 975 $2,116
Assuming no redemption.................................... $183 $566 $ 975 $2,116
Investor Class shares
Assuming complete redemption at end of period............. $107 $334 $ 579 $1,283
Assuming no redemption.................................... $107 $334 $ 579 $1,283
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM ALL
COMPENSATION ACCRUED BY BENEFITS UPON INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------
Bob R. Baker.................... $7,363 $931 $34,000 $138,000
James T. Bunch.................. 6,818 0 0 124,625
Gerald J. Lewis................. 6,754 0 0 116,500
Larry Soll, Ph.D................ 7,000 0 0 126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended
August 31, 2002.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended August 31, 2002.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -----------------------------------------------------
Mark H. Williamson -- 1951
Chairman of the Board..... 1998 Director, President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief Executive
Officer of the AIM Division of AMVESCAP PLC
(2003-present); formerly, Chief Executive Officer,
Managed Products Division, AMVESCAP PLC (2001-2002);
Chairman of the Board (1998-2002), President
(1998-2002) and Chief Executive Officer (1998-2002)
of INVESCO Funds Group, Inc. (registered investment
advisor) and INVESCO Distributors, Inc. (registered
broker dealer); Chief Operating Officer and Chairman
of the Board of INVESCO Global Health Sciences Fund;
Chairman and Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham -- 1951
President and Chief
Executive Officer......... 2001 President (2001-present) and Chief Executive Officer
(2003-present) of INVESCO Funds Group, Inc.; Chairman
of the Board (2003-present) and President
(2003-present) of INVESCO Distributors, Inc.;
formerly, Chief Operating Officer (2001-2003) and
Senior Vice President (1999-2002) of INVESCO Funds
Group, Inc. and INVESCO Distributors, Inc.; and
Senior Vice President of GT Global -- North America
(1992-1998).
Glen A. Payne -- 1947
Secretary................. 1989 Senior Vice President, General Counsel and Secretary
of INVESCO Funds Group, Inc.; Senior Vice President,
Secretary and General Counsel of INVESCO
Distributors, Inc.; formerly, Secretary of INVESCO
Global Health Sciences Fund; General Counsel of
INVESCO Trust Company (1989-1998); and employee of
the Securities and Exchange Commission, Washington,
DC (1973-1989).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -----------------------------------------------------
Ronald L. Grooms -- 1946
Chief Accounting Officer,
Chief Financial Officer and
Treasurer................. 1998 Senior Vice President and Treasurer of INVESCO Funds
Group, Inc.; and Senior Vice President and Treasurer
of INVESCO Distributors, Inc.; formerly, Treasurer
and Principal Financial and Accounting Officer of
INVESCO Global Health Sciences Fund; and Senior Vice
President and Treasurer of INVESCO Trust Company
(1988-1998).
William J. Galvin,
Jr. -- 1956
Assistant Secretary....... 1992 Senior Vice President and Assistant Secretary INVESCO
Funds Group, Inc.; and Senior Vice President and
Assistant Secretary of INVESCO Distributors, Inc.;
formerly, Trust Officer of INVESCO Trust Company
(1995-1998).
Pamela J. Piro -- 1960
Assistant Treasurer....... 1999 Vice President and Assistant Treasurer of INVESCO
Funds Group, Inc.; and Assistant Treasurer of INVESCO
Distributors, Inc.; formerly, Assistant Vice
President (1996-1997).
Tane T. Tyler -- 1965
Assistant Secretary....... 2002 Vice President and Assistant General Counsel of
INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY AND
SERIES AND CLASS PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D..........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr. ......................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr. ...................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF COMPANIES OVERSEEN BY
EQUITY SECURITIES DIRECTOR IN THE INVESCO
NAME OF DIRECTOR IN YOUR FUND FUNDS COMPLEX
- ---------------- ----------------- ---------------------------
INDEPENDENT DIRECTORS
Bob R. Baker............................................. $1 - $10,000 $10,001 - $50,000
James T. Bunch........................................... $1 - $10,000 $50,001 - $100,000
Gerald J. Lewis.......................................... $1 - $10,000 $50,001 - $100,000
Larry Soll, Ph.D......................................... $1 - $10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson....................................... None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley.......................................... None None
Bruce L. Crockett........................................ None None
Albert R. Dowden......................................... None None
Edward K. Dunn........................................... None None
Jack M. Fields........................................... None None
Carl Frischling.......................................... None None
Prema Mathai-Davis....................................... None None
Lewis F. Pennock......................................... None None
Ruth H. Quigley.......................................... None None
Louis S. Sklar........................................... None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham......................................... None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, TX 77046.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH AIM PRINCIPAL OCCUPATION
- ---------------- ------------------------------------- ------------------------------------
Mark H. Williamson.......... Director, Chairman and President See director table under Proposal 2
Kevin M. Carome............. Director, Senior Vice President, Director, Senior Vice President,
General Counsel and Secretary Secretary and General Counsel, A I M
Management Group Inc.; Vice
President, A I M Capital Management,
Inc., A I M Distributors, Inc. and
A I M Fund Services, Inc., and
Director, Vice President and General
Counsel, Fund Management Company
Gary T. Crum................ Director and Senior Vice President Chairman, Director and Director of
Investments, A I M Capital
Management, Inc.; Director and
Executive Vice President, A I M
Management Group Inc.; Director,
A I M Distributors, Inc. and
AMVESCAP PLC
Dawn M. Hawley.............. Director, Senior Vice President and Director, Senior Vice President and
Chief Financial Officer Chief Financial Officer, A I M
Management Group Inc.; Vice
President and Treasurer, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director, Vice
President and Chief Financial
Officer, A I M Fund Services, Inc.;
and Vice President and Chief
Financial Officer, Fund Management
Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS OR
TOTAL NET ASSETS INVESCO FUNDS EXPENSE
FOR THE MOST GROUP, INC. FOR THE REIMBURSEMENTS FOR
RECENTLY MOST RECENTLY THE MOST RECENTLY
ANNUAL RATE COMPLETED FISCAL COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- ---------------- ------------------- ------------------
0.50% of the first $300 million; $265,659,231 $1,371,717 $366,082
0.40% of the next $200 million;
0.30% from $500 million
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO INVESCO INVESCO
NAME OF FUND (ADMINISTRATIVE SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
- ------------ -------------------------- -------------------- -----------------
INVESCO High Yield Fund................ $172,514 $435,242 $1,717,410
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
FEE WAIVER, EXPENSE
TOTAL NET ASSETS LIMITATIONS AND/OR EXPENSE
FOR THE MOST REIMBURSEMENTS FOR THE MOST
ANNUAL RATE RECENTLY COMPLETED RECENTLY COMPLETED
NAME OF FUND (BASED ON AVERAGE DAILY NET ASSETS) FISCAL PERIOD OR YEAR FISCAL PERIOD OR YEAR
- ------------ ----------------------------------- --------------------- ---------------------------
AIM High Yield Fund 0.625% of the first $200 million; $937,442,286 N/A
0.55% over $200 million up to and
including $500 million; 0.50% over
$500 million up to and including $1
billion; 0.45% of the excess over
$1 billion
AIM V.I. Diversified 0.60% of the first $250 million; $ 70,765,771 N/A
Income Fund 0.55% of the excess over $250
million
AIM V.I. High Yield 0.625% of the first $200 million; $ 25,125,968 Waive advisory fees of
Fund 0.55% over $200 million up to and Series I and Series II
including $500 million; 0.50% over shares to limit expenses
$500 million up to and including $1 excluding Rule 12b-1 plan
billion; 0.45% of the excess over fees, if any, interest,
$1 billion taxes, dividend expense on
short sales, extraordinary
items and increases in
expenses due to expense
offset arrangements, if
any, of each Series to
1.30%
</Table>
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
(BASED ON AVERAGE
NET ASSETS DAILY NET ASSETS)
- ---------- -----------------
First $300 Million.......................................... 0.50%
Next $200 Million........................................... 0.40%
From $500 Million........................................... 0.30%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
2,725,812.88
CLASS B SHARES
527,534.04
CLASS C SHARES
4,390,714.70
CLASS K SHARES
343,415.76
INVESTOR CLASS SHARES
82,428,196.42
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED OF RECORD*
- ---------------- --------------- ------------- -------------
Charles Schwab & Co. Inc. ........................ Investor Class 26,892,776.85 32.63%
Attn: Mutual Funds
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
Citigroup Global Markets Inc. .................... Investor Class 5,504,060.02 6.68%
Attn: Mutual Funds
c/o Deepa Bhashyam
333 W 34th Street 7th Floor
New York, NY 10001-2402
National Financial Services Corp.................. Investor Class 4,148,426.80 5.03%
The Exclusive Benefit of Customers
One World Financial Center
200 Liberty Street 5th Floor
Attn: Kate Recon
New York, NY 10281-5500
Charles Schwab & Co. Inc. ........................ Class A 633,042.49 23.22%
Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Merrill Lynch..................................... Class A 328,318.05 12.04%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
Merrill Lynch..................................... Class B 49,704.19 9.42%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
Guardian Equity Partners Ltd. .................... Class C 252,376.33 5.75%
A Partnership
1101 Village Road
Suite 6C
Carbondale, CO 81623-2518
Merrill Lynch..................................... Class C 220,847.21 5.03%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
Saxon & Co. ...................................... Class C 284,695.42 82.90%
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-1
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Buyer owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED OF RECORD*
- ---------------- --------------- ------------ -------------
</Table>
- ---------------
* Buyer has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO HIGH YIELD FUND,
A SEPARATE PORTFOLIO OF
INVESCO BOND FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-4
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller....................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-6
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-7
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-8
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-8
SECTION 3.14. Taxes....................................................... I-9
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-9
SECTION 3.21. No Distribution............................................. I-10
SECTION 3.22. Liabilities of Selling Fund................................. I-10
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.3. Financial Statements........................................ I-10
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-11
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-11
SECTION 4.7. Binding Obligation.......................................... I-11
SECTION 4.8. No Breaches or Defaults..................................... I-12
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-13
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-13
SECTION 4.16. Value of Shares............................................. I-14
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-14
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-14
SECTION 5.4. Further Assurances.......................................... I-14
SECTION 5.5. Notice of Events............................................ I-15
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-16
SECTION 6.1. Conditions Precedent of Buyer............................... I-16
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-17
SECTION 7.1. Termination................................................. I-17
SECTION 7.2. Survival After Termination.................................. I-18
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-18
SECTION 8.6. Enforcement................................................. I-18
SECTION 8.7. Interpretation.............................................. I-18
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.10. Notices..................................................... I-19
SECTION 8.11. Representations by Seller Investment Adviser................ I-19
SECTION 8.12. Representations by Buyer Investment Adviser................. I-19
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Bond Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO High Yield Fund ("Selling Fund"), a
separate series of Seller, AIM Investment Securities Funds, a Delaware statutory
trust ("Buyer"), acting on behalf of AIM High Yield Fund ("Buying Fund"), a
separate series of Buyer, A I M Advisors, Inc., a Delaware corporation, and
INVESCO Funds Group, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Investment Securities Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-2674.
"Buying Fund" means AIM High Yield Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended January 31, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means November 3, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National
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Futures Association, the Investment Management Regulatory Organization Limited
and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund, and, if so required by the Maryland General
Corporation Law and Seller's Charter, the affirmative vote of a majority of the
outstanding voting securities of Seller.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Bond Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc.
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-5686.
"Selling Fund" means INVESCO High Yield Fund, a separate series of Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended August 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended February 28, 2003.
"Selling Fund Shareholders" means the holders of record as of the Effective
Time of the outstanding shares of each class of Selling Fund as of the close of
regular trading on the NYSE on the Valuation Date.
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"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
and the shareholders of Seller convened in accordance with Applicable Law and
the Governing Documents of Seller to consider and vote upon the approval of this
Agreement and, in connection therewith, the sale of all of Seller's assets and
the dissolution of Seller as a Maryland corporation.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions
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contemplated by this Agreement have been consummated), to be distributed to
Selling Fund Shareholders under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller.
(a) Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
(b) If required by the Maryland General Corporation Law, following receipt
of the Required Shareholder Vote and as soon as reasonably practicable after the
Closing Date, Seller and Buyer shall cause Articles of Transfer to be filed with
the State Department of Assessments and Taxation of Maryland and, following the
filing of Articles of Transfer, Seller shall file Articles of Dissolution with
the State Department of Assessments and Taxation of Maryland to dissolve Seller
as a Maryland corporation and an application for deregistration on Form N-8F
under the Investment Company Act with the SEC; provided, however, that the
filing of Articles of Transfer, Articles of Dissolution and an application for
deregistration on Form N-8F as aforesaid shall not be required if the
Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until such certificates have been surrendered to Buyer for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to Buyer.
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SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed in the Selling Fund Financial Statements and no
contingent liabilities of Selling Fund have arisen since the date of the most
recent financial statements included in the Selling Fund Financial Statements.
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SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of Sections 852 and 4982 of the Code for qualification
as a regulated investment company and avoidance of excise tax liability (b) and
additional distributions, to the extent such additional distributions do not
exceed 50 percent of the value (without giving effect to such distributions) of
the proprietary interest in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by
shareholders by the Required Shareholder Vote, constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by
shareholders by the Required Shareholder Vote, and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Seller and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or without the giving of
notice or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or
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assets of Selling Fund (except for such breaches or defaults or Liens that would
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect) under (A) any indenture, mortgage or loan agreement or any other
material agreement or instrument to which Seller is a party or by which it may
be bound and which relates to the assets of Selling Fund or to which any
property of Selling Fund may be subject; (B) any Permit (as defined below); or
(C) any existing applicable law, rule, regulation, judgment, order or decree of
any Governmental Authority having jurisdiction over Seller or any property of
Selling Fund. Seller is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Seller in
connection with the due execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
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SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Selling Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the Closing Date and (B) all of Selling Fund's net capital gain
recognized in its taxable year ended August 31, 2003 and in such short taxable
year (after reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement and, in connection therewith, the sale of all of Seller's
assets and the dissolution of Seller as a Maryland corporation.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
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untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities to be assumed by
Buying Fund, plus the amount of liabilities, if any, to which such transferred
assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements previously delivered to Seller present fairly in all material
respects the financial position of Buying Fund as of the date(s) indicated and
the results of operations and changes in net assets for the period(s) then ended
in accordance with generally accepted accounting principles applied on a
consistent basis for the period(s) then ended.
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SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund and the
shareholders of Seller entitled to vote at the Shareholders Meeting. The
Combined Proxy Statement/Prospectus and related Statement of Additional
Information of Buying Fund, when they become effective, shall conform to the
applicable requirements of the Securities Act and the Investment Company Act and
shall not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading, provided, however, that no representation or warranty is
made with respect to written information provided by Seller for inclusion in the
Combined Proxy Statement/ Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by
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Seller, constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms from and with respect to
the revenues and assets of Buying Fund, except as the enforceability hereof may
be limited by bankruptcy, insolvency, reorganization or similar laws relating to
or affecting creditors' rights generally, or by general equity principles
(whether applied in a court or law or a court of equity and including
limitations on the availability of specific performance or other equitable
remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or without the giving of
notice or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Buying Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Buyer is a
party or by which it may be bound and which relates to the assets of Buying Fund
or to which any properties of Buying Fund may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Buyer or any property of Buying
Fund. Buyer is not under the jurisdiction of a court in a proceeding under Title
11 of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Buying Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Buyer's conduct of the business of Buying Fund affecting in any
significant respect the conduct of such business. Buyer is not, and has not
been, to the knowledge of Buyer, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Buying Fund.
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SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Buying Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Buying Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have acquired directly or
through any transaction, agreement or arrangement with any other person, shares
of Selling Fund with consideration other than shares of Buying Fund. There is no
plan or intention by Buying Fund or any person related to Buying Fund to acquire
or redeem any of the Buying Fund Shares issued in the Reorganization either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Buying Fund's business
as an open-end investment company as required by the Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain,
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and as supplemented by any supplement thereto dated prior to or on the Closing
Date does not contain, any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization. The fair market value of the
assets of Selling Fund transferred to Buying Fund in the Reorganization will
equal or exceed the sum of the Liabilities assumed by Buying Fund, plus the
amount of liabilities, if any, to which such transferred assets are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
SECTION 5.3. Expenses. AMVESCAP PLC, on behalf of either Buyer Investment
Adviser or Seller Investment Adviser, shall bear the costs and expenses incurred
in connection with this Agreement and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by or on behalf of
Buying Fund or Selling Fund shall not be reimbursed or paid for by another
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable
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best efforts to fulfill or obtain the fulfillment of the conditions precedent to
the consummation of the Reorganization, including the execution and delivery of
any documents, certificates, instruments or other papers that are reasonably
required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.5 shall not limit or otherwise affect
the remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other to comply as promptly as reasonably practicable with all
requirements of Governmental Authorities applicable to the Reorganization and
the other transactions contemplated herein and to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund and the
shareholders of Seller approval of this Agreement and, in connection therewith,
the sale of all of Seller's assets and the dissolution of Seller as a Maryland
corporation. Seller shall use its reasonable best efforts to hold a Shareholders
Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the Reorganization shall not occur on the
Closing Date but instead shall be postponed until a mutually acceptable date
occurring subsequent to the Exchangeability Date; provided, however, that in no
event shall the consummation of the Reorganization occur on a date subsequent to
the Termination Date. In the case of such postponement of the consummation of
the Reorganization, the parties agree that the term "Closing Date" in this
Agreement shall mean in each instance such mutually acceptable date subsequent
to the Exchangeability Date as the parties may choose to consummate the
Reorganization.
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ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by shareholders
on the record date by the Required Shareholder Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
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(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective under the Securities Act and no
stop order suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the Termination Date,
unless the failure to consummate the Reorganization is the result of a
willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
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SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the
I-18
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Each
representation and warranty contained in Article 3 or 4 that relates to a
general category of a subject matter shall be deemed superseded by a specific
representation and warranty relating to a subcategory thereof to the extent of
such specific representation or warranty.
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Bond Funds, Inc.
4350 South Monaco Street
Denver, Colorado 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Attn: Clifford J. Alexander
(b) If to Buyer:
AIM Investment Securities Funds
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser In its capacity
as investment adviser to Buyer, Buyer Investment Adviser represents to Seller
that to the best of its knowledge the representations and warranties of Buyer
and Buying Fund contained in this Agreement are true and correct as of the date
of this
I-19
Agreement. For purposes of this Section 8.12, the best knowledge standard shall
be deemed to mean that the officers of Buyer Investment Adviser who have
substantive responsibility for the provision of investment advisory services to
Buyer do not have actual knowledge to the contrary after due inquiry.
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO BOND FUNDS, INC., acting
on behalf of INVESCO HIGH YIELD FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM INVESTMENT SECURITIES FUNDS,
acting
on behalf of AIM HIGH YIELD FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-20
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
--------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Class K shares.............................................. Class A shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC..................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC.......................... AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC...... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC.............. AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC................. AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC.................. AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC........................ AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC......................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Short Term Bond Fund
AIM Total Return Bond Fund
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
-------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity II Fund into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM HIGH YIELD FUND
July 21, 2003
Prospectus
AIM High Yield Fund seeks to achieve a high level of
current income.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C and Investor Class shares of the fund.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
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.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
-------------------
AIM HIGH YIELD FUND
-------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, 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, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. 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.
-------------------
AIM HIGH YIELD FUND
-------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income.
The fund will attempt to achieve its objective by investing primarily in
publicly traded non-investment grade securities. The fund's investment objective
may be changed by the Board of Trustees without shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of
its assets in non-investment grade debt securities, i.e., "junk bonds." In
complying with this 80% investment requirement, the fund's investments may
include investments in synthetic instruments. Synthetic instruments are
investments that have economic characteristics similar to the fund's direct
investments, and may include futures and options. The fund considers a bond to
be a junk bond if it is rated Ba or lower by Moody's Investors Service, Inc. or
BB or lower by Standard & Poor's Rating Services. The fund will principally
invest in junk bonds rated B or above by Moody's Investors Service, Inc. or
Standard & Poor's Ratings Services or deemed by the portfolio managers to be of
comparable quality. The fund may also invest in preferred stock. The fund may
invest up to 25% of its total assets in foreign securities. For cash management
purposes, the fund may also hold a portion of its assets in cash or cash
equivalents, including shares of affiliated money market funds. Any percentage
limitations with respect to assets of the fund are applied at the time of
purchase.
Although the portfolio managers focus on debt securities that they believe
have favorable prospects for high current income, they also consider the
possibility of growth of capital of the security. The portfolio managers
consider whether to sell a particular security when any of these factors
materially changes.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. 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. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease; junk bonds are
less sensitive to this risk than are higher-quality bonds. The prices of equity
securities change in response to many factors, including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
Compared to higher-quality debt securities, junk bonds involve greater risk
of default or price changes due to changes in the credit quality of the issuer
and because they are generally unsecured and may be subordinated to other
creditors' claims. The value of junk bonds often fluctuates in response to
company, political or economic developments and can decline significantly over
short periods of time or during periods of general or regional economic
difficulty. During those times, the bonds could be difficult to value or to sell
at a fair price. Credit ratings on junk bonds do not necessarily reflect their
actual market risk.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about issuers,
relatively low market liquidity and the potential lack of strict financial and
accounting controls and standards.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
-------------------
AIM HIGH YIELD 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 (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 18.40%
1994................................................................... -1.68%
1995................................................................... 16.86%
1996................................................................... 15.44%
1997................................................................... 12.52%
1998................................................................... -5.10%
1999................................................................... 2.08%
2000................................................................... -23.81%
2001................................................................... -3.59%
2002................................................................... -10.38%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
17.71%.
During the periods shown in the bar chart, the highest quarterly return was
6.62% (quarter ended March 31, 1993) and the lowest quarterly return was -13.88%
(quarter ended December 31, 2000).
2
-------------------
AIM HIGH YIELD FUND
-------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2002) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- -----------------------------------------------------------------------------------
Class A 07/11/78
Return Before Taxes (14.64)% (9.49)% 0.71% --
Return After Taxes on
Distributions (18.27) (13.33) (3.35) --
Return After Taxes on
Distributions and Sale of
Fund Shares (8.94) (8.54) (0.96) --
Class B 09/01/93
Return Before Taxes (15.06) (9.51) -- (0.74)%
Class C 08/04/97
Return Before Taxes (11.68) (9.29) -- (7.88)
Investor Class(2) 07/11/78(2)
Return Before Taxes (10.38) (8.60) 1.20 --
- -----------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate
Bond Index(3) 10.25 7.55 7.51 --
Lehman Brothers High Yield
Index(4) (1.41) 0.38 5.86 --
Lipper High Yield Bond Fund
Index(5) (2.41) (1.80) 4.69 --
- -----------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C and Investor Class will vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the Rule
12b-1 fees applicable to Class A shares. Investor Class shares would have
different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(3) The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index
generally considered representative of treasury issues, agency issues,
corporate bond issues and mortgage-backed securities. The fund has elected
to use the Lehman Brothers U.S. Aggregate Bond Index as its broad-based
index rather than the Lehman Brothers High Yield Index because the Lehman
Brothers U.S. Aggregate Bond Index is such a widely recognized gauge of U.S.
stock market performance. The fund has also included the Lehman Brothers
High Yield Index, which the fund believes more closely reflects the
performance of the securities in which the fund invests. In addition, the
Lipper High Yield Bond Fund Index (which may or may not include the fund) is
included for comparison to a peer group.
(4) The Lehman Brothers High Yield Index is an index that includes all
fixed-income securities having a maximum quality rating of Ba1 (including
defaulted issues), a minimum amount outstanding of $100 million, and at
least one year to maturity.
(5) The Lipper High Yield Bond Fund Index is an equally weighted representation
of the 30 largest funds within the Lipper High Yield category. The funds
have no credit rating restriction, but tend to invest in fixed-income
securities with lower credit ratings.
3
-------------------
AIM HIGH YIELD 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 INVESTOR
your investment) CLASS A CLASS B CLASS C CLASS
- --------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever is less) None(1,2) 5.00% 1.00% None
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(3)
- -----------------------------------------------------------------------------------------------------------------------------
(expenses that are deducted INVESTOR
from fund assets) CLASS A CLASS B CLASS C CLASS
- -----------------------------------------------------------------------------------------------------------------------------
Management Fees 0.52% 0.52% 0.52% 0.52%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00 0.25
Other Expenses(4) 0.30 0.30 0.30 0.30
Total Annual Fund
Operating Expenses 1.07 1.82 1.82 1.07
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) There is no guarantee that actual expenses will be the same as those shown
in the table.
(4) Other expenses for Investor Class shares are based on estimated average net
assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of 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. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. 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
- ----------------------------------------------------------------------------------------------------------------------------
Class A $579 $799 $1,037 $1,719
Class B 685 873 1,185 1,940
Class C 285 573 985 2,137
Investor Class 109 340 590 1,306
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
Class A $579 $799 $1,037 $1,719
Class B 185 573 985 1,940
Class C 185 573 985 2,137
Investor Class 109 340 590 1,306
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
4
-------------------
AIM HIGH YIELD 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 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2002, the advisor received compensation of
0.52% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team (co-managers) who are primarily responsible for the
management of the fund's portfolio are
- - Peter Ehret, Senior Portfolio Manager, who has been responsible for the fund
since 2001 and has been associated with the advisor and/or its affiliates
since 2001. From 1999 to 2001, he was director of high yield research and
portfolio manager for Van Kampen Investment Advisory Corp. where he was
associated since 1992.
- - Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1992.
They are assisted by the High Yield Taxable Team. More information on the fund's
management team may be found on our website (http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM High Yield Fund are subject to the maximum
4.75% initial sales charge as listed under the heading "CATEGORY II Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Certain purchases of Class A shares at net asset value may
be subject to the contingent deferred sales charge listed in that section.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares any 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.
5
-------------------
AIM HIGH YIELD 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 information for the fiscal years 2002 and 2001 has been audited by Ernst
& Young, LLP, whose report, along with the fund's financial statements, is
included in the fund's annual report, which is available upon request.
Information prior to fiscal year 2001 was audited by other public accountants.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, JANUARY 1,
ENDED THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, ----------------------- JULY 31, --------------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- -------- -------- ------------ ---------- ---------- ----------
Net asset value, beginning
of period $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77 $ 10.16 $ 9.88
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.20 0.49(a) 0.68 0.47 0.85 0.92 0.90
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and unrealized) 0.06 (1.19) (2.03) (1.03) (0.66) (1.40) 0.28
=================================================================================================================================
Total from investment
operations 0.26 (0.70) (1.35) (0.56) 0.19 (0.48) 1.18
=================================================================================================================================
Less distributions:
Dividends from net
investment income (0.20) (0.52) (0.69) (0.49) (0.87) (0.91) (0.90)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of
net investment income -- -- (0.01) -- -- -- --
=================================================================================================================================
Total distributions (0.20) (0.52) (0.73) (0.51) (0.89) (0.91) (0.90)
=================================================================================================================================
Net asset value, end of
period $ 3.76 $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77 $ 10.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.44% (15.36)% (19.98)% (7.12)% 2.21% (5.10)% 12.52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $449,581 $417,974 $683,845 $1,056,453 $1,364,502 $1,670,863 $1,786,352
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets 1.18%(c) 1.07% 0.99% 0.93%(d) 0.92% 0.85% 0.90%
=================================================================================================================================
Ratio of net investment
income to average net
assets 10.73%(c) 11.15%(a) 11.98% 10.79%(d) 10.06% 9.45% 9.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 40% 59% 55% 23% 79% 76% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have remained
the same and the ratio of net investment income to average net assets would
have been 11.22%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $435,992,654.
(d) Annualized.
(e) Not annualized for periods less than one year.
6
-------------------
AIM HIGH YIELD FUND
-------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------------------------------
SIX MONTHS JANUARY 1,
ENDED YEAR ENDED JULY 31, THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, ------------------------- JULY 31, --------------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- -------- -------- ---------- ---------- ---------- ----------
Net asset value, beginning
of period $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76 $ 10.16 $ 9.88
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.18 0.45(a) 0.64 0.44 0.79 0.84 0.83
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.07 (1.18) (2.03) (1.03) (0.66) (1.40) 0.28
=================================================================================================================================
Total from investment
operations 0.25 (0.73) (1.39) (0.59) 0.13 (0.56) 1.11
=================================================================================================================================
Less distributions:
Dividends from net
investment income (0.19) (0.49) (0.65) (0.45) (0.80) (0.84) (0.83)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess
of net investment
income -- -- (0.01) -- -- -- --
=================================================================================================================================
Total distributions (0.19) (0.49) (0.69) (0.47) (0.82) (0.84) (0.83)
=================================================================================================================================
Net asset value, end of
period $ 3.77 $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76 $ 10.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.02% (15.99)% (20.60)% (7.49)% 1.46% (5.90)% 11.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $444,140 $469,408 $756,704 $1,206,737 $1,559,864 $1,820,899 $1,647,801
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to
average net assets 1.93%(c) 1.82% 1.75% 1.69%(d) 1.68% 1.61% 1.65%
=================================================================================================================================
Ratio of net investment
income to average net
assets 9.98%(c) 10.40%(a) 11.22% 10.03%(d) 9.30% 8.69% 8.33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 40% 59% 55% 23% 79% 76% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been
$0.46 and the ratio of net investment income to average net assets would
have been 10.47%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $445,745,533.
(d) Annualized.
(e) Not annualized for periods less than one year.
7
-------------------
AIM HIGH YIELD FUND
-------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------------------------
AUGUST 4, 1997
(DATE SALES
SIX MONTHS YEAR ENDED JANUARY 1, YEAR ENDED COMMENCED)
ENDED JULY 31, THROUGH DECEMBER 31, THROUGH
JANUARY 31, --------------------- JULY 31, -------------------- DECEMBER 31,
2003 2002 2001 2000 1999 1998 1997
----------- ------- ------- ---------- -------- -------- --------------
Net asset value, beginning of
period $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74 $ 10.14 $ 10.04
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.18 0.45(a) 0.65 0.44 0.78 0.82(b) 0.35
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.07 (1.18) (2.03) (1.03) (0.65) (1.38) 0.10
=================================================================================================================================
Total from investment
operations 0.25 (0.73) (1.38) (0.59) 0.13 (0.56) 0.45
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.19) (0.49) (0.65) (0.45) (0.80) (0.84) (0.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.03) (0.02) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- -- (0.01) -- -- -- --
=================================================================================================================================
Total distributions (0.19) (0.49) (0.69) (0.47) (0.82) (0.84) (0.35)
=================================================================================================================================
Net asset value, end of period $ 3.76 $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74 $ 10.14
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 7.04% (16.02)% (20.52)% (7.51)% 1.46% (5.92)% 4.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $51,372 $50,060 $81,871 $110,297 $129,675 $113,246 $26,177
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.93%(d) 1.82% 1.75% 1.69%(e) 1.68% 1.61% 1.68%(e)
=================================================================================================================================
Ratio of net investment income
to average net assets 9.98%(d) 10.40%(a) 11.22% 10.03%(e) 9.30% 8.69% 8.30%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 40% 59% 55% 23% 79% 76% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been
$0.46 and the ratio of net investment income to average net assets would
have been 10.47%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to August
1, 2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of American, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $48,488,832.
(e) Annualized.
(f) Not annualized for periods less than one year.
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 consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) 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 at the end of the month which is seven years after the date on 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 the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) 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.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the 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(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
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>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
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
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
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.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) 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 other 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 privileges; 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 Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - 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--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
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 Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE 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 $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase 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 a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
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; and (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 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 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. 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 CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
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--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial 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 or our AIM 24-hour
Automated Investor Line. 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 $250,000;
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. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.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 $250,000; and (4) you have already
provided proper bank information. 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 REDEMPTIONS
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
Redemption 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.
MCF--07/03
A-7
-------------
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 $250,000;
(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 PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
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.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) 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 ($250 for Investor Class shares) 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 ($250 for Investor Class shares)
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 under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
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 into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge 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 initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding 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;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II 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;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - 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 terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
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 you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R 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 or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C 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 ALL OR 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 SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
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' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. 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 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 may 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 that trade on days when the AIM Funds do
not price their shares, 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
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. 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
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend 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. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
-------------------
AIM HIGH YIELD 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>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P. O. Box 4739
Houston, TX 77046-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request by
e-mail or download
prospectuses, annual or
semiannual reports via our
website:
http://www.aiminvestments.com
- --------------------------------------------------------
</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
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM HIGH YIELD FUND
SEC 1940 Act file number: 811-5686
- ------------------------------------
AIMinvestments.com HYI-PRO-1
APPENDIX III
FUND WEATHERS VOLATILE MARKET CONDITIONS
HOW DID AIM HIGH YIELD FUND PERFORM DURING THE FISCAL YEAR?
The high yield market had some bright moments during the reporting period,
particularly late in 2001 and the first quarter of 2002. For much of the fiscal
year, however, high yield bonds with their equity-like characteristics had to
endure volatile stock market conditions.
Indeed, as investor concern over corporate accounting irregularities
deepened, high yield securities were hard hit. Given this environment, AIM High
Yield Fund returned -15.13% for Class A shares, -15.76% for Class B shares and
- -15.79% for Class C shares, excluding sales charges, for the year ended 7/31/02.
By comparison, the fund's benchmark index, the Lehman High Yield Index, returned
- -9.15% over the same period. The fund underperformed its benchmark as the fund
was overweight (compared to its benchmark index) the wireless telecommunications
sector--a sector that was particularly hard hit during the fiscal year. However,
over the time period, we took steps to reduce our exposure to this sector.
Despite difficult market conditions, the fund continued to provide
attractive current income. As the chart below illustrates, the fund's 30-day
yield was 10.64% for Class A shares and 10.37% for Class B and C shares. By
comparison, the yield on the 10-year U.S. Treasury was 4.46%.
HOW DID THE HIGH YIELD MARKET FARE DURING THE REPORTING PERIOD?
The dominant theme of the period was risk aversion. Concern over geopolitical
events and accounting irregularities drove many investors from stocks into
high-quality, fixed-income securities. Given this "flight to quality"
environment, high yield bonds--which tend to follow equity markets--suffered in
comparison to their higher-quality, fixed-income brethren.
There were, however, bright spots for the asset class during the fiscal
year. The high yield market performed well during the fourth quarter of 2001. In
addition, high yield bonds posted positive returns in January, March and April
of 2002 as investors sought yields they could not find in other markets.
Higher-rated high yield credits--such as BB-rated bonds--generally
outperformed lower-rated bonds. Nonetheless, there was a significant amount of
issuer-specific risk across all rating classes. This made holding a widely
diversified portfolio of bonds of major importance. Fortunately, we perceived a
high level of issuer-specific risk early in the year and increased the fund's
diversification among companies and industries. This helped limit the downside
risk from any one issuer.
HOW DID DIFFERENT SECTORS PERFORM?
There was a wide divergence in sector performance. Large losses were actually
concentrated in just a few industries.
To be sure, areas such as telecommunications and cable television--which
make up a large percentage of the high yield market--posted double-digit
declines year-to-date through July. The telecommunications sector was hurt by
funding issues, overcapacity and earnings woes, while cable television suffered
from slowing subscriber growth rates and liquidity issues.
Beyond the communications area, however, many other industries performed
well. For instance, year-to-date through July, the textile and apparel
industries were up a combined 25%; capital goods were up 12% and the aerospace
industry posted gains of 7%. Once again, our efforts toward diversification
combined with good credit selection allowed us to participate in many of the
better-performing areas of the market.
WHAT OTHER FACTORS INFLUENCED HIGH YIELD BONDS?
Given the volatile market environment, one expected industry trend was the
increase in defaults. Remember, however, that defaults are "backward looking"--
by the time a bond actually defaults, the bond price reflects that event. So
bonds listed as defaulted in 2001 actually began, trading at low levels as much
as a few years earlier.
================================================================================
FUND PROVIDES ATTRACTIVE INCOME
30-Day Yield as of 7/31/02
FUND CLASS A SHARES 10.64%
FUND CLASS B & C SHARES 10.37%
10-YEAR U.S. TREASURY 4.46%*
*Source: Bloomberg
================================================================================
2
PORTFOLIO COMPOSITION
As of 7/31/02, based on total net assets
<Table>
<Caption>
============================================================================================================================
TOP 10 ISSUERS TOP 10 INDUSTRIES
- ----------------------------------------------------------------------------------------------------------------------------
1. North American Van Lines Inc. 1.7% 1. Broadcasting & Cable TV 13.4%
2. Railamerica Transportation Corp. 1.5 2. Wireless Telecommunications Services 5.3
3. Charter Communications Holdings, LLC/ 3. Casinos & Gambling 4.8
Charter Communications Holdings Capital Corp. 1.5
4. Frontier Oil Corp. 1.4 4. Oil & Gas Exploration & Production 3.4
5. Elizabeth Arden, Inc. 1.4 5. Railroads 3.0
6. Acme Communications, Inc. 1.3 6. Homebuilding 3.0
7. CSK Auto, Inc. 1.3 7. Hotels, Resorts & Cruise Lines 2.7
8. Pegasus Communications Corp. 1.1 8. Personal Products 2.7
9. Crown Castle International Corp. 1.1 9. Specialty Stores 2.6
10. Spectrasite Holdings, Inc. 1.1 10. Building Products 2.4
Total net assets:$937 million Total number of holdings: 233
The fund's portfolio is subject to change, and there is no assurance the fund will continue to hold any particular security.
============================================================================================================================
</Table>
On a positive note, new issuance has generally been of better credit quality
and from a wider range of industries than what we saw in the late 1990s. Given
the higher quality of new credits, yields on new issues may be lower, but the
implications for future preservation of principal are positive.
GIVEN THE ENVIRONMENT, HOW DID YOU MANAGE THE FUND?
As we mentioned earlier, we continue to reposition the fund to try to lessen
risk and increase diversification--steps that helped the fund avoid some of the
downside of the current market slump. Specifically, we enhanced our
diversification efforts by adding names across various industries. We also
continue to emphasize credit research by considering a company's current
financial health as well as its ability to weather various parts of market
cycles. In addition, we continue to increase the credit quality and liquidity of
the fund by adding more B and BB bonds, while reducing our exposure to
lower-rated tiers. The fund's average credit quality, however, remains B.
WHAT ARE SOME SPECIFIC HOLDINGS THAT AFFECTED PERFORMANCE?
o Intrawest Corp., a positive contributor to the fund, develops and operates
village-centered mountain, beach and golf resorts. As such, the company has
benefited from demographic trends favoring resort development leading to
strong demand for recent projects.
o Dunlop Standard Aerospace Holdings, another positive contributor, is a
leading international supplier of parts and services to the aerospace
industry. The company has benefited from its exposure to the relatively
stable regional jet market. The company has focused on debt reduction, which
has led to improvements in the credit quality of its bonds.
o Charter Communications Holdings, one of the largest issuers in the high
yield market, is the fourth-largest cable television system operator in the
United States. Charter's bonds declined during the period as the impact of
accounting and corporate governance issues emerged at other cable companies.
This pressured bonds of all cable television providers.
Nevertheless, Charter continues to experience strong growth in digital
subscribers, leading to continued support for the company's credit quality.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE REPORTING PERIOD?
Investors continued to focus primarily on corporate accounting concerns. While
this spate of disquieting news continued to disrupt markets, it could in the
future be a reason for investors to be more confident about corporate America.
Corporate governance should improve as company management, accounting firms
and regulators redouble their efforts to ensure clarity, transparency and
integrity of financial statements. Also, throughout the fiscal year, the economy
showed signs of recovery. Typically when the economy turns upward, high yield
companies benefit as economic growth helps ease the pressure on highly leveraged
companies.
An improvement in corporate oversight by boards of directors combined with a
rebound in the economy could spark renewed interest in the high yield market.
With yields at attractive levels--far above those in the investment-grade
corporate market--we continue to believe that high yield bonds remain an
attractive option for investors looking for high income with some potential
appreciation.
PORTFOLIO MANAGEMENT TEAM
Carolyn L. Gibbs (Lead Manager)
Peter Ehret (Lead Manager)
Robert G. Alley
Jan H. Friedli
Craig A. Smith
See important fund and index disclosures inside front cover.
3
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/02, including sales charges
CLASS A SHARES
Inception (7/11/78) 7.03%
10 Years 0.70
5 Years -9.36
1 Year -19.24
CLASS B SHARES
Inception (9/1/93) -1.23%
5 Years -9.39
1 Year -19.53
CLASS C SHARES
Inception (8/4/97) -9.21%
1 Year -16.54
In addition to the returns as of the close of the reporting period, industry
regulations require us to provide average annual total returns (including sales
charges) as of 6/30/02, the most recent calendar quarter-end, which were as
follows: Class A shares, one year, -15.88%; five years, -8.18%; ten years,
1.30%; inception (7/11/78), 7.23%. Class B shares, one year, -16.22%; five
years, -8.21%; inception (9/1/93), -0.79%. Class C shares, one year, -13.11%;
inception (8/4/97), -8.60%.
Past performance cannot guarantee comparable future results. DUE TO SIGNIFICANT
MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY
FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR FINANCIAL ADVISOR FOR MORE
CURRENT PERFORMANCE.
================================================================================
RESULTS OF A $10,000 INVESTMENT
7/31/92-7/31/02
AIM
HIGH YIELD LEHMAN LIPPER
FUND, CLASS A HIGH YIELD HIGH YIELD BOND
SHARES INDEX FUND INDEX
$9525 $10000 $10000
10/31/92 9595 10090 10046
1/31/92 10192 10634 10638
4/30/92 10660 11056 11142
7/31/93 11189 11533 11698
10/31/93 11502 11896 12096
1/31/94 12084 12364 12704
4/30/94 11594 11785 12082
7/31/94 11516 11927 12072
10/31/94 11661 12041 12092
1/31/95 11666 12138 12043
4/30/95 12462 13012 12833
7/31/95 12971 13631 13449
10/31/95 13245 13927 13734
1/31/96 13709 14522 14285
4/30/96 13988 14555 14485
7/31/96 14213 14833 14672
10/31/96 14978 15473 15370
1/31/97 15758 16036 15985
4/30/97 15616 16225 16036
7/31/97 16683 17276 17189
10/31/97 17203 17594 17576
1/31/98 17828 18240 18259
4/30/98 18215 18592 18758
7/31/98 18165 18830 18898
10/31/98 15946 17504 16959
1/31/99 16815 18521 18223
4/30/99 17380 18947 18946
7/31/99 17051 18726 18596
10/31/99 16407 18263 18211
1/31/00 16887 18605 18663
4/30/00 16050 18277 18388
7/31/00 15775 18599 18429
10/31/00 13896 17968 17629
1/31/01 13959 18908 18057
4/30/01 13013 18475 17284
7/31/01 12625 18549 17056
10/31/01 12108 17939 16287
1/31/02 12479 18646 16800
4/30/02 12271 19128 17005
7/31/02 10720 16850 15366
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
================================================================================
================================================================================
CALENDAR YEAR TOTAL RETURNS (%)
CLASS A SHARES
EXCLUDING SALES CHARGES
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
18.34 18.40 -1.68 16.86 15.44 12.52 -5.10 2.08 -23.81 -3.59
================================================================================
The line chart above compares the performance of AIM High Yield Fund to its
benchmark indexes. It is intended to give you a general idea of how your fund
performed compared to these indexes over the period 7/31/92-7/31/02.
It is important to understand the difference between your fund and an index.
A market index such as the Lehman High Yield Index is not managed and incurs no
sales charges, expenses or fees. If you could buy all the securities that make
up a market index, you would incur expenses that would affect your investment
return.
An index of funds such as the Lipper High Yield Bond Fund Index includes a
number of mutual funds grouped by investment objective. Each of these funds
interprets that objective differently, and each employs a different management
style and investment strategy.
Unless otherwise noted, the fund's total return includes sales charges,
expenses and management fees. Results for B shares are calculated as if a
hypothetical shareholder had liquidated his entire investment in the fund at the
close of the reporting period and paid the applicable contingent deferred sales
charge.
Performance of the fund's Class A, B and C shares will differ due to
different sales charge structures and class expenses. For fund performance
calculations and indexes used in this report, please see the inside front
cover.
Performance shown in the chart does not reflect taxes a shareholder would
pay on redemption of fund shares. Index performance does not reflect the effects
of taxes either.
4
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which appear
to the Trust and the Funds necessary to carry into effect such purchase and
sale programs and supervisory functions as aforesaid, including but not
limited to the placing of orders for the purchase and sale of securities
for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular transaction,
the Advisor will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the
broker-dealer; the size of and the difficulty in executing the order; and
the value of the expected contribution of the broker-dealer to the
investment performance of the Funds on a continuing basis. Accordingly, the
price to the Funds in any transaction may be less favorable than that
available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
IV-2
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act, the
Securities Exchange Act of 1934, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the SEC, any exemptive orders
issued by the SEC, and any other applicable provisions of law, the Advisor
may select brokers or dealers with which it or the Funds are affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to 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
trustees 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 the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor
IV-3
may serve as officers or trustees of the Trust, and that officers or trustees of
the Trust may serve as officers or directors of the Advisor to the extent
permitted by law; and that the officers and directors of the Advisor are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, directors
or trustees of any other firm or trust, including other investment advisory
companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the Advisers Act shall be resolved
by reference to such term or provision of the 1940 Act or the Advisers Act and
to interpretations thereof, if any, by the United States Courts or in the
absence of any controlling decision of any such court, by rules, regulations or
orders of the SEC issued pursuant to said Acts. In addition, where the effect of
a requirement of the 1940 Act or the Advisers Act reflected in any provision of
the Agreement is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
Subject to the foregoing, this Agreement shall be governed by and construed in
accordance with the laws (without reference to conflicts of law provisions) of
the State of Texas.
IV-4
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
V-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
V-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number of
full and fractional (rounded to the third decimal place) New Fund Shares of
each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New Funds,
V-3
as reflected on the New Funds' books immediately following the Closing, does or
will conform to such information on the Current Funds' books immediately before
the Closing. The Company shall cause the custodian for each Current Fund to
deliver at the Closing a certificate of an authorized officer of the custodian
stating that (a) the Assets held by the custodian will be transferred to each
corresponding New Fund at the Effective Time and (b) all necessary taxes in
conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of the
Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of making
any distribution thereof, other than in accordance with the terms hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of the
Code; each Current Fund qualified for treatment as a RIC for each taxable
year since it commenced operations that has ended (or will end) before the
Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
V-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the meaning
of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding any
warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall have
been duly authorized by all necessary action by the Company's shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund transferred
to the corresponding New Fund will equal or exceed the sum of the
Liabilities assumed by the New Fund plus the amount of Liabilities, if any,
to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing, and
in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
V-5
(c) At the Effective Time, each New Fund will be a duly established and
designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence operations
until after the Closing;
(e) Prior to the Effective Time, there will be no issued and outstanding
shares in any New Fund or any other securities issued by the Trust on
behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each corresponding
Current Fund hereunder will, at the Effective Time, have been duly
authorized and, when issued and delivered as provided herein, will be duly
and validly issued and outstanding shares of the New Fund, fully paid and
nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
V-6
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated hereby, as of the Effective Time, with the
V-7
same force and effect as if made on and as of the Effective Time, and (c) the
further conditions that, at or before the Effective Time:
6.1 The shareholders of the Company shall have approved this Agreement
and the transactions contemplated by this Agreement in accordance with
applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's Assets
will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the constructive
exchange of Current Fund Shares solely for New Fund Shares pursuant to
the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund to
be received in the Reorganization will be the same as the basis for the
Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
V-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
V-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
</Table>
V-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity II Fund into AIM Premier Equity Fund
</Table>
V-13
(INVESCO LOGO)
INVESCO BOND FUNDS, INC.
INVESCO SELECT INCOME FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that A I
M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and AIM
Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO BOND FUNDS, INC.
INVESCO SELECT INCOME FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO Select Income Fund and the Shareholders of
INVESCO Bond Funds, Inc. ("Company"):
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") under
which all of the assets of your Fund, an investment portfolio of Company, will
be transferred to AIM Income Fund ("Buying Fund"), an investment portfolio of
AIM Investment Securities Funds ("Buyer"), Buying Fund will assume the
liabilities of your Fund and Buyer will issue shares of each class of Buying
Fund to shareholders of the corresponding class of shares of your Fund and, in
connection therewith, the sale of all of Company's assets and the dissolution of
Company as a Maryland corporation.
2. Elect 16 directors to the Board of Directors of Company, each of whom
will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors, Inc.
for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust and,
in connection therewith, the sale of all of Company's assets and the dissolution
of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO BOND FUNDS, INC. AIM INCOME FUND,
A PORTFOLIO OF
INVESCO SELECT INCOME FUND, AIM INVESTMENT SECURITIES FUNDS
A PORTFOLIO OF 11 GREENWAY PLAZA, SUITE 100
INVESCO BOND FUNDS, INC. HOUSTON, TEXAS 77046-1173
4350 SOUTH MONACO STREET (800) 347-4246
DENVER, COLORADO 80237
(800) 525-8085
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Select Income Fund (your Fund) and INVESCO Bond Funds, Inc. ("Company").
The Special Meeting will be held on October 21, 2003. We intend to mail this
Proxy Statement/Prospectus, the enclosed Notice of Special Meeting of
Shareholders and the enclosed proxy card on or about August 25, 2003 to all
shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund and
shareholders of Company to vote on four proposals. The first Proposal to be
voted on is an Agreement and Plan of Reorganization (the "Agreement") which
provides for the combination of your Fund, an investment portfolio of Company,
with AIM Income Fund ("Buying Fund"), an investment portfolio of AIM Investment
Securities Funds ("Buyer") (the "Reorganization") and, in connection therewith,
the sale of all of Company's assets and the dissolution of Company as a Maryland
corporation.
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
The investment objective of Buying Fund is similar to that of your Fund in
that both seek a high level of current income, although your Fund also seeks
capital appreciation. See "Comparison of Investment Objectives and Principal
Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated December 31, 2002, as supplemented June
30, 2003 and August 14, 2003 (the "Selling Fund Prospectus"), together with the
related Statement of Additional Information dated December 31, 2002, as
supplemented June 12, 2003 and August 14, 2003, are on file
i
with the Securities and Exchange Commission (the "SEC"). The Selling Fund
Prospectus is incorporated by reference into this Proxy Statement/Prospectus.
The Prospectus of Buying Fund dated July 21, 2003 (the "Buying Fund
Prospectus"), and the related Statement of Additional Information dated July 21,
2003, as supplemented July 28, 2003, and the Statement of Additional Information
relating to the Reorganization, dated August 15, 2003, are on file with the SEC.
The Buying Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus and a copy of the Buying Fund Prospectus is attached as
Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated August 15, 2003 also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
of Additional Information described above, material incorporated by reference,
and other information about Company and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 4
Comparison of Performance................................. 4
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 5
Comparison of Sales Charges............................... 5
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 6
The Board's Recommendation on Proposal 1.................. 6
RISK FACTORS................................................ 7
Risks Associated with Buying Fund......................... 7
Comparison of Risks of Buying Fund and Your Fund.......... 7
INFORMATION ABOUT BUYING FUND............................... 8
Description of Buying Fund Shares......................... 8
Management's Discussion of Fund Performance............... 8
Financial Highlights...................................... 8
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 8
Terms of the Reorganization............................... 8
The Reorganization........................................ 8
Board Considerations...................................... 9
Other Terms............................................... 10
Federal Income Tax Consequences........................... 11
Accounting Treatment...................................... 12
RIGHTS OF SHAREHOLDERS...................................... 12
General................................................... 12
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 13
Removal of Directors/Trustees............................. 13
Meetings of Shareholders.................................. 13
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 14
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 16
INTERESTS OF CERTAIN PERSONS................................ 17
LEGAL MATTERS............................................... 17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 18
Background................................................ 18
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
The Board's Recommendation on Proposal 2.................. 22
Current Committees of the Board........................... 22
Board and Committee Meeting Attendance.................... 22
</Table>
i
<Table>
<Caption>
PAGE
----
Future Committee Structure................................ 24
Director's Compensation................................... 25
Current Retirement Plan For Directors..................... 25
Current Deferred Compensation Plan........................ 26
New Retirement Plan For Directors......................... 27
New Deferred Compensation Agreements...................... 27
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 27
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 28
Background................................................ 28
Your Fund's Current Investment Advisor.................... 28
The Proposed New Investment Advisor for Your Fund......... 29
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 29
Terms of the Current Advisory Agreement................... 29
Additional Services Provided by INVESCO and its
Affiliates............................................. 30
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 30
Terms of the Proposed Advisory Agreement.................. 30
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 35
The Board's Recommendation on Proposal 3.................. 37
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 37
Background................................................ 37
Reasons for the Proposed Redomestication.................. 37
What the Proposed Redomestication Will Involve............ 38
The Federal Income Tax Consequences of the
Redomestication........................................ 39
Appraisal Rights.......................................... 40
The Trust Compared to Company............................. 40
The Board's Recommendation on Proposal 4.................. 41
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 41
Proxy Statement/Prospectus................................ 41
Time and Place of Special Meeting......................... 41
Voting in Person.......................................... 41
Voting by Proxy........................................... 41
Voting by Telephone or the Internet....................... 42
Quorum Requirement and Adjournment........................ 42
Vote Necessary to Approve Each Proposal................... 42
Proxy Solicitation........................................ 43
Other Matters............................................. 43
Shareholder Proposals..................................... 43
Ownership of Shares....................................... 43
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 44
Fees Paid to the Auditor Related to Company............... 44
Fees Paid to the Auditor Not Related to Company........... 44
</Table>
EXHIBIT A.....Classes of Shares of Your Fund and Corresponding Classes of Shares
of Buying Fund
EXHIBIT B.................Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C...............................Comparison Fee Table and Expense Example
EXHIBIT D............................................Director Compensation Table
EXHIBIT E....................................................Officers of Company
EXHIBIT F.......................................Security Ownership of Management
EXHIBIT G......................................Director Ownership of Fund Shares
EXHIBIT H......Principal Executive Officer and Directors of A I M Advisors, Inc.
ii
EXHIBIT I..............................Compensation to INVESCO Funds Group, Inc.
EXHIBIT J...Fees Paid to INVESCO Funds Group, Inc. and Affiliates in Most Recent
Fiscal Year
EXHIBIT K.............................Advisory Fee Schedules for Other AIM Funds
EXHIBIT L..........................Proposed Compensation to A I M Advisors, Inc.
EXHIBIT M...........Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT N.......................................Ownership of Shares of Your Fund
EXHIBIT O.....................................Ownership of Shares of Buying Fund
APPENDIX I.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Reorganization)
APPENDIX II............................................Prospectus of Buying Fund
APPENDIX III............................Discussion of Performance of Buying Fund
APPENDIX IV......Form of Investment Advisory Agreement with A I M Advisors, Inc.
APPENDIX V.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Redomestication)
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, 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, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(K) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
iii
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as that term is defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these
1
directors/trustees agreed to combine the separate boards and create a unified
board of directors/trustees. Proposal 2 relates to the election of directors of
your Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders approve the Agreement by the Combined Shareholder Vote (as
defined under "Information About the Special Meeting and Voting -- Vote
Necessary to Approve Each Proposal") and other closing conditions are satisfied,
all of the assets of your Fund will be transferred to Buying Fund and Buying
Fund will assume the liabilities of your Fund, and Buyer will issue shares of
each class of Buying Fund to shareholders of the corresponding class of shares
of your Fund, as set forth on Exhibit A. For a description of certain of the
closing conditions that must be satisfied, see "Additional Information About the
Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
2
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain would be included in a taxable distribution. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue similar investment objectives in that both
Buying Fund and your Fund seek a high level of current income, although your
Fund also seeks capital appreciation. Your Fund and Buying Fund also invest in
similar types of securities. As a result, the Reorganization is not expected to
cause significant portfolio turnover or transaction expenses from the sale of
securities that are incompatible with the investment objective of Buying Fund.
The investment objectives or goals of your Fund are classified as
fundamental, which means that the Board cannot change them without shareholder
approval. The investment objective of Buying Fund is not classified as
fundamental, which means that the Board of Trustees of Buyer can change it
without shareholder approval. Having the ability to change the investment
objective without shareholder approval allows the Board of Trustees to respond
more quickly and efficiently to changing market conditions and to save Buying
Fund and its shareholders money by eliminating the need to solicit proxies to
obtain shareholder approval to change an investment objective to respond to
changing market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
<Caption>
INVESCO SELECT INCOME FUND AIM INCOME FUND
(YOUR FUND) (BUYING FUND)
- -------------------------------------------- --------------------------------------------
Investment Objective
- - high level of current income and capital - high level of current income consistent
appreciation with reasonable concern for safety of
principal
Investment Strategies
- - invests at least 80% of its net assets in - invests primarily in fixed-rate corporate
bonds, other debt securities, and debt and U.S. and non-U.S. Government
preferred stocks obligations; may also invest in preferred
stock issues and convertible corporate
debt
- - may invest up to 25% of its assets in - may invest up to 40% of its total assets
foreign debt securities; securities of in foreign securities
Canadian issuers and American Depositary
Receipts are not subject to this 25%
limitation
- - invests in foreign bank obligations, but
limited to U.S. dollar denominated
obligations of foreign banks
- - normally, at least 50% of its assets are - no corresponding strategy
invested in investment grade securities at
the time of purchase
</Table>
3
<Table>
<Caption>
INVESCO SELECT INCOME FUND AIM INCOME FUND
(YOUR FUND) (BUYING FUND)
- -------------------------------------------- --------------------------------------------
- - up to 50% of its assets may consist of - may invest up to 35% of its net assets in
corporate bonds or preferred stocks rated junk bonds and unrated debt securities
below investment grade ("junk bonds"); deemed by the portfolio managers to be of
investments in unrated securities may not comparable quality
exceed 25% of its assets
- - may invest in companies that have similar - no corresponding strategy
lines of business (for example, financial
services, health, or technology) and are
grouped together in broad categories
called sectors
- - no corresponding strategy - Buying Fund focuses on securities the
portfolio managers believe have favorable
prospects for current income, consistent
with their concerns for safety of
principal
</Table>
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
-------------------------------------------------------------------------
INVESCO SELECT INCOME FUND AIM INCOME FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ----------------------------------- -----------------------------------
Investment Advisor... INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Distributor.......... A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator........ INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian............ State Street Bank and Trust Company State Street Bank and Trust Company
Transfer Agent and
Dividend Disbursing
Agent.............. INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Independent Auditors PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this
4
Proxy Statement/Prospectus by reference. For more information regarding the
total return of Buying Fund, see "Information About Buying Fund -- Financial
Highlights." Past performance cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of August 31, 2002, and Buying Fund, as of July
31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can be
found at Exhibit C. Pro forma estimated Expense Ratios for each class of shares
of Buying Fund after giving effect to the Reorganization are also provided as of
July 31, 2002 as part of Exhibit C.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. In
addition to the share classes of Buying Fund listed on Exhibit A, Class R shares
of Buying Fund are available to investors. This class is not involved in the
Reorganization. For information regarding the features of the various share
classes of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C
- --------------------------- --------------------------- ---------------------------
- - subject to an initial - not subject to an initial - not subject to an initial
sales charge* sales charge sales charge
- - may be subject to a CDSC - subject to a CDSC on - subject to a CDSC on
on redemptions made certain redemptions made certain redemptions made
within 18 months from the within 6 years from the within 12 months from the
date of certain large date of purchase date of purchase***
purchases**
</Table>
<Table>
<Caption>
CLASS R CLASS K
(BUYING FUND ONLY) (YOUR FUND ONLY) INVESTOR CLASS
- --------------------------- --------------------------- ---------------------------
- - not subject to an initial - not subject to an initial - not subject to an initial
sales charge sales charge sales charge
- - may be subject to a CDSC - may be subject to a CDSC - not subject to a CDSC
on redemptions made on redemptions made
within 12 months from the within 12 months from the
date of certain purchases date of certain purchases
</Table>
5
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of your Fund is computed based on
their original purchase price. This method of computation changes to conform to
Buying Fund's method of computation effective August 18, 2003.
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
6
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund and that the income you may receive from your investment may vary.
The value of your investment in Buying Fund will go up and down with the prices
of the securities in which Buying Fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease. The longer a debt
security's duration, the more sensitive it is to this risk. Junk bonds are less
sensitive to this risk than are higher-quality bonds. The issuer of a security
may default or otherwise be unable to honor a financial obligation.
The prices of foreign securities may be further affected by other factors,
including:
Currency exchange rates -- The dollar value of Buying Fund's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are valued.
Political and economic conditions -- The value of Buying Fund's
foreign investments may be adversely affected by political and social
instability in their home countries and by changes in economic or taxation
policies in those countries.
Regulations -- Foreign companies generally are subject to less
stringent regulations, including financial and accounting controls, than
are U.S. companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
Markets -- The securities markets of other countries are smaller than
U.S. securities markets. As a result, many foreign securities may be less
liquid and more volatile than U.S. securities.
Compared to higher-quality debt securities, junk bonds involve a greater
risk of default or price changes due to changes in the credit quality of the
issuer and because they are generally unsecured and may be subordinated to other
creditors' claims. The value of junk bonds often fluctuates in response to
company, political or economic developments and can decline significantly over
short periods of time or during periods of general or regional economic
difficulty. During those times the bonds could be difficult to value or sell at
a fair price. Credit ratings on junk bonds do not necessarily reflect their
actual market risk.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to those
described above for Buying Fund because of the similarities in their investment
objectives and strategies. Set forth below is a discussion of certain risks that
differ between Buying Fund and your Fund. You can find more detailed
descriptions of specific risks associated with your Fund in the Selling Fund
Prospectus.
Buying Fund may invest up to 35% of its net assets in junk bonds and
unrated debt securities deemed by the portfolio managers to be of comparable
quality. Your Fund may invest up to 50% of the its assets in junk bonds,
although unrated securities may not exceed 25% of the Fund's assets. Your Fund's
potentially greater exposure to junk bonds may make it less susceptible to
interest rate risks, but more susceptible to credit risks than Buying Fund.
Both Buying Fund and your Fund invest in foreign securities. Buying Fund
may only invest up to 40% of its total assets in foreign securities. Your Fund
may only invest up to 25% of its total assets in foreign debt securities. As a
result, Buying Fund has a greater exposure to foreign market risks.
7
Your Fund may also focus its investments in one or more sectors, resulting
in the risk that a certain sector may underperform other sectors or the market
as a whole. If the portfolio managers allocate more of your Fund's portfolio
holdings to a particular economic sector, as compared to Buying Fund, your
Fund's overall performance will be more susceptible to the economic, business,
or other developments which generally affect that sector.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund 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 Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended July 31, 2002 is set forth in Appendix
III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
8
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the Closing and (b) all of your Fund's net capital gain recognized in
its taxable year ended August 31, 2003 and in such short taxable year (after
reduction for any capital loss carryover).
In addition to the Special Meeting to vote on the Reorganization, the Board
has called special meetings for the shareholders of each of Company's three
other series portfolios to approve for each such series portfolio an agreement
and plan of reorganization that is similar to the Agreement, under which all of
the assets of each such series portfolio will be sold to a series portfolio of
Buyer, resulting in the combination of the two series portfolios. If the
Reorganization and all three other reorganizations are approved by shareholders
by the 1940 Act Vote (as defined under "Information About the Special Meeting
and Voting -- Vote Necessary to Approve Each Proposal"), the resulting
transactions will constitute a sale of all of Company's assets and, under
applicable Maryland law and Company's Charter, the Reorganization and all three
other reorganizations will require approval by shareholders by the Maryland Law
Vote in addition to the 1940 Act Vote.
If the Agreement and all three other reorganizations are approved by
shareholders by the Combined Shareholder Vote, the Reorganization and all three
other reorganizations will be consummated and Company and Buyer will cause
Articles of Transfer to be filed with the State Department of Assessments and
Taxation of Maryland to transfer all of the assets of Company as soon as
reasonably practicable after the Closing. Following the filing of Articles of
Transfer, Company will file Articles of Dissolution with the State Department of
Assessments and Taxation of Maryland to dissolve Company as a Maryland
corporation and an application for deregistration on Form N-8F under the 1940
Act with the Securities and Exchange Commission to deregister Company as an
investment company.
The Reorganization will also be consummated if shareholders approve the
Agreement by the 1940 Act Vote and the Maryland Law Vote is ultimately not
required because one or more of the three other reorganizations are not approved
by the 1940 Act Vote. If shareholders approve the Agreement and all three other
reorganizations by the 1940 Act Vote, but not by the Maryland Law Vote, the
Board will determine whether to consummate the Reorganization and/or one or more
of the other three reorganizations; provided, however, that in no event may the
Reorganization and all three other reorganizations be consummated.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of
9
your Fund's shareholders, and approved the Agreement and the Reorganization, at
an in-person meeting of the Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund, particularly
for the past year.
- Management's representation that AIM's fixed income department could
provide more depth and resources than INVESCO's fixed income department.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
10
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders shall have approved the Agreement by the Combined
Shareholder Vote; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund and Company do not approve the Agreement or if the Closing does not
occur on or before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
11
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Company and Buyer upon which Ballard Spahr Andrews &
Ingersoll, LLP will rely in rendering its opinion. The conclusions reached in
that opinion could be jeopardized if the representations of Company or Buyer are
incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements, amendments and
supplements thereto (the "Articles of Incorporation"), and applicable Maryland
law. The operations of Buyer, as a Delaware statutory trust, are governed by its
Amended and Restated Agreement and Declaration of Trust, as amended (the
"Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be
12
subject to any personal liability for acts or obligations of the Trust and that
every written agreement, obligation or other undertaking made or issued by the
Trust shall contain a provision to the effect that shareholders are not
personally liable thereunder. In addition, the Declaration of Trust provides for
indemnification out of the Trust's property for any shareholder held personally
liable solely by reason of his or her being or having been a shareholder.
Therefore, the risk of any shareholder incurring financial loss beyond his or
her investment due to shareholder liability is limited to circumstances in which
the Trust itself is unable to meet its obligations and the express disclaimer of
shareholder liabilities is determined not to be effective. Given the nature of
the assets and operations of the Trust, the possibility of the Trust being
unable to meet its obligations is considered remote, and even if a claim were
brought against the Trust and a court determined that shareholders were
personally liable, it would likely not impose a material obligation on a
shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the holders of a majority of the
outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be called by the president
or, in his or her absence, the vice-president or by a majority of the Board of
Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting need be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
13
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the
14
Declaration of Trust; and (vii) approval of such additional matters as may be
required by law or as the trustees, in their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
AIM GLOBAL AIM STRATEGIC PRO FORMA
YOUR FUND YOUR FUND INCOME FUND INCOME FUND BUYING FUND BUYING FUND
CLASS A CLASS K CLASS A CLASS A CLASS A CLASS A
SHARES SHARES(1) SHARES(2) SHARES(2) SHARES SHARES
---------- ---------- ------------ ------------- ------------ ------------
Net Assets........... $6,636,927 $4,944,051 $109,535,794 $72,466,937 $285,431,777 $479,015,486
Shares Outstanding... 1,251,504 933,183 12,597,830 9,274,640 43,847,464 73,569,265
Net Asset Value Per
Share.............. $ 5.30 $ 5.30 $ 8.69 $ 7.81 $ 6.51 $ 6.51
</Table>
<Table>
<Caption>
AIM GLOBAL AIM STRATEGIC PRO FORMA
YOUR FUND INCOME FUND INCOME FUND BUYING FUND BUYING FUND
CLASS B CLASS B CLASS B CLASS B CLASS B
SHARES SHARES(2) SHARES(2) SHARES SHARES
--------- ----------- ------------- ------------ ------------
Net Assets.................. $377,319 $29,340,060 $23,556,755 $215,991,380 $269,265,514
Shares Outstanding.......... 71,215 3,374,525 3,006,091 33,131,053 41,301,270
Net Asset Value Per Share... $ 5.30 $ 8.69 $ 7.84 $ 6.52 $ 6.52
</Table>
<Table>
<Caption>
AIM GLOBAL AIM STRATEGIC PRO FORMA
YOUR FUND INCOME FUND INCOME FUND BUYING FUND BUYING FUND
CLASS C CLASS C CLASS C CLASS C CLASS C
SHARES SHARES(2) SHARES(2) SHARES SHARES
---------- ----------- ------------- ----------- -----------
Net Assets.................... $1,742,395 $3,807,175 $2,417,839 $36,386,461 $44,353,870
Shares Outstanding............ 328,624 438,132 308,873 5,594,633 6,820,410
Net Asset Value Per Share..... $ 5.30 $ 8.69 $ 7.83 $ 6.50 $ 6.50
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
CLASS R CLASS R
SHARES SHARES
----------- -----------
Net Assets.................................................. $350,838 $350,838
Shares Outstanding.......................................... 53,946 53,946
Net Asset Value Per Share................................... $ 6.50 $ 6.50
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR CLASS INVESTOR CLASS INVESTOR CLASS
SHARES SHARES(3) SHARES
-------------- -------------- --------------
Net Assets.......................................... $273,557,808 0 $273,557,808
Shares Outstanding.................................. 51,604,996 0 42,013,284
Net Asset Value Per Share........................... $ 5.30 $6.51 $ 6.51
</Table>
- ---------------
(1) Shareholders of Class K shares of your Fund are receiving Class A shares of
Buying Fund in the Reorganization.
(2) On June 23, 2003, AIM Global Income Fund and AIM Strategic Income Fund were
reorganized into Buying Fund. The pro forma capitalization of each class of
shares of Buying Fund in the table above has been adjusted to reflect these
reorganizations.
(3) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
16
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $287 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-2674. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-5686. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this
17
Proxy Statement/Prospectus is a part) may be inspected without charge and copied
at the public reference facilities maintained by the SEC at Room 1014, Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the following regional
office of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, NW, Washington, DC 20549, at the prescribed
rates. The SEC maintains a website at www.sec.gov that contains information
regarding Company and Buyer and other registrants that file electronically with
the SEC.
PROPOSAL 2 -- ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 11 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Richard W. Healey, Gerald L. Lewis, John W. McIntyre, Larry Soll,
Ph.D. and Mark H. Williamson. Eight of the current directors are "independent,"
meaning they are not "interested persons" of Company within the meaning of the
1940 Act. Three of the current directors are "interested persons" because of
their business and financial relationships with Company and INVESCO, its
investment advisor, and/or INVESCO's parent, AMVESCAP. Six of the current
directors have declined to stand for re-election as directors of Company.
Therefore, their terms as directors of Company will end upon the election and
qualification of their successor directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 11 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ------------------------------- -------------------------------
Bob R. Baker -- 1936........ 1983 Consultant (2000-present); None
formerly, President and Chief
Executive Officer (1988-2000)
of AMC Cancer Research Center,
Denver, Colorado; until mid-
December 1988, Vice Chairman of
the Board of First Columbia
Financial Corporation,
Englewood, Colorado; formerly,
Chairman of the Board and Chief
Executive Officer of First
Columbia Financial Corporation.
James T. Bunch -- 1942...... 2000 Co-President and Founder of None
Green, Manning & Bunch Ltd.,
Denver, Colorado (1988-present)
(investment banking firm);
Director and Vice President of
Western Golf Association and
Evans Scholars Foundation;
Executive Committee, United
States Golf Association;
formerly, General Counsel and
Director of Boettcher & Co.,
Denver, Colorado; and formerly,
Chairman and Managing Partner,
law firm of Davis, Graham &
Stubbs, Denver, Colorado.
Gerald J. Lewis -- 1933..... 2000 Chairman of Lawsuit Resolution General Chemical Group, Inc.,
Services, San Diego, California Hampdon, New Hampshire
(1987-present); formerly, (1996-present), Wheelabrator
Associate Justice of the Technologies, Inc. (waste
California Court of Appeals; management company), Fisher
and Of Counsel, law firm of Scientific, Inc. (laboratory
Latham & Watkins, San Diego, supplies), Henley
California (1987-1997). Manufacturing, Inc., and
California Coastal Properties,
Inc.
</Table>
19
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ------------------------------- -------------------------------
Larry Soll, Ph.D. -- 1942... 1997 Retired; formerly, Chairman of Synergen Inc. (since
the Board (1987-1994), Chief incorporation in 1982) and Isis
Executive Officer (1982-1989 Pharmaceuticals, Inc.
and 1993-1994) and President
(1982-1989) of Synergen Inc.
(biotechnology company); and
formerly, trustee of INVESCO
Global Health Sciences Fund.
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
Mark H.
Williamson(1) -- 1951..... 1998 Director, President and Chief Director/trustee of each of the
Executive Officer, A I M 17 AIM Funds
Management Group Inc.;
Director, Chairman and
President, A I M Advisors, Inc.
(registered investment
advisor); Director, A I M
Distributors, Inc. (registered
broker dealer); and Chief
Executive Officer of the AIM
Division of AMVESCAP PLC (2003-
present); formerly, Chief
Executive Officer, Managed
Products Division, AMVESCAP PLC
(2001-2002); Chairman of the
Board (1998-2002), President
(1998-2002) and Chief Executive
Officer (1998-2002) of INVESCO
Funds Group, Inc. (registered
investment advisor) and INVESCO
Distributors, Inc. (registered
broker dealer); Chief Operating
Officer and Chairman of the
Board of INVESCO Global Health
Sciences Fund; Chairman and
Chief Executive Officer of
NationsBanc Advisors, Inc.; and
Chairman of NationsBanc
Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
20
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------------- -----------------------------
Frank S. Bayley -- 1939.............. Of Counsel, law firm of Baker Badgley Funds, Inc.
& McKenzie (registered investment
company)
Bruce L. Crockett -- 1944............ Chairman, Crockett Technology ACE Limited (insurance
Associates (technology company); Captaris, Inc.
consulting company) and (unified messaging provider)
Captaris, Inc. (unified
messaging provider)
Albert R. Dowden -- 1941............. Director of a number of Cortland Trust, Inc.
public and private business (Chairman) (registered
corporations, including the investment company); Annuity
Boss Group, Ltd. (private and Life Re (Holdings), Ltd.
investment and management) (insurance company)
and Magellan Insurance
Company; formerly, President,
Chief Executive Officer and
Director, Volvo Group North
America, Inc.; Senior Vice
President, AB Volvo and
director of various
affiliated Volvo Group
companies
Edward K. Dunn, Jr. -- 1935.......... Formerly, Chairman, None
Mercantile Mortgage Corp.;
President and Chief Operating
Officer, Mercantile-Safe
Deposit & Trust Co.; and
President, Mercantile
Bankshares Corp.
Jack M. Fields -- 1952............... Chief Executive Officer, Administaff
Twenty First Century Group,
Inc. (government affairs
company) and Texana Timber LP
Carl Frischling -- 1937.............. Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel LLP (registered investment
company)
Prema Mathai-Davis -- 1950........... Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock -- 1942............. Partner, law firm of Pennock None
& Cooper
Ruth H. Quigley -- 1935.............. Retired None
Louis S. Sklar -- 1939............... Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
21
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------------- -----------------------------
Robert H. Graham(1) -- 1946.......... Director and Chairman, A I M None
Management Group Inc.
(financial services holding
company); and Director and
Vice Chairman, AMVESCAP PLC
(parent of AIM and a global
investment management firm)
and Chairman, AMVESCAP
PLC -- AIM Division;
formerly, President and Chief
Executive Officer, A I M
Management Group Inc.;
Director, Chairman and
President, A I M Advisors,
Inc. (registered investment
advisor); Director and
Chairman, A I M Capital
Management, Inc. (registered
investment advisor), A I M
Distributors, Inc.
(registered broker dealer),
A I M Fund Services, Inc.
(registered transfer agent),
and Fund Management Company
(registered broker dealer);
and Chief Executive Officer,
AMVESCAP PLC -- Managed
Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
22
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
23
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended August 31, 2002, the Board met eight times,
the audit committee met four times, the investments and management liaison
committee met four times, the brokerage committee met four times, the
derivatives committee met four times, the nominating committee met two times,
the legal committee met three times, the compensation committee met four times,
and the executive, valuation and retirement plan committees did not meet. All of
the current directors then serving attended at least 75% of the meetings of the
Board or applicable committee during the most recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
24
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor'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.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
25
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of months. The Account value continues to fluctuate as long as monthly
payments are made. If a Participating Qualified Director becomes disabled or
dies prior to his or her retirement and if, at the time of disability or death,
the value of a Participating Qualified Director's Account is less than $340,000,
the Director or the Director's beneficiary or estate will not be paid the value
in the Account but will receive $34,000 per annum for ten years. If, at the time
of the Participating Qualified Director's death or disability prior to
retirement, the value in the director's Account is $340,000 or more, the
Participating Qualified Director or his or her estate or beneficiary will
receive the value in the Account either in a lump sum or in quarterly
installments. The cost of providing the initial dollar amount to be allocated to
a Participating Qualified Director's Account and the cost of payment of any
death or disability benefit that aggregates more than the Account value will be
allocated among the INVESCO Funds in a manner determined to be fair and
equitable by a committee appointed to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited
26
service as a director (including service to a predecessor fund) for a Covered
Fund. The retirement benefits will equal 75% of the director's annual retainer
paid or accrued by any Covered Fund to such director during the twelve-month
period prior to retirement, including the amount of any retainer deferred under
a separate deferred compensation agreement between the Covered Fund and the
director. The annual retirement benefits will be payable in quarterly
installments for a number of years equal to the lesser of (i) ten or (ii) the
number of such director's credited years of service. A death benefit will also
be available under the New Retirement Plan that will provide a surviving spouse
with a quarterly installment of 50% of a deceased director's retirement benefits
for the same length of time that the director would have received the benefits
based on his or her service. A director must have attained the age of 65 (55 in
the event of death or disability) to receive any retirement benefit. Payment of
benefits under the New Retirement Plan will not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director 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. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment
27
companies overseen by the director within the INVESCO Funds and the AIM Funds
complex can be found in Exhibit G.
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund. The portfolio management
team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on
February 28, 1997. Your Fund's shareholders last voted on the agreement on
January 31, 1997, for the purpose of approving a new investment advisory
agreement for
28
your Fund, with the same parties and on terms substantially identical to your
Fund's then-existing investment advisory agreement. Such approval was necessary
because your Fund's then-existing investment advisory agreement terminated
automatically by operation of law upon the consummation on February 28, 1997, of
the merger of A I M Management Group Inc. and INVESCO PLC, which at that time
was the ultimate parent company of your Fund's investment advisor. The Board,
including a majority of the independent directors, last approved the current
advisory agreement on May 15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A 1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised, and calculates the net asset value of your Fund, subject to
such procedures established by the Board and based upon information provided by
your Fund, the custodian of your Fund or other source as designated by the
Board. INVESCO provides sub-accounting, recordkeeping and administrative
services to your Fund under an administrative services agreement. Under the
advisory agreement, as administrator, INVESCO also provides, at its expense and
at the request of your Fund, executive, statistical, administrative, internal
accounting and clerical services and office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund and each other series portfolio of
Company, and (ii) the vote of a majority of the directors of Company who are not
interested persons of INVESCO or Company by votes cast in person at a meeting
called for such purpose. The current advisory agreement provides that the Board,
a majority of the outstanding voting securities of your Fund and each other
series portfolio of Company or INVESCO may terminate the agreement with respect
to your Fund on 60 days' written notice without penalty. The agreement
terminates automatically in the event of its assignment, unless an order is
issued by the SEC conditionally or unconditionally exempting such assignment
from the applicable provisions of the 1940 Act.
29
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
30
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, 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 trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and
31
each other series portfolio of Company (each, an "Investing Fund") to invest
their uninvested cash 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 the Investing Fund. AIM will receive advisory fees from the Affiliated
Money Market Fund to the extent an Investing Fund invests uninvested cash in
such Affiliated Money Market Fund. If the Board approves AIM's use of the
exemptive order for Company, AIM intends to waive a portion of the advisory fees
payable by each Investing Fund in an amount equal to 25% of the advisory fee AIM
receives from the Affiliated Money Market Fund as a result of such Investing
Fund's investment of uninvested cash in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a
32
security transaction will be to obtain the best execution. In selecting
broker-dealers to execute particular transactions, AIM will consider the best
net price available, the reliability, integrity and financial condition of the
broker-dealer, the size of and difficulty in executing the order and the value
of the expected contribution of the broker-dealer to the investment performance
of Company's portfolio funds on a continuing basis. Accordingly, the price to
your Fund in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified by other aspects
of the fund execution services offered by the broker-dealer. The broker-dealer
relationship provisions of the current advisory agreement with INVESCO for your
Fund do not specify these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative 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 loans; (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.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
33
TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940 Act
and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
34
LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor. The limitation of
liability provisions of the 1940 Act also apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12 - 13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
35
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they
36
believe to be in your best interests. In so doing, they were advised by
independent counsel, retained by the independent directors and paid for by
Company, as to the nature of the matters to be considered and the standards to
be used in reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 -- APPROVAL OF THE PLAN
TO REDOMESTICATE COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix V.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
37
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive compliance with any condition
contained in the Plan, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
38
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on accounts of shareholders under the Current Funds will be
replicated on the New Fund account. No sales charges will be imposed in
connection with the Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication
39
in light of their individual circumstances and as to state and local
consequences, if any, of the Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing
40
discussion and the discussion under the caption "Rights of Shareholders" in
Proposal 1 above is only a summary of certain differences and is not a complete
description of all the differences. Shareholders should refer to the provisions
of the governing documents of Company and Trust and state law directly for a
more thorough comparison. Copies of the Articles of Incorporation and Amended
and Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
41
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposal 1 if (a) shareholders entitled to vote one-third of the
issued and outstanding shares of Company on the Record Date and (b) shareholders
entitled to vote one-third of the issued and outstanding shares of your Fund on
the Record Date are present at the Special Meeting in person or by proxy. A
quorum will exist for Proposals 2 and 4 if shareholders entitled to vote
one-third of the issued and outstanding shares of Company on the Record Date are
present at the Special Meeting in person or by proxy. A quorum will exist for
Proposal 3 if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/ Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approvals of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund (the "1940 Act Vote"). Applicable
Maryland law and the Charter of Company may also
42
require that Proposal 1 be approved by the affirmative vote of a majority of the
issued and outstanding shares of Company, which includes the shares of your Fund
and the shares of the three other series portfolios of Company, all voting
together (the "Maryland Law Vote" and together with the 1940 Act Vote, the
"Combined Shareholder Vote"). See "Additional Information About the
Agreement -- The Reorganization." Abstentions and broker non-votes are counted
as present but are not considered votes cast at the Special Meeting. As a
result, they have the same effect as a vote against Proposals 1 and 3 because
approval of Proposals 1 and 3 requires the affirmative vote of a percentage of
the voting securities present or represented by proxy or a percentage of the
outstanding voting securities or the issued and outstanding shares, as
applicable.
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $21,800. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. AMVESCAP, on behalf of INVESCO, will bear the costs and expenses
incurred in connection with the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
43
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending August 31, 2003. A representative of the Auditor is expected to be
available at the Special Meeting and to have the opportunity to make a statement
and respond to appropriate questions from the shareholders. The audit committee
of the Board has considered whether the provisions of the services below is
compatible with maintaining the Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of four separate series portfolios)
aggregate fees for professional services rendered for the 2002 fiscal year as
follows:
<Table>
Audit Fees.................................................. $79,950
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $12,137
-------
Total Fees.................................................. $92,087
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2002 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $149,083
--------
Total Fees.................................................. $149,083
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
44
EXHIBIT A
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF YOUR FUND SHARES OF BUYING FUND
------------------------------ ------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Class K shares Class A shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO SELECT INCOME FUND (YOUR FUND)
Performance information in the bar charts below is that of the Fund's
Investor Class shares which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade. The table below shows the pre-tax and after-tax average
annual total returns of Investor Class for various periods ended December 31,
2001 compared to the Lehman Government/Credit Bond Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption returns assume you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption returns assume payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rates in effect
at the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax returns shown is not relevant.
The information in the chart and table illustrates the variability of the
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
SELECT INCOME FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)
<Table>
'92......................................................... 10.38%
'93......................................................... 11.43%
'94......................................................... (1.20)%
'95......................................................... 20.61%
'96......................................................... 4.87%
'97......................................................... 11.72%
'98......................................................... 7.13%
'99......................................................... (1.37)%
'00......................................................... 5.12%
'01......................................................... (2.86)%
</Table>
Best Calendar Qtr. 6/95 6.75%
Worst Calendar Qtr. 9/01 (3.25%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/01
------------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- ---------------
Select Income Fund(1)(2)
Return Before Taxes....................................... (2.86)% 3.81% 6.36%
Return After Taxes on Distributions....................... (5.42)% 0.76% 3.15%
Return After Taxes on Distributions and Sale of Fund
Shares................................................. (1.72)% 1.59% 3.56%
Lehman Government/Credit Bond Index(3) (reflects no
deduction for fees, expenses, or taxes)................... 8.50% 7.37% 7.27%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class' expenses.
(2) Returns before taxes for Investor Class shares of Select Income Fund
year-to-date as of the calendar quarter ended September 30, 2002 was
(0.87%).
(3) The Lehman Government/Credit Bond Index is an unmanaged index indicative of
the high yield bond, broad domestic fixed-income, municipal government bond
and longer-term government bond markets. Please keep in mind that the index
does not pay brokerage, management, administrative, or distribution
expenses, all of which are paid by the classes and are reflected in its
annual returns. Index returns also do not include sales charges or CDSC that
may be paid by the shareholder.
AIM INCOME FUND (BUYING FUND)
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 15.38%
1994................................................................... -7.65%
1995................................................................... 22.77%
1996................................................................... 8.58%
1997................................................................... 11.92%
1998................................................................... 4.94%
1999................................................................... -2.92%
2000................................................................... -1.14%
2001................................................................... 3.58%
2002................................................................... 2.26%
</Table>
The Class A share's year-to-date total return as of June 30, 2003 was
8.90%.
During the periods shown in the bar chart, the highest quarterly return was
6.92% (quarter ended March 31, 1993) and the lowest quarterly return was -5.88%
(quarter ended March 31, 1994).
B-2
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of
a broad-based securities market index and a peer group index. The fund's
performance reflects payment of sales loads, if applicable. The indices do not
reflect payment of fees, expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
INCEPTION
1 YEAR 5 YEARS 10 YEARS DATE
------ ------- -------- ---------
Class A 05/03/68
Return Before Taxes.................................... (2.54)% 0.31% 4.91%
Return After Taxes on Distributions.................... (4.83)% (2.29)% 2.02%
Return After Taxes on Distributions and Sale of Fund
Shares.............................................. (1.60)% (1.02)% 2.50%
Lehman Brothers U.S. Aggregate Bond Index(1)............. 10.25% 7.55% 7.51%
Lipper BBB Rated Fund Index(2)........................... 7.20% 5.42% 6.83%
</Table>
- ---------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
(1) The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index
generally considered representative of treasury issues, agency issues,
corporate bond issues and mortgage-backed securities. In addition, the
Lipper BBB Rated Fund Index (which may or may not include the fund) is
included for comparison to a peer group.
(2) The Lipper BBB Rated Fund Index is an equally weighted representation of the
30 largest funds in the Lipper BBB Rated Funds category. The funds invest at
least 65% of assets in corporate and government debt issues rated in the top
four grades.
B-3
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class K and Investor Class shares of INVESCO Select Income Fund
("Selling Fund"), and of Class A, Class B, Class C and Class R shares of AIM
Income Fund ("Buying Fund"). Pro Forma Combined Expense Ratios of Buying Fund
giving effect to the reorganization of Selling Fund into Buying Fund are also
provided.
<Table>
<Caption>
SELLING FUND (AS OF 8/31/02) BUYING FUND (AS OF 7/31/02)
-------------------------------------------------- ---------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS K CLASS CLASS A CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------- ------- ------- ------- -------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)....................... 4.75% None None None None 4.75% None None None
Maximum Deferred Sales Charge
(Load)(1).................... None(2)(3) 5.00% 1.00% None(4) None None(2)(5) 5.00% 1.00% None(6)
ANNUAL FUND OPERATING
EXPENSES(7)
(expenses that are deducted
from fund assets)
Management Fees................ 0.52% 0.52% 0.52% 0.52% 0.52% 0.43% 0.43% 0.43% 0.43%
Distribution and/or Service
(12b-1) Fees(8).............. 0.35% 1.00% 1.00% 0.45% 0.25% 0.25% 1.00% 1.00% 0.50%
Other Expenses(9).............. 0.30% 0.26% 0.79% 0.88% 0.62% 0.28% 0.28% 0.28% 0.28%
Total Annual Fund Operating
Expenses(10)................. 1.17% 1.78% 2.31% 1.85% 1.39% 0.96% 1.71% 1.71% 1.21%
<Caption>
PRO FORMA COMBINED (AS OF 7/31/02)
--------------------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- --------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)....................... 4.75% None None None None
Maximum Deferred Sales Charge
(Load)(1).................... None(2)(5) 5.00% 1.00% None(6) None
ANNUAL FUND OPERATING
EXPENSES(7)
(expenses that are deducted
from fund assets)
Management Fees................ 0.39% 0.39% 0.39% 0.39% 0.39%
Distribution and/or Service
(12b-1) Fees(8).............. 0.25% 1.00% 1.00% 0.50% 0.25%
Other Expenses(9).............. 0.29% 0.29% 0.29% 0.29% 0.29%
Total Annual Fund Operating
Expenses(10)................. 0.93% 1.68% 1.68% 1.18% 0.93%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price.
For Buying Fund and Buying Fund Pro Forma Combined, calculated as a
percentage of original purchase price or redemption proceeds, whichever is
less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Selling Fund Class A shares, you may pay a
CDSC of 1% on your Class A shares if the plan is redeemed within 12 months
from initial deposit in the plan's INVESCO account.
(4) For qualified plans investing in Class K shares, you may pay a CDSC of
0.70% on your Class K shares if the plan is redeemed within 12 months from
initial deposit in the plan's INVESCO account.
(5) Effective November 1, 2002, if you are a retirement plan participant and
you bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
C-1
(6) If you are a retirement plan participant, you may pay a 0.75% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(7) There is no guarantee that actual expenses will be the same as those shown
in the table.
(8) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own shares for a long period of time, you
pay more than the economic equivalent of the maximum front-end sales charge
permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(9) Other Expenses for Selling Fund's Class A and Class B are based on
estimated expenses for the current fiscal year.
(10) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating
Expenses (excluding interest, taxes, brokerage commissions, extraordinary
expenses and increases in expenses due to expense offset arrangements, if
any) to 2.10%, 2.75%, 2.75% and 2.20% on Class A, Class B, Class C and
Class K shares, respectively. INVESCO has also voluntarily agreed to limit
Total Annual Operating Expenses (excluding interest, taxes, brokerage
commissions, extraordinary expenses and increases in expenses due to
expense offset arrangements, if any) to 1.15%, 1.80%, 1.80%, 1.25% and
1.05% on Class A, Class B, Class C, Class K and Investor Class shares,
respectively. The voluntary expense limitations cannot be revoked by
INVESCO prior to May 2004. Effective June 1, 2002, INVESCO is entitled to
reimbursement from the classes for fees and expenses absorbed pursuant to
voluntary and contractual expense limitation commitments between INVESCO
and Selling Fund if such reimbursements do not cause a class to exceed
expense limitations and the reimbursement is made within three years after
INVESCO incurred the expense.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period....... $589 $829 $1,088 $1,828
Assuming no redemption.............................. $589 $829 $1,088 $1,828
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $681 $860 $1,164 $1,934
Assuming no redemption(3)........................... $181 $560 $ 964 $1,934
Class C shares
Assuming complete redemption at end of period(2).... $334 $721 $1,235 $2,646
Assuming no redemption.............................. $234 $721 $1,235 $2,646
Class K shares
Assuming complete redemption at end of period....... $188 $582 $1,001 $2,169
Assuming no redemption.............................. $188 $582 $1,001 $2,169
Investor Class shares
Assuming complete redemption at end of period....... $142 $440 $ 761 $1,669
Assuming no redemption.............................. $142 $440 $ 761 $1,669
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period....... $568 $766 $ 981 $1,597
Assuming no redemption.............................. $568 $766 $ 981 $1,597
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $674 $839 $1,128 $1,821
Assuming no redemption(3)........................... $174 $539 $ 928 $1,821
Class C shares
Assuming complete redemption at end of period(2).... $274 $539 $ 928 $2,019
Assuming no redemption.............................. $174 $539 $ 928 $2,019
Class R shares
Assuming complete redemption at end of period....... $123 $384 $ 665 $1,466
Assuming no redemption.............................. $123 $384 $ 665 $1,466
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period....... $565 $757 $ 965 $1,564
Assuming no redemption.............................. $565 $757 $ 965 $1,564
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $671 $830 $1,113 $1,788
Assuming no redemption(3)........................... $171 $530 $ 913 $1,788
Class C shares
Assuming complete redemption at end of period(2).... $271 $530 $ 913 $1,987
Assuming no redemption.............................. $171 $530 $ 913 $1,987
Class R shares
Assuming complete redemption at end of period....... $120 $375 $ 649 $1,432
Assuming no redemption.............................. $120 $375 $ 649 $1,432
Investor Class shares
Assuming complete redemption at end of period....... $ 95 $296 $ 515 $1,143
Assuming no redemption.............................. $ 95 $296 $ 515 $1,143
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares into Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM ALL
COMPENSATION ACCRUED BY BENEFITS UPON INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------
Bob R. Baker.................... $7,363 $931 $34,000 $138,000
James T. Bunch.................. 6,818 0 0 124,625
Gerald J. Lewis................. 6,754 0 0 116,500
Larry Soll, Ph.D. .............. 7,000 0 0 126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended
August 31, 2002.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended August 31, 2002.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -------------------------------------------------
Mark H. Williamson -- 1951................ 1998 Director, President and Chief Executive Officer,
Chairman of the Board A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M
Distributors, Inc. (registered broker dealer);
and Chief Executive Officer of the AIM Division
of AMVESCAP PLC (2003-present); formerly, Chief
Executive Officer, Managed Products Division,
AMVESCAP PLC (2001-2002); Chairman of the Board
(1998-2002), President (1998-2002) and Chief
Executive Officer (1998-2002) of INVESCO Funds
Group, Inc. (registered investment advisor) and
INVESCO Distributors, Inc. (registered broker
dealer); Chief Operating Officer and Chairman of
the Board of INVESCO Global Health Sciences Fund;
Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
Raymond R. Cunningham -- 1951............. 2001 President (2001-present) and Chief Executive
President and Chief Executive Officer Officer (2003-present) of INVESCO Funds Group,
Inc.; Chairman of the Board (2003-present) and
President (2003-present) of INVESCO Distributors,
Inc.; formerly, Chief Operating Officer
(2001-2003) and Senior Vice President (1999-2002)
of INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc.; and Senior Vice President of
GT Global -- North America (1992-1998).
Glen A. Payne -- 1947..................... 1989 Senior Vice President, General Counsel and
Secretary Secretary of INVESCO Funds Group, Inc.; Senior
Vice President, Secretary and General Counsel of
INVESCO Distributors, Inc.; formerly, Secretary
of INVESCO Global Health Sciences Fund; General
Counsel of INVESCO Trust Company (1989-1998); and
employee of the Securities and Exchange
Commission, Washington, DC (1973-1989).
Ronald L. Grooms -- 1946.................. 1988 Senior Vice President and Treasurer of INVESCO
Chief Accounting Officer, Chief Funds Group, Inc.; and Senior Vice President and
Financial Officer and Treasurer Treasurer of INVESCO Distributors, Inc.;
formerly, Treasurer and Principal Financial and
Accounting Officer of INVESCO Global Health
Sciences Fund; and Senior Vice President and
Treasurer of INVESCO Trust Company (1988-1998).
William J. Galvin, Jr. -- 1956............ 1992 Senior Vice President and Assistant Secretary
Assistant Secretary INVESCO Funds Group, Inc.; and Senior Vice
President and Assistant Secretary of INVESCO
Distributors, Inc.; formerly, Trust Officer of
INVESCO Trust Company (1995-1998).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -------------------------------------------------
Pamela J. Piro -- 1960.................... 1999 Vice President and Assistant Treasurer of INVESCO
Assistant Treasurer Funds Group, Inc.; and Assistant Treasurer of
INVESCO Distributors, Inc.; formerly, Assistant
Vice President (1996-1997).
Tane T. Tyler -- 1965..................... 2002 Vice President and Assistant General Counsel of
Assistant Secretary INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY AND
SERIES AND CLASS PERCENTAGE OF CLASS*
---------------- ----------------------
Bob R. Baker...............................................
Sueann Ambron..............................................
Victor L. Andrews..........................................
Lawrence H. Budner.........................................
James T. Bunch.............................................
Raymond R. Cunningham......................................
Richard W. Healey..........................................
Gerald J. Lewis............................................
John W. McIntyre...........................................
Larry Soll, Ph.D. .........................................
Mark H. Williamson.........................................
Frank S. Bayley............................................
Bruce L. Crockett..........................................
Albert R. Dowden...........................................
Edward K. Dunn, Jr. .......................................
Jack M. Fields.............................................
Carl Frischling............................................
Robert H. Graham...........................................
Prema Mathai-Davis.........................................
Lewis F. Pennock...........................................
Ruth H. Quigley............................................
Louis S. Sklar.............................................
Glen A. Payne..............................................
Ronald L. Grooms...........................................
William J. Galvin, Jr. ....................................
Pamela J. Piro.............................................
Tane T. Tyler..............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
DOLLAR RANGE REGISTERED INVESTMENT
OF EQUITY COMPANIES OVERSEEN BY
SECURITIES DIRECTOR IN THE INVESCO
NAME OF DIRECTOR IN YOUR FUND FUNDS COMPLEX
- ---------------- ------------ -------------------------
INDEPENDENT DIRECTORS
Bob R. Baker.............................................. $1 - $10,000 $10,001 - $ 50,000
James T. Bunch............................................ $1 - $10,000 $50,001 - $100,000
Gerald J. Lewis........................................... $1 - $10,000 $50,001 - $100,000
Larry Soll, Ph.D.......................................... $1 - $10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson........................................ None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley........................................... None None
Bruce L. Crockett......................................... None None
Albert R. Dowden.......................................... None None
Edward K. Dunn............................................ None None
Jack M. Fields............................................ None None
Carl Frischling........................................... None None
Prema Mathai-Davis........................................ None None
Lewis F. Pennock.......................................... None None
Ruth H. Quigley........................................... None None
Louis S. Sklar............................................ None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham.......................................... None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, TX 77046.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH AIM PRINCIPAL OCCUPATION
- ---------------- ----------------------------- -----------------------------
Mark H. Williamson........... Director, Chairman and See director table under
President Proposal 2
Kevin M. Carome.............. Director, Senior Vice Director, Senior Vice
President, General Counsel President, Secretary and
and Secretary General Counsel, A I M
Management Group Inc.; Vice
President, A I M Capital
Management, Inc., A I M
Distributors, Inc. and A I M
Fund Services, Inc., and
Director, Vice President and
General Counsel, Fund
Management Company
Gary T. Crum................. Director and Senior Vice Chairman, Director and
President Director of Investments,
A I M Capital Management,
Inc.; Director and Executive
Vice President, A I M
Management Group Inc.;
Director, A I M Distributors,
Inc. and AMVESCAP PLC
Dawn M. Hawley............... Director, Senior Vice Director, Senior Vice
President and Chief Financial President and Chief Financial
Officer Officer, A I M Management
Group Inc.; Vice President
and Treasurer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director,
Vice President and Chief
Financial Officer, A I M Fund
Services, Inc.; and Vice
President and Chief Financial
Officer, Fund Management
Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS OR
INVESCO FUNDS EXPENSE
TOTAL NET ASSETS FOR GROUP, INC. FOR THE REIMBURSEMENTS FOR
THE MOST RECENTLY MOST RECENTLY THE MOST RECENTLY
ANNUAL RATE COMPLETED FISCAL COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- -------------------- ------------------- ------------------
0.55% of the first $300 million; $328,328,295 $746,041 $1,488,249
0.45% of the next $200 million;
0.35% from $500 million
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO INVESCO INVESCO
NAME OF FUND (ADMINISTRATIVE SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
- ------------ -------------------------- -------------------- -----------------
INVESCO Select Income Fund............. $202,062 $506,309 $2,140,193
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
TOTAL NET
ASSETS FOR THE
MOST RECENTLY FEE WAIVER, EXPENSE LIMITATIONS
COMPLETED AND/OR EXPENSE REIMBURSEMENTS
ANNUAL RATE FISCAL PERIOD FOR THE MOST RECENTLY COMPLETED
NAME OF FUND (BASED ON AVERAGE DAILY NET ASSETS) OR YEAR FISCAL PERIOD OR YEAR
- ------------ ----------------------------------- -------------- -------------------------------
AIM High Yield Fund........ 0.625% of the first $200 million; $937,442,286 N/A
0.55% over $200 million up to and
including $500 million; 0.50% over
$500 million up to and including $1
billion; 0.45% of the excess over
$1 billion
AIM V.I. Diversified Income
Fund..................... 0.60% of the first $250 million; $ 70,765,771 N/A
0.55% of the excess over $250
million
AIM V. I. High Yield
Fund..................... 0.625% of the first $200 million; $ 25,125,968 Waive advisory fees of Series I
0.55% over $200 million up to and and Series II shares to limit
including $500 million; 0.50% over expenses excluding Rule 12b-1
$500 million up to and including $1 plan fees, if any, interest,
billion; 0.45% of the excess over taxes, dividend expense on
$1 billion short sales, extraordinary
items and increases in expenses
due to expense offset
arrangements, if any, of each
Series to 1.30%
</Table>
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
(BASED ON AVERAGE
NET ASSETS DAILY NET ASSETS)
- ---------- -----------------
First $300 Million.......................................... 0.55%
Next $200 Million........................................... 0.45%
From $500 Million........................................... 0.35%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
1,468,500.94
CLASS B SHARES
91,909.81
CLASS C SHARES
333,037.75
CLASS K SHARES
731,664.49
INVESTOR CLASS SHARES
48,951,470.51
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES OWNED OF RECORD*
- ---------------- --------------- ---------------- -------------
Charles Schwab & Co. Inc. ....................... Class A 95,449.34 6.50%
Special Custody Acct. for the Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Bear Stearns Securities Corp. ................... Class A 77,724.06 5.29%
1 Metrotech Center North
Brooklyn, NY 11201-3870
Wexford Clearing Services Corp. FBO.............. Class A 75,548.17 5.14%
Sundial Ventures LLC
5 Revere Dr. Ste. 200
Northbrook, IL 60062-8000
Wexford Clearing Services Corp. FBO.............. Class A 75,548.17 5.14%
Hourglass Ventures LLC
5 Revere Dr. Ste. 200
Northbrook, IL 60062-8000
First Clearing Corporation....................... Class B 29,746.60 32.36%
Helen M. Karwowski
Advantage Account
54 Lyndon Road
Whitesboro, NY 13492-2241
American Enterprise Investment Svcs. ............ Class B 8,456.32 9.20%
P.O. Box 9446
Minneapolis, MN 55440-9446
LPL Financial Services........................... Class B 5,984.80 6.51%
9785 Towne Centre Dr.
San Diego, CA 92121-1968
American Enterprise Investment Svcs. ............ Class B 5,951.55 6.48%
P.O. Box 9446
Minneapolis, MN 55440-9446
NFSC FEBO........................................ Class B 5,288.32 5.75%
NFS/FMTC Sep. IRA
FBO Norm Detrick
3820 Roberts Ridge
Akron, OH 44333-1177
First Clearing Corporation....................... Class B 4,894.45 5.33%
Guiseppe Cupelli-IRA
FCC as Custodian
3644 Moon Bay Circle
Wellington, FL 33414-8804
</Table>
N-1
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES OWNED OF RECORD*
- ---------------- --------------- ---------------- -------------
Fiserv Securities Inc. .......................... Class B 4,708.10 5.12%
Attn: Mutual Funds
One Commerce Square
2005 Market Street Suite 1200
Philadelphia, PA 19103-7008
Raymond James & Assoc. Inc. ..................... Class C 37,361.55 11.22%
FBO Care Consistenc
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
Prudential Securities Inc. FBO................... Class C 19,222.78 5.77%
Credit Lyonnais
Cayman Island Branch
1301 Avenue of the Americas
New York, NY 10019-6022
Saxon & Co. ..................................... Class K 693,545.32 94.79%
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
Charles Schwab & Co. Inc. ....................... Investor Class 6,734,409.28 13.76%
Special Custody Acct. for the Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Union Bank of Calif. Tr. ........................ Investor Class 2,588,341.48 5.29%
Select Benefit Omnibus
UBOC-Mutual Funds
P.O. Box 85484
San Diego, CA 92186-5484
FIIOC Agent...................................... Investor Class 2,478,891.37 5.06%
Employee Benefit Plans
100 Magellan Way KWIC
Covington, KY 41015-1987
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-2
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Buyer owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES OWNED OF RECORD*
- ---------------- --------------- ---------------- -------------
</Table>
- ---------------
* Buyer has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO SELECT INCOME FUND,
A SEPARATE PORTFOLIO OF
INVESCO BOND FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller....................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-6
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-7
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-8
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-9
SECTION 3.14. Taxes....................................................... I-9
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-10
SECTION 3.21. No Distribution............................................. I-10
SECTION 3.22. Liabilities of Selling Fund................................. I-10
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
SECTION 4.3. Financial Statements........................................ I-10
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-11
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-12
SECTION 4.7. Binding Obligation.......................................... I-12
SECTION 4.8. No Breaches or Defaults..................................... I-12
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-13
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-14
SECTION 4.16. Value of Shares............................................. I-14
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-14
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-15
SECTION 5.4. Further Assurances.......................................... I-15
SECTION 5.5. Notice of Events............................................ I-15
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-16
SECTION 6.1. Conditions Precedent of Buyer............................... I-16
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-18
SECTION 7.1. Termination................................................. I-18
SECTION 7.2. Survival After Termination.................................. I-18
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-19
SECTION 8.6. Enforcement................................................. I-19
SECTION 8.7. Interpretation.............................................. I-19
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
SECTION 8.10. Notices..................................................... I-19
SECTION 8.11. Representations by Seller Investment Adviser................ I-20
SECTION 8.12. Representations by Buyer Investment Adviser................. I-20
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
</Table>
I-ii
<Table>
EXHIBIT A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Bond Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO Select Income Fund ("Selling Fund"), a
separate series of Seller, AIM Investment Securities Funds, a Delaware statutory
trust ("Buyer"), acting on behalf of AIM Income Fund ("Buying Fund"), a separate
series of Buyer, A I M Advisors, Inc., a Delaware corporation, and INVESCO Funds
Group, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Investment Securities Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-2674.
"Buying Fund" means AIM Income Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended January 31, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means November 3, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
I-2
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund, and, if so required by the Maryland General
Corporation Law and Seller's Charter, the affirmative vote of a majority of the
outstanding voting securities of Seller.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Bond Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc.
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-5686.
"Selling Fund" means INVESCO Select Income Fund, a separate series of
Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended August 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended February 28, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
I-3
"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
and the shareholders of Seller convened in accordance with Applicable Law and
the Governing Documents of Seller to consider and vote upon the approval of this
Agreement and, in connection therewith, the sale of all of Seller's assets and
the dissolution of Seller as a Maryland corporation.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
I-4
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions contemplated by this
Agreement have been consummated), to be distributed to Selling Fund Shareholders
under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller.
(a) Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
(b) If required by the Maryland General Corporation Law, following receipt
of the Required Shareholder Vote and as soon as reasonably practicable after the
Closing Date, Seller and Buyer shall cause Articles of Transfer to be filed with
the State Department of Assessments and Taxation of Maryland and, following the
filing of Articles of Transfer, Seller shall file Articles of Dissolution with
the State Department of Assessments and Taxation of Maryland to dissolve Seller
as a Maryland corporation and an application for deregistration on Form N-8F
under the Investment Company Act with the SEC; provided, however, that the
filing of Articles of Transfer, Articles of Dissolution and an application for
deregistration on Form N-8F as aforesaid shall not be required if the
Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until
I-5
such certificates have been surrendered to Buyer for cancellation, or if such
certificates are lost or misplaced, until lost certificate affidavits have been
executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed
I-6
in the Selling Fund Financial Statements and no contingent liabilities of
Selling Fund have arisen since the date of the most recent financial statements
included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of Sections 852 and 4982 of the Code for qualification
as a regulated investment company and avoidance of excise tax liability and (b)
additional distributions, to the extent such additional distributions do not
exceed 50 percent of the value (without giving effect to such distributions) of
the proprietary interest in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by
shareholders by the Required Shareholder Vote, constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by
shareholders by the Required Shareholder Vote, and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Seller and (ii) do not, and on the Closing Date will not,
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result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Selling Fund (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Seller is a party or by which it may be bound and which
relates to the assets of Selling Fund or to which any property of Selling Fund
may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Seller or any property of Selling Fund.
Seller is not under the jurisdiction of a court in a proceeding under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Seller in
connection with the due execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
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SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Selling Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the Closing Date and (B) all of Selling Fund's net capital gain
recognized in its taxable year ended August 31, 2003 and in such short taxable
year (after reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement and, in connection therewith, the sale of all of Seller's
assets and the dissolution of Seller as a Maryland corporation.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and
I-9
outstanding shares owned by each Selling Fund Shareholder and the state or other
jurisdiction in which such shares were offered and sold, are complete and
accurate in all material respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities to be assumed by
Buying Fund, plus the amount of liabilities, if any, to which such transferred
assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally
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accepted accounting principles applied on a consistent basis. The audited Buying
Fund Financial Statements previously delivered to Seller present fairly in all
material respects the financial position of Buying Fund as of the date(s)
indicated and the results of operations and changes in net assets for the
period(s) then ended in accordance with generally accepted accounting principles
applied on a consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund and the
shareholders of Seller entitled to vote at the Shareholders Meeting. The
Combined Proxy Statement/Prospectus and related Statement of Additional
Information of Buying Fund, when they become effective, shall conform to the
applicable requirements of the Securities Act and the Investment Company Act and
shall not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading, provided, however, that no representation or warranty is
made with respect to written information provided by Seller for inclusion in the
Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
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SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or without the giving of
notice or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Buying Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Buyer is a
party or by which it may be bound and which relates to the assets of Buying Fund
or to which any properties of Buying Fund may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Buyer or any property of Buying
Fund. Buyer is not under the jurisdiction of a court in a proceeding under Title
11 of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to
I-12
have, individually or in the aggregate, a Material Adverse Effect with respect
to Buying Fund. There are not in existence on the date hereof any plea
agreements, judgments, injunctions, consents, decrees, exceptions or orders that
were entered by, filed with or issued by any Governmental Authority relating to
Buyer's conduct of the business of Buying Fund affecting in any significant
respect the conduct of such business. Buyer is not, and has not been, to the
knowledge of Buyer, the target of any investigation by the SEC or any state
securities administrator with respect to its conduct of the business of Buying
Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Buying Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Buying Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have
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acquired directly or through any transaction, agreement or arrangement with any
other person, shares of Selling Fund with consideration other than shares of
Buying Fund. There is no plan or intention by Buying Fund or any person related
to Buying Fund to acquire or redeem any of the Buying Fund Shares issued in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization. The fair market value of the
assets of Selling Fund transferred to Buying Fund in the Reorganization will
equal or exceed the sum of the Liabilities assumed by Buying Fund, plus the
amount of liabilities, if any, to which such transferred assets are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
I-14
SECTION 5.3. Expenses. AMVESCAP PLC, on behalf of either Buyer Investment
Adviser or Seller Investment Adviser, shall bear the costs and expenses incurred
in connection with this Agreement and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by or on behalf of
Buying Fund or Selling Fund shall not be reimbursed or paid for by another
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.5 shall not limit or otherwise affect
the remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund and the
shareholders of Seller approval of this Agreement and, in connection therewith,
the sale of all of Seller's assets and the dissolution of Seller as a Maryland
corporation. Seller shall use its reasonable best efforts to hold a Shareholders
Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the
I-15
Reorganization shall not occur on the Closing Date but instead shall be
postponed until a mutually acceptable date occurring subsequent to the
Exchangeability Date; provided, however, that in no event shall the consummation
of the Reorganization occur on a date subsequent to the Termination Date. In the
case of such postponement of the consummation of the Reorganization, the parties
agree that the term "Closing Date" in this Agreement shall mean in each instance
such mutually acceptable date subsequent to the Exchangeability Date as the
parties may choose to consummate the Reorganization.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
I-16
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by shareholders
on the record date by the Required Shareholder Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective under the Securities Act and no
stop order suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
I-17
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result of
a willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against
I-18
the assets of Buying Fund only and not against the assets of Buyer generally or
assets belonging to any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Bond Funds, Inc.
4350 South Monaco Street
Denver, Colorado 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Attn: Clifford J. Alexander
I-19
(b) If to Buyer:
AIM Investment Securities Funds
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the provision of investment advisory
services to Buyer do not have actual knowledge to the contrary after due
inquiry.
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
I-20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO BOND FUNDS, INC., acting on
behalf of INVESCO SELECT INCOME FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM INVESTMENT SECURITIES FUNDS,
acting on behalf of AIM INCOME FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-21
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Class K shares.............................................. Class A shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS............................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund........... AIM International Core Equity Fund
AIM Real Estate Fund......................... AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC. ............... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund..................... AIM European Growth Fund
INVESCO BOND FUNDS, INC. .................... AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund...................... INVESCO High Yield Fund
INVESCO Select Income Fund................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund...... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS,
INC. ...................................... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund........................ INVESCO Balanced Fund
INVESCO Total Return Fund.................... INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC. ........ AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund....................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC. ........... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund........................ INVESCO European Fund
INVESCO International Blue Chip Value Fund... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC. ............ AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund.................. INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC. .................. AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.......................... INVESCO Energy Fund
INVESCO Financial Services Fund.............. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund......... INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund...................... INVESCO Technology Fund
INVESCO Telecommunications Fund.............. INVESCO Telecommunications Fund
INVESCO Utilities Fund....................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC. ................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.......................... INVESCO Growth Fund
INVESCO Growth & Income Fund................. INVESCO Growth & Income Fund
INVESCO Value Equity Fund.................... INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
<Table>
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Short Term Bond Fund
AIM Total Return Bond Fund
</Table>
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
- -------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Class R shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM INCOME FUND
July 21, 2003
Prospectus
AIM Income Fund seeks to achieve a high level of current
income consistent with reasonable concern for safety of
principal.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C, R and Investor Class shares of the fund.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
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.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
---------------
AIM INCOME FUND
---------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, 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, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are
service marks of A I M Management Group Inc.
No dealer, sales person 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.
---------------
AIM INCOME FUND
---------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal. The fund will
attempt to achieve its objective by investing primarily in fixed-rate corporate
debt and U.S. and non-U.S. Government obligations. The fund's investment
objective may be changed by the Board of Trustees without shareholder approval.
The fund may invest up to 40% of its total assets in foreign securities. The
fund may invest up to 35% of its net assets in lower-quality debt securities,
i.e., "junk bonds," and unrated debt securities deemed by the portfolio managers
to be of comparable quality. The fund may also invest in preferred stock issues
and convertible corporate debt. For cash management purposes, the fund may also
hold a portion of its assets in cash or cash equivalents, including shares of
affiliated money market funds. Any percentage limitations with respect to assets
of the fund are applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable
prospects for current income, consistent with their concerns for safety of
principal. The portfolio managers consider whether to sell a particular security
when any of these factors materially changes.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. 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. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease. The longer a debt
security's duration, the more sensitive it is to this risk. Junk bonds are less
sensitive to this risk than are higher-quality bonds. The issuer of a security
may default or otherwise be unable to honor a financial obligation.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are valued.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
Compared to higher-quality debt securities, junk bonds involve a greater
risk of default or price changes due to changes in the credit quality of the
issuer and because they are generally unsecured and may be subordinated to other
creditors' claims. The value of junk bonds often fluctuates in response to
company, political or economic developments and can decline significantly over
short periods of time or during periods of general or regional economic
difficulty. During those times the bonds could be difficult to value or sell at
a fair price. Credit ratings on junk bonds do not necessarily reflect their
actual market risk.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
---------------
AIM INCOME 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 (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 15.38%
1994................................................................... -7.65%
1995................................................................... 22.77%
1996................................................................... 8.58%
1997................................................................... 11.92%
1998................................................................... 4.94%
1999................................................................... -2.92%
2000................................................................... -1.14%
2001................................................................... 3.58%
2002................................................................... 2.26%
</Table>
The Class A share's year-to-date total return as of June 30, 2003 was 8.90%.
During the periods shown in the bar chart, the highest quarterly return was
6.92% (quarter ended March 31, 1993) and the lowest quarterly return was -5.88%
(quarter ended March 31, 1994).
2
---------------
AIM INCOME FUND
---------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index and a peer group index. The fund's
performance reflects payment of sales loads, if applicable. The indices do not
reflect payment of fees, expenses or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2002) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ---------------------------------------------------------------------------------
Class A 05/03/68
Return Before Taxes (2.54)% 0.31% 4.91% --
Return After Taxes
on Distributions (4.83) (2.29) 2.02 --
Return After Taxes
on Distributions
and Sale of Fund
Shares (1.60) (1.02) 2.50 --
Class B 09/07/93
Return Before Taxes (3.29) 0.25 -- 3.28%
Class C 08/04/97
Return Before Taxes 0.55 0.55 -- 1.41
Class R(2) 05/03/68(2)
Return Before Taxes 1.99 1.05 5.16 --
Investor Class(3) 05/03/68(3)
Return Before Taxes 2.26 1.30 5.43 --
- ---------------------------------------------------------------------------------
Lehman Brothers U.S.
Aggregate Bond
Index(4) 10.25 7.55 7.51 --
Lipper BBB Rated Fund
Index(5) 7.20 5.42 6.83 --
- ---------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to Class R shares. The inception date
shown in the table is that of the fund's Class A shares. The inception date
of the Fund's Class R shares is June 3, 2002.
(3) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the Rule
12b-1 fees applicable to Class A shares. Investor Class shares would have
different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(4) The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index
generally considered representative of treasury issues, agency issues,
corporate bond issues and mortgage-backed securities. In addition, the
Lipper BBB Rated Fund Index (which may or may not include the fund) is
included for comparison to a peer group.
(5) The Lipper BBB Rated Fund Index is an equally weighted representation of the
30 largest funds in the Lipper BBB Rated Funds category. The funds invest at
least 65% of assets in corporate and government debt issues rated in the top
four grades.
3
---------------
AIM INCOME 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 INVESTOR
investment) CLASS A CLASS B CLASS C CLASS R CLASS
- -------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.75% None None None None
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less) None(1,2) 5.00% 1.00% None(3) None
- -------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- ---------------------------------------------------------------------
(expenses that are deducted INVESTOR
from fund assets) CLASS A CLASS B CLASS C CLASS R CLASS
- --------------------------------------------------------------------------------
Management Fees 0.43% 0.43% 0.43% 0.43% 0.43%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00 0.50 0.25
Other Expenses(5) 0.28 0.28 0.28 0.28 0.28
Total Annual Fund Operating
Expenses 0.96 1.71 1.71 1.21 0.96
- --------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Other expenses for Investor Class shares are based on estimated average net
assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of 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. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. 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
- --------------------------------------------------------------------------------
Class A $568 $766 $ 981 $1,597
Class B 674 839 1,128 1,821
Class C 274 539 928 2,019
Class R 123 384 665 1,466
Investor Class 98 306 531 1,178
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $568 $766 $981 $1,597
Class B 174 539 928 1,821
Class C 174 539 928 2,019
Class R 123 384 665 1,466
Investor Class 98 306 531 1,178
- --------------------------------------------------------------------------------
</Table>
4
---------------
AIM INCOME 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 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2002, the advisor received compensation of
0.43% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team (co-managers) who are primarily responsible for the
management of the fund's portfolio are
- - Robert G. Alley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1992.
- - Jan H. Friedli, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1999. From 1997 to 1999, he was global fixed-income portfolio manager
for Nicholas-Applegate Capital Management.
- - Carolyn L. Gibbs, Senior Portfolio Manager, who has been responsible for the
fund since 1995 and has been associated with the advisor and/or its affiliates
since 1992.
- - Scot W. Johnson, Senior Portfolio Manager, who has been responsible for the
fund since 2002 and has been associated with the advisor and/or its affiliates
since 1994.
They are assisted by the Investment Grade and High Yield Taxable Teams. More
information on the fund's management team may be found on our website
(http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Income Fund are subject to the maximum 4.75%
initial sales charge as listed under the heading "CATEGORY II Initial Sales
Charges" in the "Shareholder Information--Choosing a Share Class" section of
this prospectus. Certain purchases of Class A shares at net asset value may be
subject to the contingent deferred sales charge listed in that section.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section. Certain purchases of Class R shares may be
subject to the contingent deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary 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.
5
---------------
AIM INCOME 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 information for the fiscal years 2002 and 2001 has been audited by Ernst
& Young LLP, whose report, along with the fund's financial statements, is
included in the fund's annual report, which is available upon request.
Information prior to fiscal year 2001 was audited by other public accountants.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------
SIX MONTHS JANUARY 1,
ENDED YEAR ENDED JULY 31, THROUGH
JANUARY 31, -------------------------- JULY 31,
2003 2002 2001 2000
----------- -------- -------- ----------
Net asset value, beginning of period $ 6.20 $ 6.91 $ 7.14 $ 7.59
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.44(a)(b) 0.53 0.34
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.26 (0.70) (0.23) (0.47)
===============================================================================================================
Total from investment operations 0.44 (0.26) 0.30 (0.13)
===============================================================================================================
Less distributions:
Dividends from net investment income (0.20) (0.43) (0.51) (0.25)
- ---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07)
===============================================================================================================
Total distributions (0.20) (0.45) (0.53) (0.32)
===============================================================================================================
Net asset value, end of period $ 6.44 $ 6.20 $ 6.91 $ 7.14
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(c) 7.17% (4.05)% 4.42% (1.70)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $283,759 $281,966 $346,967 $346,482
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets 1.04%(d) 0.96% 0.95% 0.97%(e)
===============================================================================================================
Ratio of net investment income to average net
assets 5.69%(d) 6.57%(b) 7.57% 8.03%(e)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(f) 55% 70% 83% 43%
_______________________________________________________________________________________________________________
===============================================================================================================
<Caption>
CLASS A
--------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
Net asset value, beginning of period $ 8.38 $ 8.57 $ 8.24
- ----------------------------------------------
Income from investment operations:
Net investment income 0.57 0.57 0.55
- ----------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.81) (0.16) 0.39
==============================================
Total from investment operations (0.24) 0.41 0.94
==============================================
Less distributions:
Dividends from net investment income (0.55) (0.55) (0.52)
- ----------------------------------------------
Distributions from net realized gains -- (0.05) (0.09)
- ----------------------------------------------
Return of capital -- -- --
==============================================
Total distributions (0.55) (0.60) (0.61)
==============================================
Net asset value, end of period $ 7.59 $ 8.38 $ 8.57
______________________________________________
==============================================
Total return(c) (2.92)% 4.94% 11.92%
______________________________________________
==============================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $393,414 $399,701 $340,608
______________________________________________
==============================================
Ratio of expenses to average net assets 0.91% 0.91% 0.94%
==============================================
Ratio of net investment income to average net
assets 7.11% 6.69% 6.55%
______________________________________________
==============================================
Portfolio turnover rate(f) 78% 41% 54%
______________________________________________
==============================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydown gains and
losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share would
have been $0.45 and the ratio of net investment income to average net assets
would have been 6.76%. In accordance with the AICPA Audit and Accounting
Guide for Investment Companies, per share and ratios for periods prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not deduct sales charges and
is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $279,826,101.
(e) Annualized.
(f) Not annualized for periods less than one year.
6
---------------
AIM INCOME FUND
---------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JANUARY 1,
ENDED JULY 31, THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, -------------------------- JULY 31, --------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- -------- -------- ---------- -------- -------- --------
Net asset value, beginning of
period $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37 $ 8.55 $ 8.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.16(a) 0.39(a)(b) 0.48 0.31 0.50 0.50 0.48
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.25 (0.70) (0.23) (0.47) (0.80) (0.15) 0.38
=================================================================================================================================
Total from investment
operations 0.41 (0.31) 0.25 (0.16) (0.30) 0.35 0.86
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.17) (0.38) (0.45) (0.21) (0.49) (0.48) (0.45)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- -- (0.05) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- -- --
=================================================================================================================================
Total distributions (0.17) (0.40) (0.47) (0.28) (0.49) (0.53) (0.54)
=================================================================================================================================
Net asset value, end of period $ 6.45 $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37 $ 8.55
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.76% (4.76)% 3.67% (2.09)% (3.72)% 4.20% 10.89%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $212,723 $216,710 $237,118 $213,926 $244,713 $219,033 $125,871
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets 1.79%(d) 1.71% 1.71% 1.73%(e) 1.66% 1.66% 1.69%
=================================================================================================================================
Ratio of net investment income
to average net assets 4.94%(d) 5.82%(b) 6.81% 7.28%(e) 6.36% 5.94% 5.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 55% 70% 83% 43% 78% 41% 54%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydown gains and
losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share would
have been $0.40 and the ratio of net investment income to average net assets
would have been 6.01%. In accordance with the AICPA Audit and Accounting
Guide for Investment Companies, per share and ratios prior to August 1, 2001
have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $214,246,245.
(e) Annualized.
(f) Not annualized for periods less than one year.
7
---------------
AIM INCOME FUND
---------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
---------------------------------------------------------------------------------------------------
AUGUST 4, 1997
(DATE SALES
SIX MONTHS YEAR ENDED JANUARY 1, YEAR ENDED COMMENCED)
ENDED JULY 31, THROUGH DECEMBER 31, THROUGH
JANUARY 31, ------------------------ JULY 31, ------------------ DECEMBER 31,
2003 2002 2001 2000 1999 1998 1997
----------- ------- ------- ---------- ------- ------- --------------
Net asset value, beginning
of period $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36 $ 8.54 $ 8.38
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.16(a) 0.39(a)(b) 0.48 0.31 0.50 0.50 0.19
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.26 (0.71) (0.23) (0.47) (0.80) (0.15) 0.22
=================================================================================================================================
Total from investment
operations 0.42 (0.32) 0.25 (0.16) (0.30) 0.35 0.41
=================================================================================================================================
Less distributions:
Dividends from net
investment income (0.17) (0.38) (0.45) (0.21) (0.49) (0.48) (0.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- -- (0.05) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- -- --
=================================================================================================================================
Total distributions (0.17) (0.40) (0.47) (0.28) (0.49) (0.53) (0.25)
=================================================================================================================================
Net asset value, end of
period $ 6.44 $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36 $ 8.54
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.95% (4.92)% 3.68% (2.09)% (3.71)% 4.21% 4.96%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $36,566 $37,769 $44,216 $26,821 $28,202 $19,332 $2,552
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to
average net assets 1.79%(d) 1.71% 1.71% 1.73%(e) 1.66% 1.66% 1.69%(d)
=================================================================================================================================
Ratio of net investment
income to average net
assets 4.94%(d) 5.82%(b) 6.81% 7.28%(e) 6.36% 5.94% 5.80%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 55% 70% 83% 43% 78% 41% 54%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydown gains and
losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share would
have been $0.40 and the ratio of net investment income to average net assets
would have been 6.01%. In accordance with the AICPA Audit and Accounting
Guide for Investment Companies, per share and ratios prior to August 1, 2001
have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $36,580,634.
(e) Annualized.
(f) Not annualized for periods less than one year.
8
---------------
AIM INCOME FUND
---------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS R
------------------------------------
SIX MONTHS JUNE 3, 2002
ENDED (DATE SALES
JANUARY 31, COMMENCED) THROUGH
2003 JULY 31, 2002
----------- ------------------
Net asset value, beginning of period $ 6.20 $ 6.53
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.06(a)(b)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.25 (0.32)
====================================================================================================
Total from investment operations 0.43 (0.26)
====================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.05)
- ----------------------------------------------------------------------------------------------------
Return of capital -- (0.02)
====================================================================================================
Total distributions (0.19) (0.07)
====================================================================================================
Net asset value, end of period $ 6.44 $ 6.20
____________________________________________________________________________________________________
====================================================================================================
Total return(c) 7.02% (4.01)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,088 $ 10
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.29%(d) 1.21%(e)
====================================================================================================
Ratio of net investment income to average net assets 5.44%(d) 6.32%(b)(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 55% 70%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydown gains and
losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share would
have been $0.07 and the ratio of net investment income to average net assets
would have been 6.51%. In accordance with the AICPA Audit and Accounting
Guide for Investment Companies, per share and ratios prior to August 1, 2001
have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for periods
less than one year.
(d) Ratios are annualized and based on average daily net assets of $146,037.
(e) Annualized.
(f) Not annualized for periods less than one year.
9
-------------
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 consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) 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 at the end of the month which is seven years after the date on 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 the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) 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.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the 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(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
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>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
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
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
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.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) 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 other 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 privileges; 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 Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - 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--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
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 Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE 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 $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase 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 a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
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; and (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 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 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. 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 CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
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--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial 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 or our AIM 24-hour
Automated Investor Line. 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 $250,000;
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. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.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 $250,000; and (4) you have already
provided proper bank information. 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 REDEMPTIONS
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
Redemption 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.
MCF--07/03
A-7
-------------
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 $250,000;
(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 PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
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.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) 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 ($250 for Investor Class shares) 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 ($250 for Investor Class shares)
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 under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
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 into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge 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 initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding 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;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II 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;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - 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 terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
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 you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R 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 or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C 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 ALL OR 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 SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
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' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. 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 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 may 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 that trade on days when the AIM Funds do
not price their shares, 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
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. 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
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend 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. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
---------------
AIM INCOME 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>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</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
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM INCOME FUND
SEC 1940 Act file number: 811-5686
- ------------------------------------
AIMinvestments.com INC-PRO-1
APPENDIX III
FUND PROVIDES SHAREHOLDERS WITH SOLID CURRENT INCOME
HOW DID AIM INCOME FUND PERFORM DURING THE FISCAL YEAR?
High-quality bonds were the market's favorites for most of the year as investors
sought safety from the turbulence in stock markets. AIM Income Fund continued to
provide solid current income to its shareholders. As of July 31, 2002, the
fund's 30-day distribution rate at maximum offering price was 6.64% for Class A
shares, 6.18% for Class B shares, 6.19% for Class C shares, and 6.68% for the
new Class R shares (available only through certain retirement programs). Its
30-day yield was 6.58% for Class A shares, 6.13% for Class B and Class C shares,
and 6.72% for Class R shares.
The fund's total returns for the year ended July 31, 2002 (excluding sales
charges) were -4.05% for Class A shares, -4.76% for Class B and Class C shares,
and -4.29% for Class R shares. These results reflect the mixed impact of the
fund's Treasuries and other investment-grade holdings, which performed well, and
its high-yield holdings, which disappointed, as they typically do during times
of investor risk aversion. The difference is illustrated by the period's 7.53%
return for the Lehman Aggregate Bond Index, which contains only domestic
investment-grade bonds, compared with the -9.15% return for the Lehman High
Yield Index.
WHAT WERE THE YEAR'S ECONOMIC TRENDS?
As the fiscal year began, investors had been flocking to bonds as stock prices
slumped due to the economic slowdown. The Federal Reserve Board (the Fed) cut
short-term interest rates 11 times in 2001 to stimulate the economy, which was
in recession during the first three quarters of the year. The cuts increased
bond values, which typically move inversely to interest rates. From December
through the end of the fund's fiscal year, the target federal funds rate
remained unchanged at 1.75%, a four-decade low.
U.S. gross domestic product (GDP) grew at a vigorous 5.0% annualized rate in
the first quarter of 2002. When the growth rate dropped to 1.1% in the second
quarter, some economists were concerned a "double-dip recession" could occur.
There was concern that a "reverse wealth effect" caused by falling stock prices
could lead consumers to cut their spending--the economy's greatest source of
strength--and short-circuit the rebound. But sales were kept strong by purchases
of homes and cars, supported by low interest rates for mortgage and auto loans.
WHAT BOND-MARKET TRENDS WERE SIGNIFICANT?
Their confidence shaken by allegations of corporate wrongdoing, many investors
fled stocks and sought lower risk in high-quality bonds. The best returns came
from Treasuries, federal agency bonds and mortgage pass-through securities.
Corporate bonds lagged, and the yield spread between corporates and Treasuries
widened to cover the increase in perceived risk arising from a weak economic
environment and suspicions of corporate accounting fraud. A notable rush into
investment-grade bonds occurred in July 2002, as the stock market again dropped
sharply.
HOW DID YOU MANAGE THE FUND?
We kept our focus on the fund's primary objective of dependable current income
consistent with a reasonable concern for the safety of principal. We maintained
our strategy of holding approximately 80% of assets in investment-grade bonds
for stability and about 20% in high-yield bonds for an income boost,
diversifying holdings among sectors to diminish risk.
Since our last report we significantly increased our holdings in financial
institutions and decreased the amount in industrials; changes in other sectors
were moderate. As of July 31, 2002, the fund's average credit quality was A (up
from its usual BBB).
FUND PROVIDES
ATTRACTIVE INCOME
30-DAY YIELD
As of 7/31/02
================================================================================
FUND CLASS A SHARES 6.58%
10-YEAR U.S. TREASURY 4.46%
Source: Lehman Bros.
================================================================================
2
PORTFOLIO COMPOSITION
As of 7/31/02, based on total net assets
<Table>
<Caption>
====================================================================================================================================
TOP 10 ISSUERS TOP 10 INDUSTRIES PORTFOLIO COMPOSITION BY SECTOR
[PIE CHART]
- ------------------------------------------------------------------------------------------------------------------------------------
1. CSC Holdings Inc. 2.5% 1. Electric Utilities 12.1% DOMESTIC GOVERNMENT
2. News America Holdings, Inc. 2.4 2. Diversified Financial Services 10.0 SECURITIES 5.5%
3. Niagara Mohawk Power Corp. 2.2 3. Broadcasting & Cable TV 9.9
4. Citigroup Inc. 1.9 4. Banks 7.1 CASH & OTHER 4.8%
5. Germany (Federal Republic of) 1.9 5. Oil & Gas Exploration & Production 5.4
6. Waste Management, Inc. 1.9 6. Sovereign Debt 4.2 INTERNATIONAL CORPORATE
7. Cleveland Electric Illuminating Co. 1.9 7. Airlines 3.4 BONDS & NOTES 15.8%
8. Federal National Mortgage Association 8. Federal National Mortgage Association
(FNMA), Unsec. Sub. Notes 1.8 (FNMA) 3.4 DOMESTIC CORPORATE
9. NiSource Finance Corp. 1.8 9. Oil & Gas Refining, Marketing & BONDS & NOTES 73.9%
10. Ford Motor Credit Co. 1.7 Transportation 3.1
10. Consumer Finance 2.7
TOTAL NET ASSETS: $536.5 MILLION TOTAL NUMBER OF HOLDINGS: 252
The fund's portfolio is subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
WHAT PARTS OF THE PORTFOLIO ENHANCED OR DETRACTED FROM THE FUND'S PERFORMANCE?
We found that regional banks such as Bank United, First Union, and USBancorp
performed well and appear to have good prospects. Most life insurance holdings
benefited the fund, and we think some are likely to see better rate structures
and improving margins. Performance was uneven among holdings in energy, where
some firms did well while others had significant problems. In the auto-finance
industry, yields widened substantially even for large firms with strong track
records such as Ford Motor Credit and GMAC. Among electric utilities, Niagara
Mohawk Power performed satisfactorily and we believe it has prospects for
improving credit quality.
High-yield bonds were volatile. They performed well during the fourth
quarter of 2001 as well as during January, March and April of 2002, but declined
significantly for the fiscal year as a whole. The heaviest losses were
concentrated in a few industry sectors, such as telecommunications and cable
television, but risk-specific losses occurred broadly.
During much of the fiscal year international holdings outperformed their
domestic cousins, due partly to the dollar's weakness since February. Securities
denominated in other currencies, such as German and British sovereign debt and
euro-denominated corporate bonds, did well.
WHAT WERE CONDITIONS LIKE AT THE END OF THE FUND'S FISCAL YEAR?
Various economic measures were giving conflicting signals. Productivity grew in
the second quarter, a good sign for business, but manufacturing growth slowed.
The Conference Board's Consumer Confidence Index, considered an indicator of
future spending patterns, declined in June and fell sharply in July--yet July
retail sales grew 1.2%. The June unemployment rate of 5.9% was unchanged in
July. Consumer spending may depend heavily on individuals' perceptions of
whether their own jobs are secure.
Similarly, people's willingness to invest may depend on their perceptions of
the safety of principal. In light of the strong new legislation on corporate
governance that was enacted during the period, business practices and the
quality and reliability of financial statements appear likely to improve
considerably. It may take some time for investors to regain trust, and
meanwhile, volatility could remain high. As of the end of the fiscal year,
investors remained extremely sensitive to every item of news, good or bad, with
stock and bond markets veering sharply in response to the resulting waves of
buying and selling.
PORTFOLIO MANAGEMENT TEAM
Robert G. Alley
Jan H. Friedli
Carolyn L. Gibbs
See important fund and index disclosures inside front cover.
3
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/02, including sales charges
CLASS A SHARES
10 Years 4.40%
5 Years -0.04
1 Year -8.55
CLASS B SHARES
Inception (9/7/93) 2.73%
5 Years -0.12
1 Year -9.25
CLASS C SHARES
Inception (8/4/97) 0.36%
1 Year -5.66
CLASS R SHARES*
10 Years 4.65%
5 Years 0.68
1 Year -4.29
================================================================================
Past performance cannot guarantee comparable future results. DUE TO RECENT
SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER
SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR FINANCIAL ADVISOR
FOR MORE CURRENT PERFORMANCE.
*Class R shares were first offered on June 3, 2002. Returns prior to that date
are hypothetical results based on Class A share returns at net asset value,
adjusted to reflect additional Class R 12b-1 fees (The inception date of Class A
shares is 5/3/68). Class R share returns do not include a 0.75% contingent
deferred sales charge (CDSC) that may be imposed on a total redemption of
retirement plan assets within the first year.
In addition to returns as of the close of the fiscal year, industry regulations
require us to provide the fund's average annual total returns (including sales
charges) for the periods ended 6/30/02, the most recent calendar quarter-end,
which were as follows. Class A shares, ten years, 5.06%; five years, 1.25%; one
year, -3.71%. Class B shares, inception (9/7/93), 3.10%; five years, 1.17%; one
year, -4.24%. Class C shares, inception (8/4/97), 0.94%; one year, -0.60%. Class
R shares, ten years, 5.32%; five years, 1.98%; one year, 0.86%.
================================================================================
RESULTS OF A $10,000 INVESTMENT
7/31/92-7/31/02
[HYPO CHART]
AIM INCOME FUND- LEHMAN AGGREGATE
CLASS A SHARES BOND INDEX
7/92 $ 9525 7/92 $10000
9440 10086
9873 10445
10335 10747
7/93 10795 7/93 11018
11272 11283
11404 11399
10312 10837
7/94 10286 7/94 11027
10328 10868
10362 11136
11055 11630
7/95 11627 7/95 12142
12245 12569
12678 13023
12320 12636
7/96 12539 7/96 12814
13261 13304
13662 13448
13716 13531
7/97 14690 7/97 14194
15002 14488
15575 14889
15824 15007
7/98 16003 7/98 15310
15607 15840
16350 16091
16195 15948
7/99 15699 7/99 15691
15514 15924
15550 15793
15292 16148
7/00 15353 7/00 16626
15259 17085
15874 17976
15587 18148
7/01 16031 7/01 18736
16313 19572
16080 19335
15980 19569
7/02 15379 7/02 20146
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
================================================================================
This chart compares AIM Income Fund's Class A shares to its benchmark index.
It is intended to give you an idea of how your fund performed compared to that
index over the period 7/31/92-7/31/02.
It is important to understand the differences between your fund and an
index. An index measures the performance of a hypothetical portfolio. A market
index such as the Lehman Aggregate Bond Index is unmanaged, and incurs no sales
charges, expenses or fees. If you could buy all the securities that make up a
market index, you would incur expenses that would affect the return on your
investment.
Your fund's total return includes sales charges, expenses and management
fees. Performance of the fund's Class A, Class B, Class C and Class R shares
will differ due to different sales charge structures and class expenses. For
fund performance calculations and descriptions of the indexes cited on this
page, please see the inside front cover.
Performance shown in the chart and table does not reflect taxes a
shareholder would pay on fund distributions or on redemption of fund shares.
Performance for the indexes does not reflect the effects of taxes either.
CALENDAR YEAR TOTAL RETURNS (%)
================================================================================
CLASS A SHARES
EXCLULDING SALES CHARGES
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
7.28 15.38 -7.65 22.77 8.58 11.92 4.94 -2.92 -1.14 3.58
================================================================================
4
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to 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
trustees 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 the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
V-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
V-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
V-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
V-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
V-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
V-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
V-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
V-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
V-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
</Table>
V-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
(INVESCO LOGO)
INVESCO BOND FUNDS, INC.
INVESCO U.S. GOVERNMENT SECURITIES FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that
A I M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and
AIM Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO BOND FUNDS, INC.
INVESCO U.S. GOVERNMENT SECURITIES FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO U.S. Government Securities Fund and the
Shareholders of INVESCO Bond Funds, Inc. ("Company"):
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") under
which all of the assets of your Fund, an investment portfolio of Company, will
be transferred to AIM Intermediate Government Fund ("Buying Fund"), an
investment portfolio of AIM Investment Securities Funds ("Buyer"), Buying Fund
will assume the liabilities of your Fund and Buyer will issue shares of each
class of Buying Fund to shareholders of the corresponding class of shares of
your Fund and, in connection therewith, the sale of all of Company's assets and
the dissolution of Company as a Maryland corporation.
2. Elect 16 directors to the Board of Directors of Company, each of whom
will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors, Inc.
for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust and,
in connection therewith, the sale of all of Company's assets and the dissolution
of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO BOND FUNDS, INC. GROUP J
INVESCO U.S. GOVERNMENT SECURITIES FUND, AIM INTERMEDIATE GOVERNMENT FUND
A PORTFOLIO OF A PORTFOLIO OF
INVESCO BOND FUNDS, INC. AIM INVESTMENT SECURITIES FUNDS
4350 SOUTH MONACO STREET 11 GREENWAY PLAZA, SUITE 100
DENVER, COLORADO 80237 HOUSTON, TEXAS 77046-1173
(800) 525-8085 (800) 347-4246
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO U.S. Government Securities Fund (your Fund) and INVESCO Bond Funds, Inc.
("Company"). The Special Meeting will be held on October 21, 2003. We intend to
mail this Proxy Statement/Prospectus, the enclosed Notice of Special Meeting of
Shareholders and the enclosed proxy card on or about August 25, 2003 to all
shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund and
shareholders of Company to vote on four proposals. The first Proposal to be
voted on is an Agreement and Plan of Reorganization (the "Agreement") which
provides for the combination of your Fund, an investment portfolio of Company,
with AIM Intermediate Government Fund ("Buying Fund"), an investment portfolio
of AIM Investment Securities Funds ("Buyer") (the "Reorganization") and, in
connection therewith, the sale of all of Company's assets and the dissolution of
Company as a Maryland corporation.
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
The investment objective of Buying Fund is similar to that of your Fund in
that both Buying Fund and your Fund seek a high level of current income,
although your Fund also seeks capital appreciation. See "Comparison of
Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated December 31, 2002, as supplemented June
30, 2003 and August 14, 2003 (the "Selling Fund Prospectus"), together with the
related Statement of Additional Information dated December 31, 2002, as
supplemented June 12, 2003 and August 14, 2003, are on file with the Securities
and Exchange Commission (the "SEC"). The Selling Fund Prospectus is incorporated
i
by reference into this Proxy Statement/Prospectus. The Prospectus of Buying Fund
dated July 21, 2003 (the "Buying Fund Prospectus"), and the related Statement of
Additional Information dated July 21, 2003, as supplemented July 28, 2003, and
the Statement of Additional Information relating to the Reorganization, dated
August 15, 2003, are on file with the SEC. The Buying Fund Prospectus is
incorporated by reference into this Proxy Statement/Prospectus and a copy of the
Buying Fund Prospectus is attached as Appendix II to this Proxy
Statement/Prospectus. The Statement of Additional Information relating to the
Reorganization dated August 15, 2003 also is incorporated by reference into this
Proxy Statement/Prospectus. The SEC maintains a website at www.sec.gov that
contains the Prospectuses and Statements of Additional Information described
above, material incorporated by reference, and other information about Company
and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 4
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 5
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 6
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 8
Description of Buying Fund Shares......................... 9
Management's Discussion of Fund Performance............... 9
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 10
Board Considerations...................................... 10
Other Terms............................................... 11
Federal Income Tax Consequences........................... 12
Accounting Treatment...................................... 13
RIGHTS OF SHAREHOLDERS...................................... 13
General................................................... 13
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 13
Removal of Directors/Trustees............................. 14
Meetings of Shareholders.................................. 14
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 15
Voting Rights of Shareholders............................. 15
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 16
INTERESTS OF CERTAIN PERSONS................................ 17
LEGAL MATTERS............................................... 17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 18
Background................................................ 18
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
The Board's Recommendation on Proposal 2.................. 22
Current Committees of the Board........................... 22
</Table>
i
<Table>
<Caption>
PAGE
----
Board and Committee Meeting Attendance.................... 24
Future Committee Structure................................ 24
Director's Compensation................................... 25
Current Retirement Plan For Directors..................... 25
Current Deferred Compensation Plan........................ 26
New Retirement Plan For Directors......................... 26
New Deferred Compensation Agreements...................... 27
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 28
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 28
Background................................................ 28
Your Fund's Current Investment Advisor.................... 29
The Proposed New Investment Advisor for Your Fund......... 29
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 29
Terms of the Current Advisory Agreement................... 29
Additional Services Provided by INVESCO and its
Affiliates............................................. 31
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 31
Terms of the Proposed Advisory Agreement.................. 31
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 35
The Board's Recommendation on Proposal 3.................. 37
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 37
Background................................................ 37
Reasons for the Proposed Redomestication.................. 38
What the Proposed Redomestication Will Involve............ 38
The Federal Income Tax Consequences of the
Redomestication........................................ 40
Appraisal Rights.......................................... 40
The Trust Compared to Company............................. 40
The Board's Recommendation on Proposal 4.................. 41
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 41
Proxy Statement/Prospectus................................ 41
Time and Place of Special Meeting......................... 41
Voting in Person.......................................... 41
Voting by Proxy........................................... 42
Voting by Telephone or the Internet....................... 42
Quorum Requirement and Adjournment........................ 42
Vote Necessary to Approve Each Proposal................... 43
Proxy Solicitation........................................ 43
Other Matters............................................. 43
Shareholder Proposals..................................... 43
Ownership of Shares....................................... 44
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 44
Fees Paid to the Auditor Related to Company............... 44
Fees Paid to the Auditor Not Related to Company........... 44
EXHIBIT A Classes of Shares of Your Fund and Corresponding
Classes of Shares of Buying Fund.......................... A-1
EXHIBIT B Comparison of Performance of Your Fund and Buying
Fund...................................................... B-1
EXHIBIT C Comparison Fee Table and Expense Example......... C-1
EXHIBIT D Director Compensation Table...................... D-1
</Table>
ii
<Table>
<Caption>
PAGE
----
EXHIBIT E Officers of Company.............................. E-1
EXHIBIT F Security Ownership of Management................. F-1
EXHIBIT G Director Ownership of Fund Shares................ G-1
EXHIBIT H Principal Executive Officer and Directors of A IM
Advisors, Inc............................................. H-1
EXHIBIT I Compensation to INVESCO Funds Group, Inc......... I-1
EXHIBIT J Fees Paid to INVESCO Funds Group, Inc. and
Affiliates in Most Recent Fiscal Year..................... J-1
EXHIBIT K Advisory Fee Schedules for Other AIM Funds....... K-1
EXHIBIT L Proposed Compensation to A I M Advisors, Inc..... L-1
EXHIBIT M Shares Outstanding of Each Class of Your Fund on
Record Date............................................... M-1
EXHIBIT N Ownership of Shares of Your Fund................. N-1
EXHIBIT O Ownership of Shares of Buying Fund............... O-1
APPENDIX I Agreement and Plan of Reorganization for Your
Fund (to Effect the Reorganization)
APPENDIX II Prospectus of Buying Fund
APPENDIX III Discussion of Performance of Buying Fund
APPENDIX IV Form of Investment Advisory Agreement with
A I M Advisors, Inc.
APPENDIX V Agreement and Plan of Reorganization for Your
Fund (to Effect the Redomestication)
</Table>
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, 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, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(K) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
iii
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as that term is defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these
1
directors/trustees agreed to combine the separate boards and create a unified
board of directors/trustees. Proposal 2 relates to the election of directors of
your Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders approve the Agreement by the Combined Shareholder Vote (as
defined under "Information About the Special Meeting and Voting -- Vote
Necessary to Approve Each Proposal") and other closing conditions are satisfied,
all of the assets of your Fund will be transferred to Buying Fund and Buying
Fund will assume the liabilities of your Fund, and Buyer will issue shares of
each class of Buying Fund to shareholders of the corresponding class of shares
of your Fund, as set forth on Exhibit A. For a description of certain of the
closing conditions that must be satisfied, see "Additional Information About the
Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
2
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain would be included in a taxable distribution. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue similar investment objectives in that both
Buying Fund and your Fund seek a high level of current income, although your
Fund also seeks capital appreciation. Your Fund and Buying Fund also invest in
similar types of securities. As a result, the Reorganization is not expected to
cause significant portfolio turnover or transaction expenses from the sale of
securities that are incompatible with the investment objective of Buying Fund.
The investment objectives or goals of your Fund are classified as
fundamental, which means that the Board cannot change them without shareholder
approval. The investment objective of Buying Fund is not classified as
fundamental, which means that the Board of Trustees of Buyer can change it
without shareholder approval. Having the ability to change the investment
objective without shareholder approval allows the Board of Trustees to respond
more quickly and efficiently to changing market conditions and to save Buying
Fund and its shareholders money by eliminating the need to solicit proxies to
obtain shareholder approval to change an investment objective to respond to
changing market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
<Caption>
INVESCO U.S. GOVERNMENT SECURITIES FUND AIM INTERMEDIATE GOVERNMENT FUND
(YOUR FUND) (BUYING FUND)
- -------------------------------------------- --------------------------------------------
INVESTMENT OBJECTIVE
- - high level of current income and capital - high level of current income consistent
appreciation with reasonable concern for safety of
principal
INVESTMENT STRATEGIES
- - invests at least 80% of its net assets in - invests at least 80% of its assets in debt
debt securities issued or guaranteed by securities issued, guaranteed or otherwise
the U.S. government or its agencies and backed by the U.S. government
instrumentalities
</Table>
3
<Table>
<Caption>
INVESCO U.S. GOVERNMENT SECURITIES FUND AIM INTERMEDIATE GOVERNMENT FUND
(YOUR FUND) (BUYING FUND)
- -------------------------------------------- --------------------------------------------
- - direct U.S. government obligations include - investments include (1) U.S. Treasury
Treasury bonds, bills, and notes, and are obligations and (2) obligations issued or
backed by the full faith and credit of the guaranteed by U.S. government agencies and
U.S. Treasury; federal agency securities, instrumentalities and supported by (a) the
such as Governmental National Mortgage full faith and credit of the U.S.
Association, Federal National Mortgage Treasury, (b) the right of the issuer to
Association and Federal Home Loan Mortgage borrow from the U.S. Treasury, or (c) the
Corporation, are direct obligations of the credit of the agency or instrumentality
issuing agency, and may or may not be
guaranteed by the U.S. government
- - may invest in government agency mortgage- - invests primarily in fixed-rate securities
backed securities such as high-coupon U.S. government agency
mortgage-backed securities, which consist
of interests in underlying mortgages with
maturities of up to thirty years
- investments may include synthetic
instruments such as warrants, futures,
options, exchange-traded funds and
American Depositary Receipts
- - no corresponding strategies - may invest in securities of all maturities
issued or guaranteed by the U.S.
government or its agencies and
instrumentalities
- will maintain a weighted average effective
maturity, as estimated by Buying Fund's
portfolio managers, of between three and
ten years
- - no corresponding strategy - Buying Fund focuses on securities the
portfolio managers believe have favorable
prospects for current income, consistent
with their reasonable concern for safety
of principal
- - INVESCO actively manages and trades your - may engage in active and frequent trading
Fund's portfolio of portfolio securities
</Table>
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
---------------------------------------------------------------
INVESCO U.S. GOVERNMENT AIM INTERMEDIATE GOVERNMENT
SECURITIES FUND FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ------------------------------ ------------------------------
Investment Advisor................ INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Distributor....................... A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator..................... INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian......................... State Street Bank and Trust State Street Bank and Trust
Company Company
Transfer Agent and Dividend
Disbursing Agent.................. INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Independent Auditors.............. PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
4
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund
effective November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this Proxy Statement/Prospectus
by reference. For more information regarding the total return of Buying Fund,
see "Information About Buying Fund -- Financial Highlights." Past performance
cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of August 31, 2002, and Buying Fund, as of July
31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can be
found at Exhibit C. Pro forma estimated Expense Ratios for each class of shares
of Buying Fund after giving effect to the Reorganization are also provided as of
July 31, 2002 as part of Exhibit C.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. In
addition to the share classes of Buying Fund listed on Exhibit A, Class R shares
of Buying Fund are available to investors. This class is not involved in the
Reorganization. For information regarding the features of the various share
classes of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
5
<Table>
<Caption>
CLASS A CLASS B CLASS C
- ------------------------ ------------------------ ------------------------
- - subject to an initial - not subject to an - not subject to an
sales charge* initial sales charge initial sales charge
- - may be subject to a - subject to a CDSC on - subject to a CDSC on
CDSC on redemptions certain redemptions certain redemptions
made within 18 months made within 6 years made within 12 months
from the date of from the date of from the date of
certain large purchase purchase***
purchases**
</Table>
<Table>
<Caption>
CLASS R
(BUYING FUND ONLY) INVESTOR CLASS
- ----------------------------- -----------------------------
- - not subject to an initial - not subject to an initial
sales charge sales charge
- - may be subject to a CDSC on - not subject to a CDSC
redemptions made within 12
months from the date of
certain purchases
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of your Fund is computed based on
their original purchase price. This method of computation changes to conform to
Buying Fund's method of computation effective August 18, 2003.
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of
6
Buying Fund generally may be exchanged for shares of the same or a similar class
of funds within The AIM Family of Funds(R). It is currently anticipated that,
prior to the consummation of the Reorganization, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the consummation
of the Reorganization, the consummation of the Reorganization will be delayed
until such time as it is offered. See "Additional Information About the
Agreement -- The Reorganization." For more detailed information regarding the
current exchange rights of your Fund and Buying Fund, see the Selling Fund
Prospectus and the Buying Fund Prospectus, respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund and that the income you may receive from your investment may vary.
The value of your investment in Buying Fund will go up and down with the prices
of the securities in which Buying Fund invests. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease. The longer a debt
security's duration, the more sensitive it is to this risk. The prices of
high-coupon U.S. Government agency mortgage-backed securities fall more slowly
when interest rates rise than do prices of traditional fixed-rate securities.
Some of the securities purchased by Buying Fund are not guaranteed by the U.S.
Government. The agency or instrumentality issuing a security may default or
otherwise be unable to honor a financial obligation.
If the seller of a repurchase agreement in which Buying Fund invests
defaults on its obligation or declares bankruptcy, Buying Fund may experience
delays in selling the securities underlying the repurchase agreement. As a
result, Buying Fund may incur losses arising from decline in the value of those
securities, reduced levels of income and expenses of enforcing its rights.
High-coupon U.S. Government agency mortgage-backed securities provide a
higher coupon at the time of purchase than current prevailing market interest
rates. Buying Fund may purchase such securities at a premium. If these
securities experience a faster principal prepayment rate than expected, both the
market value of and income from such securities will decrease.
Active trading of Buying Fund's securities may increase short-term gains
and losses, which may affect the taxes you have to pay. If Buying Fund engages
in active trading in portfolio securities, it may incur increased transaction
costs, which can lower the actual return on your investment.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to those
described above for Buying Fund because of the similarities in their investment
objectives and strategies. Set forth below is a discussion of certain risks that
differ between Buying Fund and your Fund. You can find more detailed
descriptions of specific risks associated with your Fund in the Selling Fund
Prospectus.
Your Fund may have greater exposure to duration risks to the extent the
weighted average maturity is higher than Buying Fund's weighted average
maturity. Duration is a measure of a debt security's sensitivity to interest
rate changes. Duration is usually expressed in terms of years, with longer
durations usually more sensitive to interest rate fluctuations.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund 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 Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights,
8
and are freely transferable. Other than the automatic conversion of Class B
shares to Class A shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended July 31, 2002 is set forth in Appendix
III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
October 27, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 24, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the Closing and (b) all of your Fund's net capital gain recognized in
its taxable year ended August 31, 2003 and in such short taxable year (after
reduction for any capital loss carryover).
In addition to the Special Meeting to vote on the Reorganization, the Board
has called special meetings for the shareholders of each of Company's three
other series portfolios to approve for each such series portfolio an agreement
and plan of reorganization that is similar to the Agreement, under which all of
the assets of each such series portfolio will be sold to a series portfolio of
Buyer, resulting in the combination of the two series portfolios. If the
Reorganization and all three other reorganizations are approved by shareholders
by the 1940 Act Vote (as defined under "Information About the Special Meeting
and Voting -- Vote Necessary to Approve Each Proposal"), the resulting
transactions will constitute a sale of all of Company's assets and, under
applicable Maryland law and Company's Charter,
9
the Reorganization and all three other reorganizations will require approval by
shareholders by the Maryland Law Vote in addition to the 1940 Act Vote.
If the Agreement and all three other reorganizations are approved by
shareholders by the Combined Shareholder Vote, the Reorganization and all three
other reorganizations will be consummated and Company and Buyer will cause
Articles of Transfer to be filed with the State Department of Assessments and
Taxation of Maryland to transfer all of the assets of Company as soon as
reasonably practicable after the Closing. Following the filing of Articles of
Transfer, Company will file Articles of Dissolution with the State Department of
Assessments and Taxation of Maryland to dissolve Company as a Maryland
corporation and an application for deregistration on Form N-8F under the 1940
Act with the Securities and Exchange Commission to deregister Company as an
investment company.
The Reorganization will also be consummated if shareholders approve the
Agreement by the 1940 Act Vote and the Maryland Law Vote is ultimately not
required because one or more of the three other reorganizations are not approved
by the 1940 Act Vote. If shareholders approve the Agreement and all three other
reorganizations by the 1940 Act Vote, but not by the Maryland Law Vote, the
Board will determine whether to consummate the Reorganization and/or one or more
of the other three reorganizations; provided, however, that in no event may the
Reorganization and all three other reorganizations be consummated.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at an in-person meeting of the
Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund, particularly
for the past year.
- Management's representation that AIM's fixed income department could
provide more depth and resources than INVESCO's fixed income department.
10
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders shall have approved the Agreement by the Combined
Shareholder Vote; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or
11
by either party if the shareholders of your Fund and Company do not approve the
Agreement or if the Closing does not occur on or before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Company and Buyer upon which Ballard Spahr Andrews &
Ingersoll, LLP will rely in rendering its opinion. The conclusions reached in
that opinion could be jeopardized if the representations of Company or Buyer are
incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
12
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements, amendments and
supplements thereto (the "Articles of Incorporation"), and applicable Maryland
law. The operations of Buyer, as a Delaware statutory trust, are governed by its
Amended and Restated Agreement and Declaration of Trust, as amended (the
"Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be subject to any personal liability for acts or obligations of the
Trust and that every written agreement, obligation or other undertaking made or
issued by the Trust shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his or her investment due to shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations and
the express disclaimer of shareholder liabilities is determined not to be
effective. Given the nature of the assets and operations of the Trust, the
possibility of the Trust being unable to meet its obligations is considered
remote, and even if a claim were brought against the Trust and a court
determined that shareholders were personally liable, it would likely not impose
a material obligation on a shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
13
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the holders of a majority of the
outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be called by the president
or, in his or her absence, the vice-president or by a majority of the Board of
Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting need be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
14
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust; and (vii) approval
of such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS A SHARES CLASS A SHARES
-------------- -------------- --------------
Net Assets......................................... $9,834,060 $665,214,484 $675,048,544
Shares Outstanding................................. 1,058,232 70,439,515 71,480,932
Net Asset Value Per Share.......................... $ 9.29 $ 9.44 $ 9.44
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
Net Assets......................................... $1,759,970 $763,166,637 $764,926,607
Shares Outstanding................................. 231,274 80,566,243 80,752,093
Net Asset Value Per Share.......................... $ 7.61 $ 9.47 $ 9.47
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
-------------- -------------- --------------
Net Assets......................................... $8,736,082 $159,509,665 $168,245,747
Shares Outstanding................................. 1,149,602 16,901,453 17,826,980
Net Asset Value Per Share.......................... $ 7.60 $ 9.44 $ 9.44
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
CLASS R SHARES CLASS R SHARES
-------------- --------------
Net Assets.................................................. $1,675,799 $1,675,799
Shares Outstanding.......................................... 177,404 177,404
Net Asset Value Per Share................................... $ 9.45 $ 9.45
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR INVESTOR INVESTOR
CLASS SHARES CLASS SHARES(1) CLASS SHARES
------------ --------------- ------------
Net Assets........................................ $159,158,844 $ 0 $159,158,844
Shares Outstanding................................ 20,935,676 0 16,854,993
Net Asset Value Per Share......................... $ 7.60 $9.44 $ 9.44
</Table>
- ---------------
(1) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $179 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
16
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-2674. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-5686. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Company and Buyer and other registrants that file
electronically with the SEC.
17
PROPOSAL 2 -- ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 11 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Richard W. Healey, Gerald L. Lewis, John W. McIntyre, Larry Soll,
Ph.D. and Mark H. Williamson. Eight of the current directors are "independent,"
meaning they are not "interested persons" of Company within the meaning of the
1940 Act. Three of the current directors are "interested persons" because of
their business and financial relationships with Company and INVESCO, its
investment advisor, and/or INVESCO's parent, AMVESCAP. Six of the current
directors have declined to stand for re-election as directors of Company.
Therefore, their terms as directors of Company will end upon the election and
qualification of their successor directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 11 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- -------------------------- --------------------------
Bob R. Baker -- 1936...... 1983 Consultant (2000-present); None
formerly, President and
Chief Executive Officer
(1988-2000) of AMC Cancer
Research Center, Denver,
Colorado; until mid-
December 1988, Vice
Chairman of the Board of
First Columbia Financial
Corporation, Englewood,
Colorado; formerly,
Chairman of the Board and
Chief Executive Officer of
First Columbia Financial
Corporation.
James T. Bunch -- 1942.... 2000 Co-President and Founder None
of Green, Manning & Bunch
Ltd., Denver, Colorado
(1988-present) (investment
banking firm); Director
and Vice President of
Western Golf Association
and Evans Scholars
Foundation; Executive
Committee, United States
Golf Association;
formerly, General Counsel
and Director of Boettcher
& Co., Denver, Colorado;
and formerly, Chairman and
Managing Partner, law firm
of Davis, Graham & Stubbs,
Denver, Colorado.
Gerald J. Lewis -- 1933... 2000 Chairman of Lawsuit General Chemical Group,
Resolution Services, San Inc., Hampdon, New
Diego, California (1987- Hampshire (1996-present),
present); formerly, Wheelabrator Technologies,
Associate Justice of the Inc. (waste management
California Court of company), Fisher
Appeals; and Of Counsel, Scientific, Inc.
law firm of Latham & (laboratory supplies),
Watkins, San Diego, Henley Manufacturing,
California (1987-1997). Inc., and California
Coastal Properties, Inc.
</Table>
19
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- -------------------------- --------------------------
Larry Soll, Ph.D. -- 1942............... 1997 Retired; formerly, Synergen Inc. (since
Chairman of the Board incorporation in 1982) and
(1987-1994), Chief Isis Pharmaceuticals, Inc.
Executive Officer
(1982-1989 and 1993-1994)
and President (1982-1989)
of Synergen Inc.
(biotechnology company);
and formerly, trustee of
INVESCO Global Health
Sciences Fund.
</Table>
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ------------------------- --------------------------
Mark H. Williamson(1) -- 1951........... 1998 Director, President and Director/trustee of each
Chief Executive Officer, of the 17 AIM Funds
A I M Management Group
Inc.; Director, Chairman
and President, A I M
Advisors, Inc.
(registered investment
advisor); Director, A I M
Distributors, Inc.
(registered broker
dealer); and Chief
Executive Officer of the
AIM Division of AMVESCAP
PLC (2003-present);
formerly, Chief Executive
Officer, Managed Products
Division, AMVESCAP PLC
(2001-2002); Chairman of
the Board (1998-2002),
President (1998-2002) and
Chief Executive Officer
(1998-2002) of INVESCO
Funds Group, Inc.
(registered investment
advisor) and INVESCO
Distributors, Inc.
(registered broker
dealer); Chief Operating
Officer and Chairman of
the Board of INVESCO
Global Health Sciences
Fund; Chairman and Chief
Executive Officer of
NationsBanc Advisors,
Inc.; and Chairman of
NationsBanc Investments,
Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
20
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- --------------------------- ---------------------------
Frank S. Bayley -- 1939................... Of Counsel, law firm of Badgley Funds, Inc.
Baker & McKenzie (registered investment
company)
Bruce L. Crockett -- 1944................. Chairman, Crockett ACE Limited (insurance
Technology Associates company); Captaris, Inc.
(technology consulting (unified messaging
company) and Captaris, Inc. provider)
(unified messaging
provider)
Albert R. Dowden -- 1941.................. Director of a number of Cortland Trust, Inc.
public and private business (Chairman) (registered
corporations, including the investment company);
Boss Group, Ltd. (private Annuity and Life Re
investment and management) (Holdings), Ltd. (insurance
and Magellan Insurance company)
Company; formerly,
President, Chief Executive
Officer and Director, Volvo
Group North America, Inc.;
Senior Vice President, AB
Volvo and director of
various affiliated Volvo
Group companies
Edward K. Dunn, Jr. -- 1935............... Formerly, Chairman, None
Mercantile Mortgage Corp.;
President and Chief
Operating Officer,
Mercantile-Safe Deposit &
Trust Co.; and President,
Mercantile Bankshares Corp.
Jack M. Fields -- 1952.................... Chief Executive Officer, Administaff
Twenty First Century Group,
Inc. (government affairs
company) and Texana Timber
LP
Carl Frischling -- 1937................... Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel (registered investment
LLP company)
Prema Mathai-Davis -- 1950................ Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock -- 1942.................. Partner, law firm of None
Pennock & Cooper
Ruth H. Quigley -- 1935................... Retired None
Louis S. Sklar -- 1939.................... Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
21
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- --------------------------- ---------------------------
Robert H. Graham(1) -- 1946............... Director and Chairman, None
A I M Management Group Inc.
(financial services holding
company); and Director and
Vice Chairman, AMVESCAP PLC
(parent of AIM and a global
investment management firm)
and Chairman, AMVESCAP
PLC -- AIM Division;
formerly, President and
Chief Executive Officer,
A I M Management Group
Inc.; Director, Chairman
and President, A I M
Advisors, Inc. (registered
investment advisor);
Director and Chairman,
A I M Capital Management,
Inc. (registered investment
advisor), A I M
Distributors, Inc.
(registered broker dealer),
A I M Fund Services, Inc.
(registered transfer
agent), and Fund Management
Company (registered broker
dealer); and Chief
Executive Officer, AMVESCAP
PLC -- Managed Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
22
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
23
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended August 31, 2002, the Board met eight times,
the audit committee met four times, the investments and management liaison
committee met four times, the brokerage committee met four times, the
derivatives committee met four times, the nominating committee met two times,
the legal committee met three times, the compensation committee met four times,
and the executive, valuation and retirement plan committees did not meet. All of
the current directors then serving attended at least 75% of the meetings of the
Board or applicable committee during the most recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
24
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor'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.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
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A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of months. The Account value continues to fluctuate as long as monthly
payments are made. If a Participating Qualified Director becomes disabled or
dies prior to his or her retirement and if, at the time of disability or death,
the value of a Participating Qualified Director's Account is less than $340,000,
the Director or the Director's beneficiary or estate will not be paid the value
in the Account but will receive $34,000 per annum for ten years. If, at the time
of the Participating Qualified Director's death or disability prior to
retirement, the value in the director's Account is $340,000 or more, the
Participating Qualified Director or his or her estate or beneficiary will
receive the value in the Account either in a lump sum or in quarterly
installments. The cost of providing the initial dollar amount to be allocated to
a Participating Qualified Director's Account and the cost of payment of any
death or disability benefit that aggregates more than the Account value will be
allocated among the INVESCO Funds in a manner determined to be fair and
equitable by a committee appointed to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited
26
service as a director (including service to a predecessor fund) for a Covered
Fund. The retirement benefits will equal 75% of the director's annual retainer
paid or accrued by any Covered Fund to such director during the twelve-month
period prior to retirement, including the amount of any retainer deferred under
a separate deferred compensation agreement between the Covered Fund and the
director. The annual retirement benefits will be payable in quarterly
installments for a number of years equal to the lesser of (i) ten or (ii) the
number of such director's credited years of service. A death benefit will also
be available under the New Retirement Plan that will provide a surviving spouse
with a quarterly installment of 50% of a deceased director's retirement benefits
for the same length of time that the director would have received the benefits
based on his or her service. A director must have attained the age of 65 (55 in
the event of death or disability) to receive any retirement benefit. Payment of
benefits under the New Retirement Plan will not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director 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. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment
27
companies overseen by the director within the INVESCO Funds and the AIM Funds
complex can be found in Exhibit G.
PROPOSAL 3 --
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund. The portfolio management
team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on
February 28, 1997. Your Fund's shareholders last voted on
28
the agreement on January 31, 1997, for the purpose of approving a new investment
advisory agreement for your Fund, with the same parties and on terms
substantially identical to your Fund's then-existing investment advisory
agreement. Such approval was necessary because your Fund's then-existing
investment advisory agreement terminated automatically by operation of law upon
the consummation on February 28, 1997, of the merger of A I M Management Group
Inc. and INVESCO PLC, which at that time was the ultimate parent company of your
Fund's investment advisor. The Board, including a majority of the independent
directors, last approved the current advisory agreement on May 15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A 1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised, and calculates the net asset value of your Fund, subject to
such procedures established by the Board and based upon information provided by
your Fund, the custodian of your Fund or other source as designated by the
Board. INVESCO provides sub-accounting, recordkeeping and administrative
services to your Fund under an administrative services agreement. Under the
advisory agreement, as administrator, INVESCO also provides, at its expense and
at the request of your Fund, executive, statistical, administrative, internal
accounting and clerical services and office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund and each other series portfolio of
Company, and (ii) the vote of a majority of the directors of Company who are not
interested persons of INVESCO or Company by votes cast in person at a meeting
called for such purpose. The current advisory agreement provides that the Board,
a majority of the outstanding voting securities of your Fund and each other
series portfolio of Company or INVESCO may terminate the agreement with respect
to your Fund on 60 days' written notice without penalty. The agreement
terminates automatically in the event of its assignment, unless an order is
issued by the SEC conditionally or unconditionally exempting such assignment
from the applicable provisions of the 1940 Act.
29
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
30
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, 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 trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and
31
each other series portfolio of Company (each, an "Investing Fund") to invest
their uninvested cash 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 the Investing Fund. AIM will receive advisory fees from the Affiliated
Money Market Fund to the extent an Investing Fund invests uninvested cash in
such Affiliated Money Market Fund. If the Board approves AIM's use of the
exemptive order for Company, AIM intends to waive a portion of the advisory fees
payable by each Investing Fund in an amount equal to 25% of the advisory fee AIM
receives from the Affiliated Money Market Fund as a result of such Investing
Fund's investment of uninvested cash in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a
32
security transaction will be to obtain the best execution. In selecting
broker-dealers to execute particular transactions, AIM will consider the best
net price available, the reliability, integrity and financial condition of the
broker-dealer, the size of and difficulty in executing the order and the value
of the expected contribution of the broker-dealer to the investment performance
of Company's portfolio funds on a continuing basis. Accordingly, the price to
your Fund in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified by other aspects
of the fund execution services offered by the broker-dealer. The broker-dealer
relationship provisions of the current advisory agreement with INVESCO for your
Fund do not specify these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative 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 loans; (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.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
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TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940 Act
and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
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LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor. The limitation of
liability provisions of the 1940 Act also apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
35
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they
36
believe to be in your best interests. In so doing, they were advised by
independent counsel, retained by the independent directors and paid for by
Company, as to the nature of the matters to be considered and the standards to
be used in reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 -- APPROVAL OF THE PLAN
TO REDOMESTICATE COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix V.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
37
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive compliance with any condition
contained in the Plan, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
38
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on accounts of shareholders under the Current Funds will be
replicated on the New Fund account. No sales charges will be imposed in
connection with the Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication
39
in light of their individual circumstances and as to state and local
consequences, if any, of the Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing
40
discussion and the discussion under the caption "Rights of Shareholders" in
Proposal 1 above is only a summary of certain differences and is not a complete
description of all the differences. Shareholders should refer to the provisions
of the governing documents of Company and Trust and state law directly for a
more thorough comparison. Copies of the Articles of Incorporation and Amended
and Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
41
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposal 1 if (a) shareholders entitled to vote one-third of the
issued and outstanding shares of Company on the Record Date and (b) shareholders
entitled to vote one-third of the issued and outstanding shares of your Fund on
the Record Date are present at the Special Meeting in person or by proxy. A
quorum will exist for Proposals 2 and 4 if shareholders entitled to vote
one-third of the issued and outstanding shares of Company on the Record Date are
present at the Special Meeting in person or by proxy. A quorum will exist for
Proposal 3 if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/ Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approvals of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund (the "1940 Act Vote"). Applicable
Maryland law and the Charter of Company may also
42
require that Proposal 1 be approved by the affirmative vote of a majority of the
issued and outstanding shares of Company, which includes the shares of your Fund
and the shares of the three other series portfolios of Company, all voting
together (the "Maryland Law Vote" and together with the 1940 Act Vote, the
"Combined Shareholder Vote"). See "Additional Information About the
Agreement -- The Reorganization." Abstentions and broker non-votes are counted
as present but are not considered votes cast at the Special Meeting. As a
result, they have the same effect as a vote against Proposals 1 and 3 because
approval of Proposals 1 and 3 requires the affirmative vote of a percentage of
the voting securities present or represented by proxy or a percentage of the
outstanding voting securities or the issued and outstanding shares, as
applicable.
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $15,100. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. AMVESCAP, on behalf of INVESCO, will bear the costs and expenses
incurred in connection with the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
43
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending August 31, 2003. A representative of the Auditor is expected to be
available at the Special Meeting and to have the opportunity to make a statement
and respond to appropriate questions from the shareholders. The audit committee
of the Board has considered whether the provisions of the services below is
compatible with maintaining the Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of four separate series portfolios)
aggregate fees for professional services rendered for the 2002 fiscal year as
follows:
<Table>
Audit Fees.................................................. $79,950
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $12,137
-------
Total Fees.................................................. $92,087
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2002 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $149,083
--------
Total Fees.................................................. $149,083
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
44
EXHIBIT A
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF YOUR FUND SHARES OF BUYING FUND
------------------------------ ------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO U.S. GOVERNMENT SECURITIES FUND (YOUR FUND)
Performance information in the bar chart below is that of the Fund's
Investor Class shares which has the longest operating history of the Fund's
classes. Performance information for Class A and B is not shown in the table as
those classes do not yet have a full calendar year of performance.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade. The table below shows the pre-tax and after-tax average
annual total returns of Investor Class for various periods ended December 31,
2001 compared to the Lehman Government Long Bond Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption returns assume you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption returns assume payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rates in effect
at the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax returns shown is not relevant.
The information in the chart and table illustrates the variability of the
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
U.S. GOVERNMENT SECURITIES FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)
<Table>
'92......................................................... 5.68%
'93......................................................... 10.28%
'94......................................................... (7.20%)
'95......................................................... 22.13%
'96......................................................... 0.47%
'97......................................................... 12.26%
'98......................................................... 10.11%
'99......................................................... (5.97%)
'00......................................................... 14.65%
'01......................................................... 5.41%
</Table>
Best Calendar Qtr. 6/95 7.68%
Worst Calendar Qtr. 3/94 (4.53%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/01
------------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- ---------------
U.S. Government Securities Fund(1)(2)
Return Before Taxes....................................... 5.41% 7.03% 6.43%
Return After Taxes on Distributions....................... 3.54% 4.32% 3.85%
Return After Taxes on Distributions and Sale of Fund
Shares................................................. 3.29% 4.37% 3.92%
Lehman Government Long Bond Index(3) (reflects no deduction
for fees, expenses, or taxes)............................. 4.34% 8.38% 8.56%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class' expenses.
(2) Returns before taxes for Investor Class shares of U.S. Government Securities
Fund year-to-date as of the calendar quarter ended September 30, 2002 was
9.03%.
(3) Lehman Government Long Bond Index is an unmanaged index indicative of the
high yield bond, broad domestic fixed-income, municipal government bond and
longer-term government bond markets. Please keep in mind that the index does
not pay brokerage, management, administrative, or distribution expenses, all
of which are paid by the classes and are reflected in their annual returns.
Index returns also do not include sales charges or CDSC that may be paid by
the shareholder.
AIM INTERMEDIATE GOVERNMENT FUND (BUYING FUND)
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 7.07%
1994................................................................... -3.44%
1995................................................................... 16.28%
1996................................................................... 2.35%
1997................................................................... 9.07%
1998................................................................... 8.17%
1999................................................................... -1.87%
2000................................................................... 9.37%
2001................................................................... 6.11%
2002................................................................... 10.00%
</Table>
The Class A share's year-to-date total return as of June 30, 2003 was
1.78%.
During the periods shown in the bar chart, the highest quarterly return was
5.49% (quarter ended June 30, 1995) and the lowest quarterly return was -2.92%
(quarter ended March 31, 1994).
B-2
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
INCEPTION
1 YEAR 5 YEARS 10 YEARS DATE
------ ------- -------- ---------
Class A 04/28/87
Return Before Taxes.................................... 4.79% 5.24% 5.65%
Return After Taxes on Distributions.................... 2.96 2.81 3.01
Return After Taxes on Distributions and Sale of Fund
Shares.............................................. 2.89 2.93 3.13
Lehman Brothers U.S. Aggregate Bond Index(1)............. 10.25 7.55 7.51
Lehman Brothers Intermediate U.S. Government Bond
Index(2)............................................... 9.64 7.44 6.91
Lehman Brothers Intermediate U.S. Government and Mortgage
Index(3)............................................... 9.11 7.39 N/A
Lipper Intermediate U.S. Government Fund Index(4)........ 10.00 7.01 6.62
</Table>
- ---------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
(1) The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index
generally considered representative of treasury issues, agency issues,
corporate bond issues and mortgage-backed securities. The fund has elected
to use the Lehman Brothers U.S. Aggregate Bond Index as its broad-based
index rather than the Lehman Brothers Intermediate U.S. Government Bond
Index because the Lehman Brothers U.S. Aggregate Bond Index is a more widely
recognized gauge of the U.S. bond market. The fund also included the Lehman
Brothers Intermediate U.S. Government and Mortgage Index, which the fund
believes more closely reflects the performance of the securities in which
the fund invests. In addition, the Lipper Intermediate U.S. Government Index
(which may or may not include the fund) is included for comparison to a peer
group.
(2) The Lehman Brothers Intermediate U.S. Government Bond Index is an unmanaged
composite generally considered representative of intermediate publicly
issued debt of U.S. Government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government.
(3) The Lehman Brothers Intermediate U.S. Government and Mortgage Index includes
securities in the intermediate maturity range of the U.S. Government Index
that must have between 1 year and 10 years to final maturity regardless of
call features, and fixed-rate mortgage securities with a weighted average of
at least 1 year and issued by GNMA, FHLMC, or FNMA.
(4) The Lipper Intermediate U.S. Government Fund Index measures the performance
of the largest government securities funds. It is compiled by Lipper
Analytical Services, Inc., an independent mutual funds performance monitor.
Results shown reflect reinvestment of dividends.
B-3
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C and Investor Class shares of INVESCO U.S. Government Securities Fund
("Selling Fund"), and of Class A, Class B, Class C and Class R shares of AIM
Intermediate Government Fund ("Buying Fund"). Pro Forma Combined Expense Ratios
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided.
<Table>
<Caption>
SELLING FUND (AS OF 8/31/02) BUYING FUND (AS OF 7/31/02)
----------------------------------------- ----------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS CLASS A CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- -------- ------- ------- ------- -------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.75% None None None 4.75% None None None
Maximum Deferred Sales Charge
(Load)(1)....................... None(2)(3) 5.00% 1.00% None None(2)(4) 5.00% 1.00% None(5)
ANNUAL FUND OPERATING EXPENSES(6)
(expenses that are deducted from
fund assets)
Management Fees................... 0.55% 0.55% 0.55% 0.55% 0.40% 0.40% 0.40% 0.40%
Distribution and/or Service
(12b-1) Fees(7)................. 0.35% 1.00% 1.00% 0.25% 0.25% 1.00% 1.00% 0.50%
Other Expenses(8)................. 0.55% 0.54% 0.49% 0.63% 0.25% 0.25% 0.25% 0.25%
Interest.......................... None None None None 0.04% 0.04% 0.04% 0.04%
Total Other Expenses.............. 0.55% 0.54% 0.49% 0.63% 0.29% 0.29% 0.29% 0.29%
Total Annual Fund Operating
Expenses(9)..................... 1.45% 2.09% 2.04% 1.43% 0.94% 1.69% 1.69% 1.19%
<Caption>
PRO FORMA COMBINED (AS OF 7/31/02)
---------------------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- --------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price)... 4.75% None None None None
Maximum Deferred Sales Charge
(Load)(1)....................... None(2)(4) 5.00% 1.00% None(5) None
ANNUAL FUND OPERATING EXPENSES(6)
(expenses that are deducted from
fund assets)
Management Fees................... 0.40% 0.40% 0.40% 0.40% 0.40%
Distribution and/or Service
(12b-1) Fees(7)................. 0.25% 1.00% 1.00% 0.50% 0.25%
Other Expenses(8)................. 0.25% 0.25% 0.25% 0.25% 0.25%
Interest.......................... 0.04% 0.04% 0.04% 0.04% 0.04%
Total Other Expenses.............. 0.29% 0.29% 0.29% 0.29% 0.29%
Total Annual Fund Operating
Expenses(9)..................... 0.94% 1.69% 1.69% 1.19% 0.94%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price. For
Buying Fund and Buying Fund Pro Forma Combined, calculated as a percentage
of original purchase price or redemption proceeds, whichever is less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Selling Fund Class A shares, you may pay a
CDSC of 1% on your Class A shares if the plan is redeemed within 12 months
from initial deposit in the plan's INVESCO account.
(4) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(5) If you are a retirement plan participant, you may pay a 0.75% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
C-1
(6) There is no guarantee that actual expenses will be the same as those shown
in the table.
(7) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own shares for a long period of time, you
pay more than the economic equivalent of the maximum front-end sales charge
permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(8) Other Expenses for Selling Fund's Class A and Class B are based on estimated
expenses for the current fiscal year.
(9) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
2.10%, 2.75% and 2.75% on Class A, Class B and Class C shares, respectively.
INVESCO has also voluntarily agreed to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
1.10%, 1.75%, 1.75% and 1.00% on Class A, Class B, Class C and Investor
Class shares, respectively. The voluntary expense limitations cannot be
revoked by INVESCO prior to May 2004. Effective June 1, 2002, INVESCO is
entitled to reimbursement from the classes for fees and expenses absorbed
pursuant to voluntary and contractual expense limitation commitments between
INVESCO and Selling Fund if such reimbursements do not cause a class to
exceed expense limitations and the reimbursement is made within three years
after INVESCO incurred the expense.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $616 $912 $1,230 $2,128
Assuming no redemption.................................... $616 $912 $1,230 $2,128
Class B shares
Assuming complete redemption at end of period(2)(3)....... $712 $955 $1,324 $2,257
Assuming no redemption(3)................................. $212 $655 $1,124 $2,257
Class C shares
Assuming complete redemption at end of period(2).......... $307 $640 $1,098 $2,369
Assuming no redemption.................................... $207 $640 $1,098 $2,369
Investor Class shares
Assuming complete redemption at end of period............. $146 $452 $ 782 $1,713
Assuming no redemption.................................... $146 $452 $ 782 $1,713
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $566 $760 $ 970 $1,575
Assuming no redemption.................................... $566 $760 $ 970 $1,575
Class B shares
Assuming complete redemption at end of period(2)(3)....... $672 $833 $1,118 $1,799
Assuming no redemption(3)................................. $172 $533 $ 918 $1,799
Class C shares
Assuming complete redemption at end of period(2).......... $272 $533 $ 918 $1,998
Assuming no redemption.................................... $172 $533 $ 918 $1,998
Class R shares
Assuming complete redemption at end of period............. $121 $378 $ 654 $1,443
Assuming no redemption.................................... $121 $378 $ 654 $1,443
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period............. $566 $760 $ 970 $1,575
Assuming no redemption.................................... $566 $760 $ 970 $1,575
Class B shares
Assuming complete redemption at end of period(2)(3)....... $672 $833 $1,118 $1,799
Assuming no redemption(3)................................. $172 $533 $ 918 $1,799
Class C shares
Assuming complete redemption at end of period(2).......... $272 $533 $ 918 $1,998
Assuming no redemption.................................... $172 $533 $ 918 $1,998
Class R shares
Assuming complete redemption at end of period............. $121 $378 $ 654 $1,443
Assuming no redemption.................................... $121 $378 $ 654 $1,443
Investor Class shares
Assuming complete redemption at end of period............. $ 96 $300 $ 520 $1,155
Assuming no redemption.................................... $ 96 $300 $ 520 $1,155
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL COMPENSATION FROM
COMPENSATION ACCRUED BY BENEFITS UPON ALL INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- -----------------
Bob R. Baker................. $7,363 $931 $34,000 $138,000
James T. Bunch............... 6,818 0 0 124,625
Gerald J. Lewis.............. 6,754 0 0 116,500
Larry Soll, Ph.D. ........... 7,000 0 0 126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended
August 31, 2002.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended August 31, 2002.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -----------------------------------------------------
Mark H. Williamson -- 1951.............. 1998 Director, President and Chief Executive Officer,
Chairman of the Board A I M Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief Executive
Officer of the AIM Division of AMVESCAP PLC
(2003-present); formerly, Chief Executive Officer,
Managed Products Division, AMVESCAP PLC (2001-2002);
Chairman of the Board (1998-2002), President
(1998-2002) and Chief Executive Officer (1998-2002)
of INVESCO Funds Group, Inc. (registered investment
advisor) and INVESCO Distributors, Inc. (registered
broker dealer); Chief Operating Officer and Chairman
of the Board of INVESCO Global Health Sciences Fund;
Chairman and Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham -- 1951........... 2001 President (2001-present) and Chief Executive Officer
President and Chief Executive Officer (2003- present) of INVESCO Funds Group, Inc.;
Chairman of the Board (2003-present) and President
(2003-present) of INVESCO Distributors, Inc.;
formerly, Chief Operating Officer (2001-2003) and
Senior Vice President (1999-2002) of INVESCO Funds
Group, Inc. and INVESCO Distributors, Inc.; and
Senior Vice President of GT Global -- North America
(1992-1998).
Glen A. Payne -- 1947................... 1989 Senior Vice President, General Counsel and Secretary
Secretary of INVESCO Funds Group, Inc.; Senior Vice President,
Secretary and General Counsel of INVESCO
Distributors, Inc.; formerly, Secretary of INVESCO
Global Health Sciences Fund; General Counsel of
INVESCO Trust Company (1989-1998); and employee of
the Securities and Exchange Commission, Washington,
DC (1973-1989).
Ronald L. Grooms -- 1946................ 1988 Senior Vice President and Treasurer of INVESCO Funds
Chief Accounting Officer, Chief Group, Inc.; and Senior Vice President and Treasurer
Financial Officer and Treasurer of INVESCO Distributors, Inc.; formerly, Treasurer
and Principal Financial and Accounting Officer of
INVESCO Global Health Sciences Fund; and Senior Vice
President and Treasurer of INVESCO Trust Company
(1988-1998).
William J. Galvin, Jr. -- 1956.......... 1992 Senior Vice President and Assistant Secretary INVESCO
Assistant Secretary Funds Group, Inc.; and Senior Vice President and
Assistant Secretary of INVESCO Distributors, Inc.;
formerly, Trust Officer of INVESCO Trust Company
(1995-1998).
Pamela J. Piro -- 1960.................. 1999 Vice President and Assistant Treasurer of INVESCO
Assistant Treasurer Funds Group, Inc.; and Assistant Treasurer of INVESCO
Distributors, Inc.; formerly, Assistant Vice
President (1996-1997).
Tane T. Tyler -- 1965................... 2002 Vice President and Assistant General Counsel of
Assistant Secretary INVESCO Funds Group, Inc.
</Table>
E-1
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY
SERIES AND CLASS AND PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D. ........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr........................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr. ...................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF COMPANIES OVERSEEN BY
EQUITY SECURITIES DIRECTOR IN THE INVESCO
NAME OF DIRECTOR IN YOUR FUND FUNDS COMPLEX
- ---------------- ----------------- -------------------------
INDEPENDENT DIRECTORS
Bob R. Baker............................................ $1 - $10,000 $10,001 - $ 50,000
James T. Bunch.......................................... $1 - $10,000 $50,001 - $100,000
Gerald J. Lewis......................................... $1 - $10,000 $50,001 - $100,000
Larry Soll, Ph.D. ...................................... $1 - $10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson...................................... None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley......................................... None None
Bruce L. Crockett....................................... None None
Albert R. Dowden........................................ None None
Edward K. Dunn.......................................... None None
Jack M. Fields.......................................... None None
Carl Frischling......................................... None None
Prema Mathai-Davis...................................... None None
Lewis F. Pennock........................................ None None
Ruth H. Quigley......................................... None None
Louis S. Sklar.......................................... None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham........................................ None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, TX 77046.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH AIM PRINCIPAL OCCUPATION
- ---------------- ------------------------------------- -------------------------------------
Mark H. Williamson....... Director, Chairman and President See director table under Proposal 2
Kevin M. Carome.......... Director, Senior Vice President, Director, Senior Vice President,
General Counsel and Secretary Secretary and General Counsel, A I M
Management Group Inc.; Vice
President, A I M Capital Management,
Inc., A I M Distributors, Inc. and
A I M Fund Services, Inc., and
Director, Vice President and General
Counsel, Fund Management Company
Gary T. Crum............. Director and Senior Vice President Chairman, Director and Director of
Investments, A I M Capital
Management, Inc.; Director and
Executive Vice President, A I M
Management Group Inc.; Director,
A I M Distributors, Inc. and AMVESCAP
PLC
Dawn M. Hawley........... Director, Senior Vice President and Director, Senior Vice President and
Chief Financial Officer Chief Financial Officer, A I M
Management Group Inc.; Vice President
and Treasurer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director, Vice
President and Chief Financial
Officer, A I M Fund Services, Inc.;
and Vice President and Chief
Financial Officer, Fund Management
Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS
INVESCO FUNDS OR EXPENSE
TOTAL NET ASSETS FOR GROUP, INC. FOR THE REIMBURSEMENTS FOR
THE MOST RECENTLY MOST RECENTLY THE MOST RECENTLY
ANNUAL RATE COMPLETED FISCAL COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- -------------------- ------------------- ------------------
0.55% of the first $300 million; $166,595,503 $196,765 $628,006
0.45% of the next $200 million;
0.35% from $500 million
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO
(ADMINISTRATIVE INVESCO INVESCO
NAME OF FUND SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
- ------------ --------------- -------------------- -----------------
INVESCO U.S. Government Securities Fund........ $77,481 $186,783 $628,931
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
TOTAL NET ASSETS
FOR THE MOST FEE WAIVER, EXPENSE LIMITATIONS
RECENTLY AND/OR EXPENSE REIMBURSEMENTS
ANNUAL RATE COMPLETED FISCAL FOR THE MOST RECENTLY COMPLETED
NAME OF FUND (BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR FISCAL PERIOD OR YEAR
- ------------ ----------------------------------- ---------------- -------------------------------
AIM Floating Rate Fund... 0.95% $ 286,680,234 N/A
AIM Income Fund.......... 0.50% of the first $200 million; $ 536,454,541 N/A
0.40% over $200 million up to and
including $500 million; 0.35% over
$500 million up to and including $1
billion; 0.30% of the excess over
$1 billion
AIM Intermediate
Government Fund........ 0.50% of the first $200 million; $1,213,557,554 N/A
0.40% over $200 million up to and
including $500 million; 0.35% over
$500 million up to and including $1
billion; 0.30% of the excess over
$1 billion
AIM Short Term Bond
Fund................... 0.40% $ 121,981,829* Waive advisory fee and/or
reimburse expenses on Class C
to extent necessary to limit
Total Operating Expenses
(excluding interest, taxes,
dividends on short sales,
extraordinary items and
increases in expenses due to
expense offset arrangements, if
any) of Class C shares to 1.20%
AIM V.I. Government
Securities Fund........ 0.50% of the first $250 million; $ 443,247,407 N/A
0.45% of the excess over $250
million
</Table>
- ---------------
* As of January 31, 2003. Commenced operations on August 30, 2002.
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
(BASED ON AVERAGE
NET ASSETS DAILY NET ASSETS)
- ---------- -----------------
First $300 Million.......................................... 0.55%
Next $200 Million........................................... 0.45%
From $500 Million........................................... 0.35%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
1,206,978.49
CLASS B SHARES
224,103.44
CLASS C SHARES
668,437.07
INVESTOR CLASS SHARES
17,736,636.26
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED OF RECORD*
- ---------------- --------------- ------------- -------------
Charles Schwab & Co. Inc.......................... Investor Class 1,861,808.35 10.50%
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Prudential Securities Inc. FBO.................... Class A 191,446.60 15.86%
Canadian Imperial Holdings Inc.
425 Lexington Ave. Frnt 5
New York, NY 10017-3903
Charles Schwab & Co. Inc.......................... Class A 124,047.00 10.28%
Special Custody Acct. for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
First Southwest Company FBO....................... Class B 42,958.87 19.17%
St. Gregorys Abbey
1700 Pacific Ave., Suite 500
Dallas, TX 75201-4652
Merrill Lynch..................................... Class B 31,714.88 14.15%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
Prudential Securities, Inc. FBO................... Class C 97,782.87 14.63%
Bishop Institutional Advisors LLC
208 E. 51st St. #191
New York, NY 10022-6557
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-1
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Buyer owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED OF RECORD*
- ---------------- --------------- ------------ -------------
</Table>
- ---------------
* Buyer has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO U.S. GOVERNMENT SECURITIES FUND,
A SEPARATE PORTFOLIO OF
INVESCO BOND FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller....................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-6
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-7
SECTION 3.6. Accountants.................................................
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-8
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-9
SECTION 3.14. Taxes....................................................... I-9
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-10
SECTION 3.21. No Distribution............................................. I-10
SECTION 3.22. Liabilities of Selling Fund................................. I-10
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.3. Financial Statements........................................ I-10
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-11
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-12
SECTION 4.7. Binding Obligation.......................................... I-12
SECTION 4.8. No Breaches or Defaults..................................... I-12
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-13
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-14
SECTION 4.16. Value of Shares............................................. I-14
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-14
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-15
SECTION 5.4. Further Assurances.......................................... I-15
SECTION 5.5. Notice of Events............................................ I-15
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-16
SECTION 6.1. Conditions Precedent of Buyer............................... I-16
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-18
SECTION 7.1. Termination................................................. I-18
SECTION 7.2. Survival After Termination.................................. I-18
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-19
SECTION 8.6. Enforcement................................................. I-19
SECTION 8.7. Interpretation.............................................. I-19
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.10. Notices..................................................... I-19
SECTION 8.11. Representations by Seller Investment Adviser................ I-20
SECTION 8.12. Representations by Buyer Investment Adviser................. I-20
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Bond Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO U.S. Government Securities Fund
("Selling Fund"), a separate series of Seller, AIM Investment Securities Funds,
a Delaware statutory trust ("Buyer"), acting on behalf of AIM Intermediate
Government Fund ("Buying Fund"), a separate series of Buyer, A I M Advisors,
Inc., a Delaware corporation, and INVESCO Funds Group, Inc., a Delaware
corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Investment Securities Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-2674.
"Buying Fund" means AIM Intermediate Government Fund, a separate series of
Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended January 31, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means October 27, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for share of the same or a similar
class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
I-2
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund, and, if so required by the Maryland General
Corporation Law and Seller's Charter, the affirmative vote of a majority of the
outstanding voting securities of Seller.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Bond Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc.
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-5686.
"Selling Fund" means INVESCO U.S. Government Securities Fund, a separate
series of Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended August 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended February 28, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
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"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
and the shareholders of Seller convened in accordance with Applicable Law and
the Governing Documents of Seller to consider and vote upon the approval of this
Agreement and, in connection therewith, the sale of all of Seller's assets and
the dissolution of Seller as a Maryland corporation.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
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shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions contemplated by this
Agreement have been consummated), to be distributed to Selling Fund Shareholders
under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller.
(a) Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
(b) If required by the Maryland General Corporation Law, following receipt
of the Required Shareholder Vote and as soon as reasonably practicable after the
Closing Date, Seller and Buyer shall cause Articles of Transfer to be filed with
the State Department of Assessments and Taxation of Maryland and, following the
filing of Articles of Transfer, Seller shall file Articles of Dissolution with
the State Department of Assessments and Taxation of Maryland to dissolve Seller
as a Maryland corporation and an application for deregistration on Form N-8F
under the Investment Company Act with the SEC; provided, however, that the
filing of Articles of Transfer, Articles of Dissolution and an application for
deregistration on Form N-8F as aforesaid shall not be required if the
Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until
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such certificates have been surrendered to Buyer for cancellation, or if such
certificates are lost or misplaced, until lost certificate affidavits have been
executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed
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in the Selling Fund Financial Statements and no contingent liabilities of
Selling Fund have arisen since the date of the most recent financial statements
included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of Sections 852 and 4982 of the Code for qualification
as a regulated investment company and avoidance of excise tax liability and (b)
additional distributions, to the extent such additional distributions do not
exceed 50 percent of the value (without giving effect to such distributions) of
the proprietary interest in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by
shareholders by the Required Shareholder Vote, constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by
shareholders by the Required Shareholder Vote, and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Seller and (ii) do not, and on the Closing Date will not,
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result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Selling Fund (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Seller is a party or by which it may be bound and which
relates to the assets of Selling Fund or to which any property of Selling Fund
may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Seller or any property of Selling Fund.
Seller is not under the jurisdiction of a court in a proceeding under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Seller in
connection with the due execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
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SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Selling Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the Closing Date and (B) all of Selling Fund's net capital gain
recognized in its taxable year ended August 31, 2003 and in such short taxable
year (after reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement and, in connection therewith, the sale of all of Seller's
assets and the dissolution of Seller as a Maryland corporation.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and
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outstanding shares owned by each Selling Fund Shareholder and the state or other
jurisdiction in which such shares were offered and sold, are complete and
accurate in all material respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities to be assumed by
Buying Fund, plus the amount of liabilities, if any, to which such transferred
assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally
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accepted accounting principles applied on a consistent basis. The audited Buying
Fund Financial Statements previously delivered to Seller present fairly in all
material respects the financial position of Buying Fund as of the date(s)
indicated and the results of operations and changes in net assets for the
period(s) then ended in accordance with generally accepted accounting principles
applied on a consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund and the
shareholders of Seller entitled to vote at the Shareholders Meeting. The
Combined Proxy Statement/Prospectus and related Statement of Additional
Information of Buying Fund, when they become effective, shall conform to the
applicable requirements of the Securities Act and the Investment Company Act and
shall not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading, provided, however, that no representation or warranty is
made with respect to written information provided by Seller for inclusion in the
Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
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SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or without the giving of
notice or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Buying Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Buyer is a
party or by which it may be bound and which relates to the assets of Buying Fund
or to which any properties of Buying Fund may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Buyer or any property of Buying
Fund. Buyer is not under the jurisdiction of a court in a proceeding under Title
11 of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to
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have, individually or in the aggregate, a Material Adverse Effect with respect
to Buying Fund. There are not in existence on the date hereof any plea
agreements, judgments, injunctions, consents, decrees, exceptions or orders that
were entered by, filed with or issued by any Governmental Authority relating to
Buyer's conduct of the business of Buying Fund affecting in any significant
respect the conduct of such business. Buyer is not, and has not been, to the
knowledge of Buyer, the target of any investigation by the SEC or any state
securities administrator with respect to its conduct of the business of Buying
Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Buying Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Buying Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have
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acquired directly or through any transaction, agreement or arrangement with any
other person, shares of Selling Fund with consideration other than shares of
Buying Fund. There is no plan or intention by Buying Fund or any person related
to Buying Fund to acquire or redeem any of the Buying Fund Shares issued in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization. The fair market value of the
assets of Selling Fund transferred to Buying Fund in the Reorganization will
equal or exceed the sum of the Liabilities assumed by Buying Fund, plus the
amount of liabilities, if any, to which such transferred assets are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
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SECTION 5.3. Expenses. AMVESCAP PLC, on behalf of either Buyer Investment
Adviser or Seller Investment Adviser, shall bear the costs and expenses incurred
in connection with this Agreement and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by or on behalf of
Buying Fund or Selling Fund shall not be reimbursed or paid for by another
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.5 shall not limit or otherwise affect
the remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund and the
shareholders of Seller approval of this Agreement and, and in connection
therewith, the sale of all of Seller's assets and the dissolution of Seller as a
Maryland corporation. Seller shall use its reasonable best efforts to hold a
Shareholders Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the
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Reorganization shall not occur on the Closing Date but instead shall be
postponed until a mutually acceptable date occurring subsequent to the
Exchangeability Date; provided, however, that in no event shall the consummation
of the Reorganization occur on a date subsequent to the Termination Date. In the
case of such postponement of the consummation of the Reorganization, the parties
agree that the term "Closing Date" in this Agreement shall mean in each instance
such mutually acceptable date subsequent to the Exchangeability Date as the
parties may choose to consummate the Reorganization.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date. (b) Seller shall have complied with and satisfied in all material
respects all agreements and conditions relating to Selling Fund set forth herein
on its part to be performed or satisfied at or prior to the Closing Date.
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to
I-16
conditions that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by shareholders
on the record date by the Required Shareholder Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective under the Securities Act and no
stop order suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
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ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the
delivery by the terminating party to the other party of a written notice of
such termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result
of a willful and material breach of this Agreement by the party seeking
to terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Reorganization and such order,
decree, ruling or other action shall have become final and
nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against
I-18
the assets of Buying Fund only and not against the assets of Buyer generally or
assets belonging to any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Bond Funds, Inc.
4350 South Monaco Street
Denver, Colorado 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Attn: Clifford J. Alexander
I-19
(b) If to Buyer:
AIM Investment Securities Funds
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the provision of investment advisory
services to Buyer do not have actual knowledge to the contrary after due
inquiry.
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
I-20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO BOND FUNDS, INC., acting on
behalf of
INVESCO U.S. GOVERNMENT SECURITIES
FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM INVESTMENT SECURITIES FUNDS,
acting on
behalf of AIM INTERMEDIATE GOVERNMENT
FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-21
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS..................................... AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund.................... AIM International Core Equity Fund
AIM Real Estate Fund.................................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC. ........................ AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund.............................. AIM European Growth Fund
INVESCO BOND FUNDS, INC. ............................. AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund............................... INVESCO High Yield Fund
INVESCO Select Income Fund............................ INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund............................ INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund............... INVESCO U.S. Government Securities
Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC. ......... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund................................. INVESCO Balanced Fund
INVESCO Total Return Fund............................. INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC. ................. AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund................................ INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC. .................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund................................. INVESCO European Fund
INVESCO International Blue Chip Value Fund............ INVESCO International Blue Chip
Value Fund
INVESCO MONEY MARKET FUNDS, INC. ..................... AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund............................ INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund........................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC. ........................... AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund................................... INVESCO Energy Fund
INVESCO Financial Services Fund....................... INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund.................. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund............................... INVESCO Technology Fund
INVESCO Telecommunications Fund....................... INVESCO Telecommunications Fund
INVESCO Utilities Fund................................ INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC. ............................ AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund................................... INVESCO Growth Fund
INVESCO Growth & Income Fund.......................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund............................. INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
<Table>
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Short Term Bond Fund
AIM Total Return Bond Fund
</Table>
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
- -------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Class R shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity II Fund into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM INTERMEDIATE GOVERNMENT FUND
July 21, 2003
Prospectus
AIM Intermediate Government Fund seeks to achieve a high
level of current income consistent with reasonable
concern for safety of principal.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C, R and Investor Class shares of the fund.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
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.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, 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, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. 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 representation other than those contained in this
prospectus, and you should not rely on such other information or
representations.
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal. The fund's
investment objective may be changed by the Board of Trustees without shareholder
approval.
The fund seeks to meet its objective by investing, normally, at least 80% of
its assets in debt securities issued, guaranteed or otherwise backed by the U.S.
Government. In complying with this 80% investment requirement, the fund's
investments may include synthetic instruments. Synthetic instruments are
investments that have economic characteristics similar to the fund's direct
investments, and may include futures and options. The fund may invest in
securities of all maturities issued or guaranteed by the U.S. Government or its
agencies and instrumentalities, including: (1) U.S. Treasury obligations, and
(2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities and supported by (a) the full faith and credit of the U.S.
Treasury, (b) the right of the issuer to borrow from the U.S. Treasury, or (c)
the credit of the agency or instrumentality. The fund will maintain a weighted
average effective maturity, as estimated by the fund's portfolio managers, of
between three and ten years. The fund invests primarily in fixed-rate securities
such as high-coupon U.S. Government agency mortgage-backed securities, which
consist of interests in underlying mortgages with maturities of up to thirty
years. For cash management purposes, the fund may also hold a portion of its
assets in cash or cash equivalents, including shares of affiliated money market
funds. Any percentage limitations with respect to assets of the fund are applied
at the time of purchase.
The portfolio managers focus on securities that they believe have favorable
prospects for current income, consistent with their reasonable concern for
safety of principal. The portfolio managers consider whether to sell a
particular security when any of these factors materially changes.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
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. Debt securities are particularly
vulnerable to credit risk and interest rate fluctuations. Interest rate
increases can cause the price of a debt security to decrease. The longer a debt
security's duration, the more sensitive it is to this risk. The prices of
high-coupon U.S. Government agency mortgage-backed securities fall more slowly
when interest rates rise than do prices of traditional fixed-rate securities.
Some of the securities purchased by the fund are not guaranteed by the U.S.
Government. The agency or instrumentality issuing a security may default or
otherwise be unable to honor a financial obligation.
If the seller of a repurchase agreement in which the fund invests defaults
on its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
High-coupon U.S. Government agency mortgage-backed securities provide a
higher coupon at the time of purchase than current prevailing market interest
rates. The fund may purchase such securities at a premium. If these securities
experience a faster principal prepayment rate than expected, both the market
value of and income from such securities will decrease.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
--------------------------------
AIM INTERMEDIATE GOVERNMENT 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 (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 7.07%
1994................................................................... -3.44%
1995................................................................... 16.28%
1996................................................................... 2.35%
1997................................................................... 9.07%
1998................................................................... 8.17%
1999................................................................... -1.87%
2000................................................................... 9.37%
2001................................................................... 6.11%
2002................................................................... 10.00%
</Table>
The Class A share's year-to-date total return as of June 30, 2003 was 1.78%.
During the periods shown in the bar chart, the highest quarterly return was
5.49% (quarter ended June 30, 1995) and the lowest quarterly return was -2.92%
(quarter ended March 31, 1994).
2
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices do not reflect payment of fees, expenses or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
(for the periods
ended December 31, SINCE INCEPTION
2002) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ------------------------------------------------------------------------------
Class A 04/28/87
Return Before
Taxes 4.79% 5.24% 5.65% --
Return After
Taxes on
Distributions 2.96 2.81 3.01 --
Return After
Taxes on
Distributions
and Sale of
Fund Shares 2.89 2.93 3.13 --
Class B 09/07/93
Return Before
Taxes 4.19 5.17 -- 5.12%
Class C 08/04/97
Return Before
Taxes 8.10 5.47 -- 5.74
Class R(2) 04/28/87(2)
Return Before
Taxes 9.72 6.00 5.90 --
Investor Class(3) 04/28/87(3)
Return Before
Taxes 10.00 6.27 6.16 --
- ------------------------------------------------------------------------------
Lehman Brothers
U.S. Aggregate
Bond Index(4) 10.25 7.55 7.51 --
Lehman Brothers
Intermediate U.S.
Government Bond
Index(5) 9.64 7.44 6.91 --
Lehman Brothers
Intermediate U.S.
Government and
Mortgage Index(6) 9.11 7.39 N/A --
Lipper Intermediate
U.S. Government
Fund Index(7) 10.00 7.01 6.62 --
- ------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to Class R shares. The inception date
shown in the table is that of the fund's Class A shares. The inception date
of the Fund's Class R shares is June 3, 2002.
(3) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the Rule
12b-1 fees applicable to Class A shares. Investor Class shares would have
different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(4) The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index
generally considered representative of treasury issues, agency issues,
corporate bond issues and mortgage-backed securities. The fund has elected
to use the Lehman Brothers U.S. Aggregate Bond Index as its broad-based
index rather than the Lehman Brothers Intermediate U.S. Government Bond
Index because the Lehman Brothers U.S. Aggregate Bond Index is a more widely
recognized gauge of the U.S. bond market. The fund also included the Lehman
Brothers Intermediate U.S. Government and Mortgage Index, which the fund
believes more closely reflects the performance of the securities in which
the fund invests. In addition, the Lipper Intermediate U.S. Government Index
(which may or may not include the fund) is included for comparison to a peer
group.
(5) The Lehman Brothers Intermediate U.S. Government Bond Index is an unmanaged
composite generally considered representative of intermediate publicly
issued debt of U.S. Government agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government.
(6) The Lehman Brothers Intermediate U.S. Government and Mortgage Index includes
securities in the intermediate maturity range of the U.S. Government Index
that must have between 1 year and 10 years to final maturity regardless of
call features, and fixed-rate mortgage securities with a weighted average of
at least 1 year and issued by GNMA, FHLMC, or FNMA.
(7) The Lipper Intermediate U.S. Government Fund Index measures the performance
of the largest government securities funds. It is compiled by Lipper
Analytical Services, Inc., an independent mutual funds performance monitor.
Results shown reflect reinvestment of dividends.
3
--------------------------------
AIM INTERMEDIATE GOVERNMENT 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 INVESTOR
from your investment) CLASS A CLASS B CLASS C CLASS R CLASS
- ----------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price) 4.75% None None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds, whichever
is less) None(1,2) 5.00% 1.00% None(3) None
- ----------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- --------------------------------------------------------------------------------------------
(expenses that are deducted from fund INVESTOR
assets) CLASS A CLASS B CLASS C CLASS R CLASS
- --------------------------------------------------------------------------------------------
Management Fees 0.40% 0.40% 0.40% 0.40% 0.40%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00 0.50 0.25
Other Expenses(5) 0.25 0.25 0.25 0.25 0.25
Interest 0.04 0.04 0.04 0.04 0.04
Total Other Expenses 0.29 0.29 0.29 0.29 0.29
Total Annual Fund
Operating Expenses 0.94 1.69 1.69 1.19 0.94
- --------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Other Expenses for Investor Class shares are based on estimated average net
assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of 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. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. 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
- -------------------------------------------------------------------------------------
Class A $566 $760 $ 970 $1,575
Class B 672 833 1,118 1,799
Class C 272 533 918 1,998
Class R 121 378 654 1,443
Investor Class 96 300 520 1,155
- -------------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------
Class A $566 $760 $970 $1,575
Class B 172 533 918 1,799
Class C 172 533 918 1,998
Class R 121 378 654 1,443
Investor Class 96 300 520 1,155
- -------------------------------------------------------------------------------------
</Table>
4
--------------------------------
AIM INTERMEDIATE GOVERNMENT 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 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2002, the advisor received compensation of
0.40% 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 management of the
fund's portfolio are
- - Scot W. Johnson (lead manager), Senior Portfolio Manager, who has been
responsible for the fund since 1998 and has been associated with the advisor
and/or its affiliates since 1994.
- - Clint W. Dudley, Portfolio Manager, who has been responsible for the fund
since 2001 and has been associated with the advisor and/or its affiliates
since 1998. Prior to 1998, he was a full time student.
More information on the fund's management team may be found on our website
(http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Intermediate Government Fund are subject to
the maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Certain purchases of Class A shares at net asset
value may be subject to the contingent deferred sales charge listed in that
section. Purchases of Class B and Class C shares are subject to the contingent
deferred sales charges listed in that section. Certain purchases of Class R
shares may be subject to the contingent deferred sales charge listed in that
section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary 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.
5
--------------------------------
AIM INTERMEDIATE GOVERNMENT 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 information for the fiscal years 2002 and 2001 has been audited by Ernst
& Young LLP, whose report, along with the fund's financial statements, is
included in the fund's annual report, which is available upon request.
Information prior to fiscal year 2001 was audited by other public accountants.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JANUARY 1,
ENDED JULY 31, THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, ------------------------ JULY 31, --------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- -------- -------- ---------- -------- -------- --------
Net asset value, beginning of period $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58 $ 9.46 $ 9.28
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.43(b) 0.50(a) 0.34 0.60 0.62 0.63
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.23 0.35 (0.03) (0.78) 0.13 0.18
=================================================================================================================================
Total from investment operations 0.38 0.66 0.85 0.31 (0.18) 0.75 0.81
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.20) (0.46) (0.54) (0.34) (0.60) (0.63) (0.61)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- -- -- (0.02)
=================================================================================================================================
Total distributions (0.20) (0.46) (0.54) (0.34) (0.60) (0.63) (0.63)
=================================================================================================================================
Net asset value, end of period $ 9.46 $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58 $ 9.46
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 4.11% 7.39% 9.91% 3.55% (1.87)% 8.17% 9.07%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $635,390 $473,104 $302,391 $221,636 $238,957 $245,613 $167,427
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets (including interest expense) 0.90%(d) 0.94% 1.32% 1.25%(e) 1.08% 1.20% 1.11%
=================================================================================================================================
Ratio of expenses to average net
assets (excluding interest expense) 0.89%(d) 0.90% 0.93% 0.98%(e) 0.89% 0.96% 1.00%
=================================================================================================================================
Ratio of net investment income to
average net assets 3.82%(d) 4.58%(b) 5.61% 6.61%(e) 6.60% 6.43% 6.77%
=================================================================================================================================
Ratio of interest expense to average
net assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24% 0.11%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 103% 146% 194% 65% 141% 147% 99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydowns gains and
losses on asset-backed securities as adjustments to net investment income.
Had the Fund not amortized on debt securities or recorded paydowns gains and
losses adjustments to investment income, the investment income per share
would have been $0.47 and the ratio of net investment income to average net
assets would have been 5.09%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for periods
prior to August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $557,521,567.
(e) Annualized.
(f) Not annualized for periods less than one year.
6
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JANUARY 1,
ENDED JULY 31, THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, ---------------------------- JULY 31, --------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- ---------------- -------- ---------- -------- -------- --------
Net asset value, beginning of
period $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59 $ 9.46 $ 9.28
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(a) 0.37(b) 0.44(a) 0.30 0.53 0.55 0.56
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.22 0.35 (0.04) (0.77) 0.13 0.17
=================================================================================================================================
Total from investment
operations 0.35 0.59 0.79 0.26 (0.24) 0.68 0.73
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.17) (0.39) (0.47) (0.29) (0.53) (0.55) (0.53)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- -- -- (0.02)
=================================================================================================================================
Total distributions (0.17) (0.39) (0.47) (0.29) (0.53) (0.55) (0.55)
=================================================================================================================================
Net asset value, end of period $ 9.49 $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59 $ 9.46
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.74% 6.58% 9.17% 3.05% (2.56)% 7.40% 8.16%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $721,806 $613,306 $269,677 $177,032 $228,832 $237,919 $89,265
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets (including interest
expense) 1.65%(d) 1.69% 2.08% 2.01%(e) 1.85% 1.96% 1.87%
=================================================================================================================================
Ratio of expenses to average net
assets (excluding interest
expense) 1.64%(d) 1.65% 1.69% 1.74%(e) 1.66% 1.72% 1.76%
=================================================================================================================================
Ratio of net investment income to
average net assets 3.07%(d) 3.83%(b) 4.85% 5.85%(e) 5.83% 5.68% 6.01%
=================================================================================================================================
Ratio of interest expense to
average net assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24% 0.11%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 103% 146% 194% 65% 141% 147% 99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydowns gains and
losses on asset-backed securities as adjustments to net investment income.
Had the Fund not amortized on debt securities or recorded paydowns gains and
losses adjustments to investment income, the investment income per share
would have been $0.40 and the ratio of net investment income to average net
assets would have been 4.35%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for periods
prior to August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $693,738,301.
(e) Annualized.
(f) Not annualized for periods less than one year.
7
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JANUARY 1, YEAR ENDED
ENDED JULY 31, THROUGH DECEMBER 31,
JANUARY 31, ------------------------- JULY 31, ---------------------
2003 2002 2001 2000 1999 1998
----------- -------- ------- ---------- -------- -------
Net asset value, beginning of period $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56 $ 9.44
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(a) 0.37(b) 0.44(a) 0.30 0.53 0.56
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.20 0.21 0.34 (0.03) (0.77) 0.11
===========================================================================================================================
Total from investment operations 0.35 0.58 0.78 0.27 (0.24) 0.67
===========================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.39) (0.47) (0.29) (0.53) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- -- --
===========================================================================================================================
Total distributions (0.17) (0.39) (0.47) (0.29) (0.53) (0.55)
===========================================================================================================================
Net asset value, end of period $ 9.45 $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 3.75% 6.48% 9.08% 3.18% (2.57)% 7.31%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $155,195 $127,114 $59,915 $34,206 $39,011 $38,026
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.65%(d) 1.69% 2.08% 2.01%(e) 1.85% 1.96%
===========================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.64%(d) 1.65% 1.69% 1.74%(e) 1.66% 1.72%
===========================================================================================================================
Ratio of net investment income to average
net assets 3.07%(d) 3.83%(b) 4.85% 5.85%(e) 5.83% 5.68%
===========================================================================================================================
Ratio of interest expense to average net
assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 103% 146% 194% 65% 141% 147%
___________________________________________________________________________________________________________________________
===========================================================================================================================
<Caption>
CLASS C
------------------
AUGUST 4, 1997
(DATE SALES
COMMENCED) THROUGH
DECEMBER 31,
1997
------------------
Net asset value, beginning of period $ 9.33
- -----------------------------------------
Income from investment operations:
Net investment income 0.24
- -----------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.10
=========================================
Total from investment operations 0.34
=========================================
Less distributions:
Dividends from net investment income (0.22)
- -----------------------------------------
Return of capital (0.01)
=========================================
Total distributions (0.23)
=========================================
Net asset value, end of period $ 9.44
_________________________________________
=========================================
Total return(c) 3.64%
_________________________________________
=========================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,851
_________________________________________
=========================================
Ratio of expenses to average net assets
(including interest expense) 1.87%(e)
=========================================
Ratio of expenses to average net assets
(excluding interest expense) 1.76%(e)
=========================================
Ratio of net investment income to average
net assets 6.01%(e)
=========================================
Ratio of interest expense to average net
assets 0.11%(e)
_________________________________________
=========================================
Portfolio turnover rate(f) 99%
_________________________________________
=========================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydowns gains and
losses on asset-backed securities as adjustments to net investment income.
Had the Fund not amortized on debt securities or recorded paydowns gains and
losses adjustments to investment income, the investment income per share
would have been $0.40 and the ratio of net investment income to average net
assets would have been 4.35%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for periods
prior to August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $145,247,773.
(e) Annualized.
(f) Not annualized for periods less than one year.
8
--------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
--------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS R
---------------------------
SIX MONTHS JUNE 3, 2002
ENDED (DATE SALES
JANUARY 31, COMMENCED) TO
2003 JULY 31, 2002
----------- -------------
Net asset value, beginning of period $ 9.27 $ 9.13
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17(a) 0.07(b)
- -----------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.21 0.14
=========================================================================================
Total from investment operations 0.38 0.21
=========================================================================================
Less distributions from net investment income (0.19) (0.07)
=========================================================================================
Net asset value, end of period $ 9.46 $ 9.27
_________________________________________________________________________________________
=========================================================================================
Total return(c) 4.09% 2.34%
_________________________________________________________________________________________
=========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,106 $ 34
_________________________________________________________________________________________
=========================================================================================
Ratio of expenses to average net assets (including interest
expense) 1.15%(d) 1.19%(e)
=========================================================================================
Ratio of expenses to average net assets (excluding interest
expense) 1.14%(d) 1.15%(e)
=========================================================================================
Ratio of net investment income to average net assets 3.57%(d) 4.33%(b)(e)
=========================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.04%(e)
_________________________________________________________________________________________
=========================================================================================
Portfolio turnover rate(f) 103% 146%
_________________________________________________________________________________________
=========================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities and recording paydowns gains and
losses on asset-backed securities as adjustments to net investment income.
Had the Fund not amortized on debt securities or recorded paydowns gains and
losses adjustments to investment income, the investment income per share
would have remained the same and the ratio of net investment income to
average net assets would have been 4.85%. In accordance with the AICPA Audit
and Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for periods
less than one year.
(d) Ratios are annualized and based on average daily net assets of $312,930.
(e) Annualized.
(f) Not annualized for periods less than one year.
9
-------------
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 consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) 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 at the end of the month which is seven years after the date on 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 the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) 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.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the 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(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
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>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
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
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
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.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) 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 other 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 privileges; 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 Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - 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--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
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 Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE 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 $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase 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 a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
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; and (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 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 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. 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 CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
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--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial 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 or our AIM 24-hour
Automated Investor Line. 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 $250,000;
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. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.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 $250,000; and (4) you have already
provided proper bank information. 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 REDEMPTIONS
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
Redemption 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.
MCF--07/03
A-7
-------------
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 $250,000;
(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 PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
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.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) 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 ($250 for Investor Class shares) 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 ($250 for Investor Class shares)
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 under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
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 into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge 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 initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding 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;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II 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;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - 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 terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
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 you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R 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 or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C 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 ALL OR 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 SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
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' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. 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 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 may 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 that trade on days when the AIM Funds do
not price their shares, 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
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. 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
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend 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. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
--------------------------------
AIM INTERMEDIATE GOVERNMENT 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>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77046-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</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
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM INTERMEDIATE GOVERNMENT FUND
SEC 1940 Act file number: 811-5686
- ------------------------------------
AIMinvestments.com GOV-PRO-1
APPENDIX III
FUND DELIVERS SOLID CURRENT INCOME, POSITIVE TOTAL RETURN
IT WAS ANOTHER GOOD YEAR FOR BONDS. HOW DID THE FUND PERFORM?
Stock market volatility caused by terrorist attacks, economic weakness, and
allegations of corporate wrongdoing prompted many investors to seek relative
safety in bonds. The types of bonds in which AIM Intermediate Government Fund
invests enjoyed positive returns. These include securities issued, guaranteed,
or otherwise backed by the U.S. government, including Treasury, agency, and
mortgage-backed securities.
For the fiscal year ended July 31, 2002, the fund returned 7.39% (Class A
shares at net asset value, meaning excluding sales charges). This was in line
with the Lipper Intermediate U.S. Government Bond Fund Index, which returned
7.65%. Both were in sharp contrast to negative stock market performance; for the
12 months ended July 31, 2002 the S&P 500 returned -23.62%. In addition to
positive total return, the fund continued to provide risk-averse investors with
attractive current income, as shown in the table below.
WHAT WERE THE TRENDS IN THE ECONOMY?
Early in the fiscal year, the economy was weakening and the country was reeling
from the events of September 11, 2001. Gross domestic product (GDP), the
broadest measure of goods and services produced and purchased in the United
States, contracted in the first three quarters of 2001. In November, the
National Bureau of Economic Research declared that the country had slipped into
a recession in March. In an effort to stimulate economic growth, the U.S.
Federal Reserve (the Fed) aggressively cut short-term interest rates throughout
2001, and the fed funds rate ended the year at 1.75%, a 40-year low. In all, the
Fed cut short-term interest rates 11 times in 2001, including two cuts totaling
100 basis points (1.0%) in the month immediately following the September 11
attacks.
GDP inched into positive territory in the fourth quarter of 2001 and
remained positive for the first two quarters of 2002. First quarter GDP grew at
a robust annualized rate of 5.0%, suggesting that the economy was rebounding
strongly. Second quarter GDP growth, while positive, was just 1.1%. At its March
2002 meeting, the Fed adopted a neutral bias, indicating its belief that future
risks to the economy were evenly weighted between weakness and inflation. For
the fiscal year as a whole, retail sales and consumer spending remained
relatively strong, and inflation remained contained.
WHAT WERE THE TRENDS IN THE GOVERNMENT BOND MARKET?
The Fed's rate cuts during 2001, and its refusal to raise rates during 2002,
meant that yields on Treasuries, agencies, and mortgage-backed bonds declined
during the first half of the fiscal year and remained at historically low levels
during the second half of the fiscal year. This was particularly true on the
shorter end of the yield curve. Nonetheless, risk-averse investors eagerly
accepted relatively low yields in return for the relative safety such issues
afforded.
Early in the fiscal year, investors showed a preference for higher-quality
and relatively safer investments. But economic data released in early 2002
suggested that the economy might be strengthening more quickly than expected.
Many investors shifted into corporate
================================================================================
GROWTH IN NET ASSETS
IN MILLIONS
[BAR CHART]
7/31/00 $ 432.9
7/31/01 $ 632.0
7/31/02 $1,213.6
A variety of economic and market factors have prompted investors to flock to
bond funds over the last couple of years. AIM Intermediate Government Fund has
seen a significant increase in total net assets.
================================================================================
================================================================================
FUND PERFORMANCE
FUND PROVIDES ATTRACTIVE CURRENT INCOME
As of 7/31/02
CLASS A CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES*
Distribution rate at maximum
offering price 4.74% 4.25% 4.27% 4.72%
30-day yield at maximum
offering price 4.17 3.64 3.64 4.13
* Class R shares are sold without a sales charge.
================================================================================
2
PORTFOLIO COMPOSITION
As of 7/31/02, based on total net assets
<Table>
<Caption>
================================================================================
[PIE CHART]
- --------------------------------------------------------------------------------
Weighted Average Maturity: 5.61 years U.S. Treasury Obligations 17%
Duration: 3.82 years U.S. Agency Obligations 41%
Total Number of Holdings: 371 Mortgage Obligations 42%
Total Net Assets: $1.21 billion
================================================================================
</Table>
bonds, which briefly outperformed government issues. But later, a series of
corporate accounting scandals took center stage, heightening credit concerns.
Investors scrambled for safety, causing government issues and other higher-rated
bonds to shine. For the fiscal year as a whole, investor preference for
higher-rated bonds was clear. For the 12 months ended July 31, 2002, the Lehman
Aggregate Bond Index returned 7.53% while the Lehman High Yield Bond Index
returned -9.15%.
HOW DID YOU MANAGE THE FUND?
As always, we:
o Sought as high a level of current income as possible, consistent with
reasonable concern for safety of principal.
o Invested in Treasuries, U.S. agency securities, and mortgage-backed
securities.
o Maintained the fund's duration between three and five years.
During the course of the fiscal year, mortgage-backed securities declined
from 45% to 42% of total net assets; U.S. agency securities rose from 28% to 41%
and Treasuries declined from 25% to 17%.
We made these adjustments because agency securities offered relatively
higher yields and because Treasuries offered relatively lower yields. We
decreased our mortgage-backed securities during the year. Falling mortgage
interest rates and heavy issuance, which was the result of heavy refinancing,
resulted in relatively low yields. Nonetheless, because mortgage-backed
securities and U.S. agency securities offered higher yields than Treasuries with
very little added risk, mortgages and agencies remained the two largest asset
classes in the fund.
Weighted average maturity decreased from 5.98 years at the beginning of the
fiscal year to 5.61 years at its close. Duration--a measure of a bond's price
volatility, with a higher duration implying a higher sensitivity to interest
rate changes--rose slightly from 3.7 years at the beginning of the fiscal year
to 3.8 years at its close.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE REPORTING PERIOD?
The Investment Company Institute reported that money flows into stock mutual
funds fell 72%, from $17.3 billion in May 2001 to $4.8 billion in May
2002--while money flows into taxable bond funds rose 78%, from $5.1 billion to
$9.1 billion during the same period. Clearly, many investors continued to seek
relative safety in bonds, particularly bonds of higher relative quality and
greater relative safety. In its July 31 "beige book" report, the Fed reported
that the economy continued to grow, but only "modestly"; that labor markets were
"slack, but relatively stable" in most regions; and that retail sales were
"mixed." Given these less-than-definitive economic signals, there was widespread
agreement that short-term interest rates were unlikely to rise anytime soon, and
there was even a growing belief that the Fed might cut short-term interest rates
before the end of the year. Either alternative--together with the fund's
intermediate-term duration, intermediate-term weighted average maturity, and
sector allocation--could benefit shareholders. We continue to believe AIM
Intermediate Government Fund is a sensible component of a well-diversified
investment portfolio.
PORTFOLIO MANAGEMENT TEAM
Scot Johnson (Lead Manager)
Clint Dudley
See important fund and index disclosures inside front cover.
3
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/02, including sales charges
CLASS A SHARES
Inception (4/28/87) 6.69%
10 Years 5.39
5 Years 5.00
1 Year 2.32
CLASS B SHARES
Inception (9/7/93) 4.86%
5 Years 4.92
1 Year 1.58
CLASS C SHARES
Inception (8/4/97) 5.38%
1 Year 5.48
CLASS R SHARES*
Inception 6.76%
10 Years 5.63
5 Years 5.74
1 Year 7.01
================================================================================
The fund's average annual total returns as of the close of the fiscal year are
shown in the table above. In addition, industry regulations require us to
provide average annual total returns (including sales charges) as of 6/30/02,
the most recent calendar quarter-end, which were: Class A shares, inception
(4/28/87), 6.63%; 10 years, 5.36%; five years, 5.21%; one year, 2.55%. Class B
shares, inception (9/7/93), 4.73%; five years, 5.11%; one year, 1.88%. Class C
shares, inception (8/4/97), 5.16%; one year, 5.90%. Class R shares, inception
(4/28/87), 6.70%; 10 years, 5.60%; five years, 5.95%; one year, 7.32%.
* Class R shares were first offered on June 3, 2002. Returns prior to that date
are hypothetical results based on Class A share returns at net asset value,
adjusted to reflect additional Class R 12b-1 fees. (The inception date of Class
A shares is 4/28/87.) Class R share returns do not include a 0.75% contingent
deferred sales charge (CDSC) that may be imposed on a total redemption of
retirement plan assets within the first year.
Past performance cannot guarantee comparable future results. DUE TO RECENT
SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY MAY DIFFER
SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR FINANCIAL ADVISOR
FOR MORE CURRENT PERFORMANCE.
================================================================================
RESULTS OF A $10,000 INVESTMENT
7/31/91-7/31/02
[MOUNTAIN CHART]
AIM Intermediate Government Lehman Intermediate
Fund, Class A Shares Government Bond Index
7/92 9628 10118
9838 10396
10082 10671
7/93 10232 10817
10430 11048
10508 11148
9995 10764
7/94 10156 10916
10068 10859
10192 11022
10554 11428
7/95 10975 11830
11354 12139
11744 12513
11390 12288
7/96 11498 12445
11861 12827
11985 12962
12060 13055
7/97 12614 13514
12841 13767
13180 14091
13246 14186
7/98 13511 14436
14023 15077
14150 15157
13969 15089
7/99 13718 15019
13893 15200
13774 15111
14034 15405
7/00 14315 15796
14665 16222
15278 16973
15364 17199
7/01 15733 17648
16507 18469
16155 18238
16381 18451
7/02 16910 19167
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
================================================================================
CLASS A SHARES
CALENDAR YEAR TOTAL RETURNS (%) EXCLUDING SALES CHARGES
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
6.26 7.07 -3.44 16.28 2.35 9.07 8.17 -1.87 9.37 6.11
================================================================================
The line chart above compares the performance of AIM Intermediate Government
Fund to its benchmark index. It is intended to give you a general idea of how
your fund performed compared to its index over the period 7/31/92-7/31/02.
It is important to understand the difference between your fund and an index.
A market index such as the Lehman Intermediate Government Bond Index is not
managed and incurs no sales charges, expenses or fees. If you could buy all the
securities that make up a market index, you would incur expenses that would
affect your investment return.
The fund's total return includes sales charges, expenses and management
fees. Results for Class B shares are calculated as if a hypothetical shareholder
had liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charge.
Performance of the fund's Class A, Class B, Class C, and Class R shares will
differ due to different sales charge structures and class expenses. For fund
performance calculations and indexes used in this report, please see the inside
front cover.
Performance shown in the chart does not reflect taxes a shareholder would
pay on redemption of fund shares. Index performance does not reflect the effects
of taxes either.
4
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to 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
trustees 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 the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
V-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
V-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
V-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
V-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
V-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
V-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
V-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
V-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
V-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
</Table>
V-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity II Fund into AIM Premier Equity Fund
</Table>
V-13
(INVESCO LOGO)
INVESCO CASH RESERVES FUND,
A PORTFOLIO OF INVESCO MONEY MARKET FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that
A I M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and
AIM Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO CASH RESERVES FUND,
A PORTFOLIO OF INVESCO MONEY MARKET FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO Cash Reserves Fund:
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") under
which all of the assets of your Fund, an investment portfolio of INVESCO Money
Market Funds, Inc. ("Company"), will be transferred to AIM Money Market Fund
("Buying Fund"), an investment portfolio of AIM Investment Securities Funds
("Buyer"), Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund.
2. Elect 16 directors to the Board of Directors of Company, each of whom
will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors, Inc.
for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust and,
in connection therewith, the sale of all of Company's assets and the dissolution
of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO CASH RESERVES FUND, AIM MONEY MARKET FUND,
A PORTFOLIO OF A PORTFOLIO OF
INVESCO MONEY MARKET FUNDS, INC. AIM INVESTMENT SECURITIES FUNDS
4350 SOUTH MONACO STREET 11 GREENWAY PLAZA, SUITE 100
DENVER, COLORADO 80237 HOUSTON, TEXAS 77046
(800) 525-8085 (800) 347-4246
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Cash Reserves Fund (your Fund). The Special Meeting will be held on
October 21, 2003. We intend to mail this Proxy Statement/Prospectus, the
enclosed Notice of Special Meeting of Shareholders and the enclosed proxy card
on or about August 25, 2003 to all shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund to vote on
four Proposals. The first Proposal to be voted on is an Agreement and Plan of
Reorganization (the "Agreement") which provides for the combination of your
Fund, an investment portfolio of INVESCO Money Market Funds, Inc. ("Company"),
with AIM Money Market Fund ("Buying Fund"), an investment portfolio of AIM
Investment Securities Funds ("Buyer") (the "Reorganization").
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
The investment objective of Buying Fund is similar to that of your Fund.
See "Comparison of Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated August 12, 2003, as supplemented and
August 14, 2003 (the "Selling Fund Prospectus"), together with the related
Statement of Additional Information dated August 12, 2003, as supplemented
August 14, 2003, are on file with the Securities and Exchange Commission (the
"SEC"). The Selling Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus. The Prospectus of Buying Fund dated July 21, 2003 (the
"Buying Fund Prospectus"), and the related Statement of Additional Information
dated July 21, 2003, as supplemented July 28, 2003, and the Statement of
Additional Information relating to the Reorganization dated
i
August 15, 2003, are on file with the SEC. The Buying Fund Prospectus is
incorporated by reference into this Proxy Statement/Prospectus and a copy of the
Buying Fund Prospectus is attached as Appendix II to this Proxy
Statement/Prospectus. The Statement of Additional Information relating to the
Reorganization dated August 15, 2003 also is incorporated by reference into this
Proxy Statement/Prospectus. The SEC maintains a website at www.sec.gov that
contains the Prospectuses and Statements of Additional Information described
above, material incorporated by reference, and other information about Company
and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 3
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 5
Comparison of Multiple Class Structures................... 6
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 7
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 8
Description of Buying Fund Shares......................... 8
Management's Discussion of Fund Performance............... 9
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 9
Board Considerations...................................... 10
Other Terms............................................... 11
Federal Income Tax Consequences........................... 11
Accounting Treatment...................................... 12
RIGHTS OF SHAREHOLDERS...................................... 12
General................................................... 12
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 13
Removal of Directors/Trustees............................. 13
Meetings of Shareholders.................................. 13
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 14
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 16
INTERESTS OF CERTAIN PERSONS................................ 17
LEGAL MATTERS............................................... 17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 17
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 18
Background................................................ 18
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
The Board's Recommendation on Proposal 2.................. 22
Current Committees of the Board........................... 22
Board and Committee Meeting Attendance.................... 24
</Table>
iii
<Table>
<Caption>
PAGE
----
Future Committee Structure................................ 24
Director's Compensation................................... 25
Current Retirement Plan for Directors..................... 25
Current Deferred Compensation Plan........................ 26
New Retirement Plan for Directors......................... 26
New Deferred Compensation Agreements...................... 27
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 27
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 28
Background................................................ 28
Your Fund's Current Investment Advisor.................... 28
The Proposed New Investment Advisor for Your Fund......... 29
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 29
Terms of the Current Advisory Agreement................... 29
Additional Services Provided by INVESCO and its
Affiliates............................................. 30
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 31
Terms of the Proposed Advisory Agreement.................. 31
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 35
The Board's Recommendation on Proposal 3.................. 37
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE EACH
SERIES PORTFOLIO OF COMPANY AS A NEW SERIES PORTFOLIO OF A
NEW DELAWARE STATUTORY TRUST.............................. 37
Background................................................ 37
Reasons for the Proposed Redomestication.................. 38
What the Proposed Redomestication Will Involve............ 38
The Federal Income Tax Consequences of the
Redomestication........................................ 40
Appraisal Rights.......................................... 40
The Trust Compared to Company............................. 40
The Board's Recommendation on Proposal 4.................. 41
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 41
Proxy Statement/Prospectus................................ 41
Time and Place of Special Meeting......................... 41
Voting in Person.......................................... 42
Voting by Proxy........................................... 42
Voting by Telephone or the Internet....................... 42
Quorum Requirement and Adjournment........................ 42
Vote Necessary to Approve Each Proposal................... 43
Proxy Solicitation........................................ 43
Other Matters............................................. 43
Shareholder Proposals..................................... 43
Ownership of Shares....................................... 44
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 44
Fees Paid to the Auditor Related to Company............... 44
Fees Paid to the Auditor Not Related to Company........... 44
</Table>
<Table>
EXHIBIT A -- Classes of Shares of Your Fund and
Corresponding Classes of Shares of Buying
Fund........................................... A-1
EXHIBIT B -- Comparison of Performance of Your Fund and
Buying Fund.................................... B-1
EXHIBIT C -- Comparison Fee Table and Expense Example....... C-1
EXHIBIT D -- Director Compensation Table.................... D-1
EXHIBIT E -- Officers of Company............................ E-1
</Table>
iv
<Table>
EXHIBIT F -- Security Ownership of Management............... F-1
EXHIBIT G -- Director Ownership of Fund Shares.............. G-1
EXHIBIT H -- Principal Executive Officer and Directors of
A I M Advisors, Inc............................ H-1
EXHIBIT I -- Compensation to INVESCO Funds Group, Inc....... I-1
EXHIBIT J -- Fees Paid to INVESCO Funds Group, Inc. and
Affiliates in Most Recent Fiscal Year.......... J-1
EXHIBIT K -- Advisory Fee Schedules for Other AIM Funds..... K-1
EXHIBIT L -- Proposed Compensation to A I M Advisors,
Inc............................................ L-1
EXHIBIT M -- Shares Outstanding of Each Class of Your Fund
on Record Date................................. M-1
EXHIBIT N -- Ownership of Shares of Your Fund............... N-1
EXHIBIT O -- Ownership of Shares of Buying Fund............. O-1
APPENDIX I -- Agreement and Plan of Reorganization for Your
Fund (to Effect the Reorganization)........... I-i
APPENDIX II -- Prospectus of Buying Fund....................
APPENDIX III -- Form of Investment Advisory Agreement with
A I M Advisors, Inc. ....................... III-1
APPENDIX IV -- Agreement and Plan of Reorganization for Your
Fund (to Effect the Redomestication)......... IV-1
</Table>
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, 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, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(K) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
v
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these directors/
1
trustees agreed to combine the separate boards and create a unified board of
directors/trustees. Proposal 2 relates to the election of directors of your
Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders of your Fund approve the Agreement and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund and Buying Fund will assume the liabilities of your Fund, and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain
2
would be included in a taxable distribution. See "Additional Information About
the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue similar investment objectives and invest
in similar types of securities. As a result, the Reorganization is not expected
to cause significant portfolio turnover or transaction expenses from the sale of
securities that are incompatible with the investment objective of Buying Fund.
The investment objective or goal of your Fund is classified as fundamental,
which means that the Board cannot change it without shareholder approval. The
investment objective of Buying Fund is not classified as fundamental, which
means that the Board of Trustees of Buyer can change it without shareholder
approval. Having the ability to change the investment objective without
shareholder approval allows the Board of Trustees to respond more quickly and
efficiently to changing market conditions and to save Buying Fund and its
shareholders money by eliminating the need to solicit proxies to obtain
shareholder approval to change an investment objective to respond to changing
market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
3
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
<Caption>
INVESCO CASH RESERVES FUND AIM MONEY MARKET FUND
(YOUR FUND) (BUYING FUND)
- -------------------------------------------- --------------------------------------------
INVESTMENT OBJECTIVE
- - high level of current income, consistent - as high a level of current income as is
with the preservation of capital and the consistent with the preservation of
maintenance of liquidity capital and liquidity
INVESTMENT STRATEGIES
- - invests in "money market" securities, - invests only in high-quality U.S. dollar-
which are high quality debt securities denominated short-term obligations,
with a life span or remaining maturity of including: securities issued by the U.S.
397 days or less Government or its agencies; bankers'
- - average dollar-weighted maturity of your acceptances, certificates of deposit, and
Fund is ninety days or less time deposits from U.S. or foreign banks;
- - invests primarily in short-term debt repurchase agreements; commercial paper;
securities issued by large creditworthy taxable municipal securities; master
corporations, banks and finance companies, notes; and cash equivalents
as well as debt securities issued by the - average dollar-weighted maturity of Buying
U.S. government; securities include Fund is ninety days or less
corporate debt securities, asset-backed
securities, privately issued obligations,
bank obligations, short-term commercial
paper, U.S. government and agency debt
(including government agency mortgage-
backed securities), repurchase agreements,
variable rate or floating rate debt
obligations, and other securities that are
restricted as to disposition under Federal
securities laws
- - average dollar-weighted maturity of Buying
Fund is ninety days or less
- - may concentrate investments in the banking - may concentrate investments in the banking
industry industry
- - may invest in U.S. dollar denominated - may invest up to 50% of its assets in U.S.
certificates of deposit issued by foreign dollar denominated foreign securities
banks and U.S. branches of foreign banks,
although not a principal investment
strategy
</Table>
4
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
------------------------------------------------------------------
INVESCO CASH RESERVES FUND AIM MONEY MARKET FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ----------------------------------- ----------------------------
Investment Advisor.......... INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Sub-advisor................. A I M Capital Management, Inc. None
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Distributor................. A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator............... INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian................... State Street Bank and Trust Company The Bank of New York
Transfer Agent and Dividend INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Disbursing Agent..........
Independent Auditors........ PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and AIM Cash Reserve Shares
of Buying Fund can be found at Exhibit B. Also included as part of Exhibit B is
a table showing the average annual total returns for the periods indicated for
your Fund and Buying Fund, including sales charges. For more information
regarding the total return of your Fund, see the "Financial Highlights" section
of the Selling Fund Prospectus, which has been made a part of this Proxy
Statement/Prospectus by reference. For more information regarding the total
return of Buying Fund, see "Information About Buying Fund -- Financial
Highlights." Past performance cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of May 31, 2002, and Buying Fund, as of July
31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can be
found at Exhibit C. Pro forma estimated Expense Ratios for each class of shares
of Buying Fund after giving effect to the Reorganization are also provided as of
July 31, 2002 as part of Exhibit C.
5
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. In
addition to the share classes of Buying Fund listed on Exhibit A, Class R shares
of Buying Fund are available to investors. This class is not involved in the
Reorganization. For information regarding the features of the various share
classes of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
AIM Cash Reserve Shares of Buying Fund and the maximum CDSC on redemptions of
certain classes of shares of your Fund and Buying Fund. For more detailed
information on initial sales charges, including volume purchase breakpoints and
waivers, and reductions of CDSCs over time, see the Selling Fund Prospectus and
the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A
(YOUR FUND ONLY) CLASS B CLASS C
- ------------------------------ ------------------------------ ------------------------------
- - subject to an initial sales - not subject to an initial - not subject to an initial
charge* sales charge sales charge
- - may be subject to a CDSC on - subject to a CDSC on certain - subject to a CDSC on certain
redemptions made within 18 redemptions made within 6 redemptions made within 12
months from the date of years from the date of months from the date of
certain large purchases** purchase purchase***
</Table>
<Table>
<Caption>
AIM CASH RESERVE SHARES CLASS R
(BUYING FUND ONLY) (BUYING FUND ONLY) INVESTOR CLASS
- ------------------------------ ------------------------------ ------------------------------
- - not subject to an initial - not subject to an initial - not subject to an initial
sales charge sales charge sales charge
- - not subject to a CDSC - may be subject to a CDSC on - not subject to a CDSC
redemptions made within 12
months from the date of
certain purchases
</Table>
- ---------------
* Your Fund waives initial sales charges on Class A shares for certain
categories of investors, including certain of its affiliated entities and
certain of its employees, officers and directors and those of its investment
advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of
6
your Fund is computed based on their original purchase price. This method of
computation changes to conform to Buying Fund's method of computation effective
August 18, 2003.
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although Buying Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
Buying Fund. Additionally, Buying Fund's yield will vary as the short-term
securities in its portfolio mature and the proceeds are reinvested in securities
with different interest rates.
The following factors could reduce Buying Fund's income and/or share price:
- sharply rising interest rates;
- downgrades of credit ratings or default of any of Buying Fund's holdings;
- the risks generally associated with concentrating investments in the
banking industry, such as interest rate risk, credit risk and regulatory
developments relating to the banking and financial services industries;
or
- the risks generally associated with U.S. dollar-denominated foreign
investments, including political and economic upheaval, seizure or
nationalization of deposits, imposition of taxes or other restrictions on
the payment of principal and interest.
If the seller of a repurchase agreement in which Buying Fund invests
defaults on its obligations or declares bankruptcy, Buying Fund may experience
delays in selling the securities underlying the repurchase agreement. As a
result, Buying Fund may incur losses arising from decline in the value of those
securities, reduced levels of income and expenses of enforcing its rights.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
Because of the similarities in their investment objectives and strategies,
your Fund and Buying Fund are subject to similar investment risks. The following
is a brief discussion of the comparative risk associated with your Fund and
Buying Fund. You can find more detailed descriptions of specific risks
associated with your Fund in the Selling Fund Prospectus.
To the extent either your Fund or Buying Fund invests in securities that
are subject to transfer restrictions under Federal securities laws, it may be
difficult to dispose of such securities on a timely basis at the prices at which
they have been valued.
Buying Fund may invest up to 50% of its assets in U.S. dollar denominated
foreign securities, while your Fund does not have a corresponding principal
investment strategy. As a result, Buying Fund may be subject to greater exposure
to the risks generally associated with U.S. dollar-denominated foreign
investments, including political and economic upheaval, seizure or
nationalization of deposits, imposition of taxes or other restrictions on the
payment of principal and interest.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund 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 Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
8
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to AIM Cash
Reserve Shares, there are no conversion rights.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended May 31,
2003 and for the short taxable year beginning on June 1, 2003 and ending on the
Closing and (b) all of your Fund's net capital gain recognized in its taxable
year ended May 31, 2003 and in such short taxable year (after reduction for any
capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
9
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at an in-person meeting of the
Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that your Fund and AMVESCAP, on behalf of INVESCO, will
each bear one-half of the costs and expenses incurred in connection with the
Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
10
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders of your Fund shall have approved the Agreement; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund do not approve the Agreement or if the Closing does not occur on or
before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
11
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Company and Buyer upon which Ballard Spahr Andrews &
Ingersoll, LLP will rely in rendering its opinion. The conclusions reached in
that opinion could be jeopardized if the representations of Company or Buyer are
incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements, amendments and
supplements thereto (the "Articles of Incorporation"), and applicable Maryland
law. The operations of Buyer, as a Delaware statutory trust, are governed by its
Amended and Restated Agreement and Declaration of Trust, as amended (the
"Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be
12
subject to any personal liability for acts or obligations of the Trust and that
every written agreement, obligation or other undertaking made or issued by the
Trust shall contain a provision to the effect that shareholders are not
personally liable thereunder. In addition, the Declaration of Trust provides for
indemnification out of the Trust's property for any shareholder held personally
liable solely by reason of his or her being or having been a shareholder.
Therefore, the risk of any shareholder incurring financial loss beyond his or
her investment due to shareholder liability is limited to circumstances in which
the Trust itself is unable to meet its obligations and the express disclaimer of
shareholder liabilities is determined not to be effective. Given the nature of
the assets and operations of the Trust, the possibility of the Trust being
unable to meet its obligations is considered remote, and even if a claim were
brought against the Trust and a court determined that shareholders were
personally liable, it would likely not impose a material obligation on a
shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the holders of a majority of the
outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be called by the president
or, in his or her absence, the vice-president or by a majority of the Board of
Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting need be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
13
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust;
14
and (vii) approval of such additional matters as may be required by law or as
the trustees, in their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
YOUR FUND AIM CASH AIM CASH
CLASS A SHARES(1) RESERVE SHARES RESERVE SHARES
----------------- -------------- --------------
Net Assets.................................... $9,268,389 $1,201,287,455 $1,210,555,844
Shares Outstanding............................ 9,268,389 1,201,277,341 1,210,545,730
Net Asset Value Per Share..................... $ 1.00 $ 1.00 $ 1.00
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
Net Assets......................................... $675,786 $693,068,961 $693,744,747
Shares Outstanding................................. 675,786 693,063,126 693,738,912
Net Asset Value Per Share.......................... $ 1.00 $ 1.00 $ 1.00
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
-------------- -------------- --------------
Net Assets......................................... $43,421,675 $118,865,534 $162,287,209
Shares Outstanding................................. 43,421,675 118,864,533 162,286,208
Net Asset Value Per Share.......................... $ 1.00 $ 1.00 $ 1.00
</Table>
<Table>
<Caption>
PRO FORMA
BUYING FUND BUYING FUND
CLASS R SHARES CLASS R SHARES
-------------- --------------
Net Assets.................................................. $8,458,572 $8,458,572
Shares Outstanding.......................................... 8,458,501 8,458,501
Net Asset Value Per Share................................... $ 1.00 $ 1.00
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR CLASS INVESTOR CLASS INVESTOR CLASS
SHARES SHARES(2) SHARES
-------------- -------------- --------------
Net Assets.......................................... $659,471,628 0 $659,471,628
Shares Outstanding.................................. 659,471,628 0 659,471,628
Net Asset Value Per Share........................... $ 1.00 $1.00 $ 1.00
</Table>
- ---------------
(1) Shareholders of Class A shares of your Fund are receiving AIM Cash Reserve
Shares of Buying Fund in the Reorganization.
(2) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's AIM Cash
Reserve Shares. Therefore, the Net Asset Value Per Share shown for Investor
Class shares of Buying Fund in the table above is that of Buying Fund's AIM
Cash Reserve Shares.
16
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $713 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-2606. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-5686. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
17
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Company and Buyer and other registrants that file
electronically with the SEC.
PROPOSAL 2 -- ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 11 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Richard W. Healey, Gerald L. Lewis, John W. McIntyre, Larry Soll,
Ph.D. and Mark H. Williamson. Eight of the current directors are "independent,"
meaning they are not "interested persons" of Company within the meaning of the
1940 Act. Three of the current directors are "interested persons" because of
their business and financial relationships with Company and INVESCO, its
investment advisor, and/or INVESCO's parent, AMVESCAP. Six of the current
directors have declined to stand for re-election as directors of Company.
Therefore, their terms as directors of Company will end upon the election and
qualification of their successor directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 11 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- -------------------------- --------------------------
Bob R. Baker -- 1936...... 1983 Consultant (2000-present); None
formerly, President and
Chief Executive Officer
(1988-2000) of AMC Cancer
Research Center, Denver,
Colorado; until mid-
December 1988, Vice
Chairman of the Board of
First Columbia Financial
Corporation, Englewood,
Colorado; formerly,
Chairman of the Board and
Chief Executive Officer of
First Columbia Financial
Corporation.
James T. Bunch -- 1942.... 2000 Co-President and Founder None
of Green, Manning & Bunch
Ltd., Denver, Colorado
(1988-present) (investment
banking firm); Director
and Vice President of
Western Golf Association
and Evans Scholars
Foundation; Executive
Committee, United States
Golf Association;
formerly, General Counsel
and Director of Boettcher
& Co., Denver, Colorado;
and formerly, Chairman and
Managing Partner, law firm
of Davis, Graham & Stubbs,
Denver, Colorado.
Gerald J. Lewis -- 1933... 2000 Chairman of Lawsuit General Chemical Group,
Resolution Services, San Inc., Hampdon, New
Diego, California (1987- Hampshire (1996-present),
present); formerly, Wheelabrator Technologies,
Associate Justice of the Inc. (waste management
California Court of company), Fisher
Appeals; and Of Counsel, Scientific, Inc.
law firm of Latham & (laboratory supplies),
Watkins, San Diego, Henley Manufacturing,
California (1987-1997). Inc., and California
Coastal Properties, Inc.
Larry Soll,
Ph.D. -- 1942........... 1997 Retired; formerly, Synergen Inc. (since
Chairman of the Board incorporation in 1982) and
(1987-1994), Chief Isis Pharmaceuticals, Inc.
Executive Officer
(1982-1989 and 1993-1994)
and President (1982-1989)
of Synergen Inc.
(biotechnology company);
and formerly, trustee of
INVESCO Global Health
Sciences Fund.
</Table>
19
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- -------------------------- --------------------------
Mark H. Williamson(1) --
1951.................... 1998 Director, President and Director/trustee of each
Chief Executive Officer, of the 17 AIM Funds
A I M Management Group
Inc.; Director, Chairman
and President, A I M
Advisors, Inc. (registered
investment advisor);
Director, A I M
Distributors, Inc.
(registered broker
dealer); and Chief
Executive Officer of the
AIM Division of AMVESCAP
PLC (2003-present);
formerly, Chief Executive
Officer, Managed Products
Division, AMVESCAP PLC
(2001-2002); Chairman of
the Board (1998-2002),
President (1998-2002) and
Chief Executive Officer
(1998-2002) of INVESCO
Funds Group, Inc.
(registered investment
advisor) and INVESCO
Distributors, Inc.
(registered broker
dealer); Chief Operating
Officer and Chairman of
the Board of INVESCO
Global Health Sciences
Fund; Chairman and Chief
Executive Officer of
NationsBanc Advisors,
Inc.; and Chairman of
NationsBanc Investments,
Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
20
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ----------------------------- -----------------------------
Frank S. Bayley -- 1939...... Of Counsel, law firm of Baker Badgley Funds, Inc.
& McKenzie (registered investment
company)
Bruce L. Crockett -- 1944.... Chairman, Crockett Technology ACE Limited (insurance
Associates (technology company); Captaris, Inc.
consulting company) and (unified messaging provider)
Captaris, Inc. (unified
messaging provider)
Albert R. Dowden -- 1941..... Director of a number of Cortland Trust, Inc.
public and private business (Chairman) (registered
corporations, including the investment company); Annuity
Boss Group, Ltd. (private and Life Re (Holdings), Ltd.
investment and management) (insurance company)
and Magellan Insurance
Company; formerly, President,
Chief Executive Officer and
Director, Volvo Group North
America, Inc.; Senior Vice
President, AB Volvo and
director of various
affiliated Volvo Group
companies
Edward K. Dunn, Formerly, Chairman, None
Jr. -- 1935................ Mercantile Mortgage Corp.;
President and Chief Operating
Officer, Mercantile-Safe
Deposit & Trust Co.; and
President, Mercantile
Bankshares Corp.
Jack M. Fields -- 1952....... Chief Executive Officer, Administaff
Twenty First Century Group,
Inc. (government affairs
company) and Texana Timber LP
Carl Frischling -- 1937...... Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel LLP (registered investment
company)
Prema Mathai-Davis -- 1950... Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock -- 1942..... Partner, law firm of Pennock None
& Cooper
Ruth H. Quigley -- 1935...... Retired None
Louis S. Sklar -- 1939....... Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
21
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
NAME AND YEAR OF BIRTH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------------------- --------------------------
Robert H. Graham(1) -- 1946....... Director and Chairman, A I M Management None
Group Inc. (financial services holding
company); and Director and Vice Chairman,
AMVESCAP PLC (parent of AIM and a global
investment management firm) and Chairman,
AMVESCAP PLC -- AIM Division; formerly,
President and Chief Executive Officer,
A I M Management Group Inc.; Director,
Chairman and President, A I M Advisors,
Inc. (registered investment advisor);
Director and Chairman, A I M Capital
Management, Inc. (registered investment
advisor), A I M Distributors, Inc.
(registered broker dealer), A I M Fund
Services, Inc. (registered transfer agent),
and Fund Management Company (registered
broker dealer); and Chief Executive
Officer, AMVESCAP PLC -- Managed Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
22
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
23
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended May 31, 2003, the Board met seven times, the
audit committee met four times, the investments and management liaison committee
met four times, the brokerage committee met four times, the derivatives
committee met four times, the nominating committee met four times, the legal
committee met three times, the compensation committee met two times, and the
executive, valuation and retirement plan committees did not meet. All of the
current directors then serving attended at least 75% of the meetings of the
Board or applicable committee during the most recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor's investment-related compliance systems and procedures to ensure their
continued adequacy; and (ii) considering and acting,
24
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.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate
25
per annum (currently 5.75%), will provide the Participating Qualified Director
with an account value of $340,000 upon reaching age 72. Once the initial dollar
amount of the Account is established, Account proceeds are invested in shares of
one or more of the INVESCO Funds. The value of the Account fluctuates with the
appreciation or depreciation in the shares of the INVESCO Funds owned by the
Account and Account shares are increased by the amount of any dividends and
capital gains distributions paid with respect to the shares. Upon retirement, a
Participating Qualified Director is entitled to receive the value in the Account
either in a lump sum payment or in payments over a stipulated number of months.
The Account value continues to fluctuate as long as monthly payments are made.
If a Participating Qualified Director becomes disabled or dies prior to his or
her retirement and if, at the time of disability or death, the value of a
Participating Qualified Director's Account is less than $340,000, the Director
or the Director's beneficiary or estate will not be paid the value in the
Account but will receive $34,000 per annum for ten years. If, at the time of the
Participating Qualified Director's death or disability prior to retirement, the
value in the director's Account is $340,000 or more, the Participating Qualified
Director or his or her estate or beneficiary will receive the value in the
Account either in a lump sum or in quarterly installments. The cost of providing
the initial dollar amount to be allocated to a Participating Qualified
Director's Account and the cost of payment of any death or disability benefit
that aggregates more than the Account value will be allocated among the INVESCO
Funds in a manner determined to be fair and equitable by a committee appointed
to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the A I M Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited service as a director (including service
to a predecessor fund) for a Covered Fund. The retirement benefits will equal
75% of the director's annual retainer paid or accrued by any Covered Fund to
such director during the twelve-month period prior to retirement, including the
amount of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the director. The annual
26
retirement benefits will be payable in quarterly installments for a number of
years equal to the lesser of (i) ten or (ii) the number of such director's
credited years of service. A death benefit will also be available under the New
Retirement Plan that will provide a surviving spouse with a quarterly
installment of 50% of a deceased director's retirement benefits for the same
length of time that the director would have received the benefits based on his
or her service. A director must have attained the age of 65 (55 in the event of
death or disability) to receive any retirement benefit. Payment of benefits
under the New Retirement Plan will not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the A I M Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director 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. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or A I M Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds complex can be found in Exhibit G.
27
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that A I M is the advisor and administrator for all INVESCO
Funds and AIM Funds. Your Board has approved a new advisory agreement under
which A I M will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with A I M is at
Appendix III.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with A I M. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
A I M will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with A I M is approved, INVESCO will assign to A I M its
right to be reimbursed with respect to fees and expenses absorbed by it. Other
than substituting A I M for INVESCO as the party having the right to be
reimbursed, this assignment will not alter in any way the rights or obligations
of your Fund or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on
February 28, 1997. Your Fund's shareholders last voted on the agreement on
January 31, 1997, for the purpose of approving a new investment advisory
agreement for your Fund, with the same parties and on terms substantially
identical to your Fund's then-existing investment advisory agreement. Such
approval was necessary because your Fund's then-existing investment advisory
agreement terminated automatically by operation of law upon the consummation on
February 28, 1997, of the merger of A I M Management Group Inc. and INVESCO PLC,
which at that time was the
28
ultimate parent company of your Fund's investment advisor. The Board, including
a majority of the independent directors, last approved the current advisory
agreement on May 15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised, and calculates the net asset value of your Fund, subject to
such procedures established by the Board and based upon information provided by
your Fund, the custodian of your Fund or other source as designated by the
Board. INVESCO provides sub-accounting, recordkeeping and administrative
services to your Fund under an administrative services agreement. Under the
advisory agreement, as administrator, INVESCO also provides, at its expense and
at the request of your Fund, executive, statistical, administrative, internal
accounting and clerical services and office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund and each other series portfolio of
Company, and (ii) the vote of a majority of the directors of Company who are not
interested persons of INVESCO or Company by votes cast in person at a meeting
called for such purpose. The current advisory agreement provides that the Board,
a majority of the outstanding voting securities of your Fund and each other
series portfolio of Company or INVESCO may terminate the agreement with respect
to your Fund on 60 days' written notice without penalty. The agreement
terminates automatically in the event of its assignment, unless an order is
issued by the SEC conditionally or unconditionally exempting such assignment
from the applicable provisions of the 1940 Act.
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
29
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors,
30
Inc. served as the principal underwriter for your Fund. This company is an
indirect wholly owned subsidiary of AMVESCAP, the parent company of INVESCO.
Information concerning fees paid to INVESCO and its affiliates for these
services is in Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, 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 trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and each other series portfolio of Company
(each, an "Investing Fund") to invest their uninvested cash 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 the Investing Fund. AIM
will receive advisory fees from the Affiliated Money Market
31
Fund to the extent an Investing Fund invests uninvested cash in such Affiliated
Money Market Fund. If the Board approves AIM's use of the exemptive order for
Company, AIM intends to waive a portion of the advisory fees payable by each
Investing Fund in an amount equal to 25% of the advisory fee AIM receives from
the Affiliated Money Market Fund as a result of such Investing Fund's investment
of uninvested cash in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a security transaction will be to obtain the best
execution. In selecting broker-dealers to execute particular transactions, AIM
will consider the best net price available, the reliability, integrity and
financial condition of the broker-dealer, the size of and difficulty in
executing the order and the value of the expected contribution of the
broker-dealer to the investment performance of Company's portfolio funds on a
32
continuing basis. Accordingly, the price to your Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the fund execution services offered
by the broker-dealer. The broker-dealer relationship provisions of the current
advisory agreement with INVESCO for your Fund do not specify these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative 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 loans; (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.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
33
TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940 Act
and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
34
LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor. The limitation of
liability provisions of the 1940 Act also apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
35
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they
36
believe to be in your best interests. In so doing, they were advised by
independent counsel, retained by the independent directors and paid for by
Company, as to the nature of the matters to be considered and the standards to
be used in reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 --
APPROVAL OF THE PLAN TO REDOMESTICATE
EACH SERIES PORTFOLIO OF COMPANY AS A NEW SERIES PORTFOLIO
OF A NEW DELAWARE STATUTORY TRUST
BACKGROUND
Company, a Maryland corporation, currently is comprised of three series
portfolios: your Fund, INVESCO Tax-Free Money Fund and INVESCO U.S. Government
Money Fund. AMVESCAP has identified these three series portfolios as appropriate
to be redomesticated as new series portfolios of AIM Treasurer's Series Trust, a
newly created open-end management investment company organized as a statutory
trust under the Delaware Statutory Trust Act (the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board of Directors of INVESCO Treasurer's Series Funds, Inc. ("ITSFI"),
an open-end management investment company organized as a Maryland corporation,
currently is soliciting the proxies of the shareholders of ITSFI's three
existing series portfolios to vote on the conversion of these three existing
series portfolios to three corresponding new series portfolios of the Trust
(each, an "ITSFI Fund"). Currently, the sole shareholder of the ITSFI Funds is
ITSFI and the sole shareholder of the New Funds (as defined below) is Company.
The Board has approved the Plan, which provides for a series of
transactions to convert each of your Fund, INVESCO Tax-Free Money Fund and
INVESCO U.S. Government Money Fund (each, a "Current Fund"), to a corresponding
series (a "New Fund") of the Trust. Under the Plan, each Current Fund will
transfer all its assets to a corresponding New Fund in exchange solely for
voting shares of beneficial interest in the New Fund and the New Fund's
assumption of all the Current Fund's liabilities (collectively, the
"Redomestication"). A form of the Plan relating to the proposed Redomestication
is set forth in Appendix IV.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
INVESCO Tax-Free Money Fund and INVESCO U.S. Government Money Fund to vote on
the Plan with a separate proxy statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected
37
to improve Company's and each Current Fund's operations. The Trust, like
Company, will operate as an open-end management investment company registered
with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of either Current Fund. However, no amendments may be made
that would materially adversely affect the interests of shareholders of either
Current Fund. Company and the Trust may at any time waive compliance with any
condition contained in the Plan, provided that the waiver does not materially
adversely affect the interests of shareholders of either Current Fund.
38
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the New Funds prior to the Redomestication,
to do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO and a sub-advisory agreement with A I M Capital Management,
Inc. that is substantially identical to the existing sub-advisory
agreement between INVESCO and A I M Capital Management, Inc. for such
Current Fund.
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Together with ITSFI, as the sole shareholder of each ITSFI Fund, elect
the directors of Company and ITSFI as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the
39
accounts currently maintained by Company's transfer agent for each shareholder
of the Current Funds. Shares held in the Current Fund accounts will
automatically be designated as shares of the New Funds. Certificates for Current
Fund shares issued before the Redomestication will represent shares of the
corresponding New Fund after the Redomestication. Shareholders of the New Funds
will not have the right to demand or require the Trust to issue share
certificates. Any account options or privileges on accounts of shareholders
under the Current Funds will be replicated on the New Fund account. No sales
charges will be imposed in connection with the Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication in light of their
individual circumstances and as to state and local consequences, if any, of the
Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, ITSFI will
be the sole shareholder of the ITSFI Funds and Company will be the sole
shareholder of the New Funds.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
40
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing discussion
and the discussion under the caption "Rights of Shareholders" in Proposal 1
above is only a summary of certain differences and is not a complete description
of all the differences. Shareholders should refer to the provisions of the
governing documents of Company and Trust and state law directly for a more
thorough comparison. Copies of the Articles of Incorporation and Amended and
Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
41
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposals 1 and 3 if shareholders entitled to vote one-third of
the issued and outstanding shares of your Fund on the Record Date are present at
the Special Meeting in person or by proxy. A quorum will exist for Proposals 2
and 4 if shareholders entitled to vote one-third of the issued and outstanding
shares of Company on the Record Date are present at the Special Meeting in
person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
42
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/ Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approval of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund. Abstentions and broker non-votes are
counted as present but are not considered votes cast at the Special Meeting. As
a result, they have the same effect as a vote against Proposals 1 and 3 because
approval of Proposals 1 and 3 requires the affirmative vote of a percentage of
the voting securities present or represented by proxy or a percentage of the
outstanding voting securities.
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $55,300. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. Your Fund and AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization, including
Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered
43
for presentation at a meeting of shareholders, Company must receive proposals a
reasonable time before proxy materials are prepared for the meeting. Your
proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
INDEPENDENT PUBLIC ACCOUNTANTS
Effective August 13, 2003, the fiscal year end of Company was changed from
May 31 to August 31. The audit committee of the Board has appointed
PricewaterhouseCoopers LLP (the "Auditor") as Company's independent public
accountants for the fiscal year ending August 31, 2003 and August 31, 2004. A
representative of the Auditor is expected to be available at the Special Meeting
and to have the opportunity to make a statement and respond to appropriate
questions from the shareholders. The audit committee of the Board has considered
whether the provision of the services below is compatible with maintaining the
Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of three separate series portfolios)
aggregate fees for professional services rendered for the fiscal year ended May
31, 2003 as follows:
<Table>
Audit Fees.................................................. $54,200
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $ 9,265
-------
Total Fees.................................................. $63,465
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the fiscal year ended May 31, 2003 to INVESCO, or any affiliate
that provided services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $31,500
-------
Total Fees.................................................. $31,500
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
44
EXHIBIT A
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF YOUR FUND SHARES OF BUYING FUND
- ------------------------------ ------------------------
Class A shares AIM Cash Reserve Shares
Class B shares Class B shares
Class C shares Class C shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO CASH RESERVES FUND (YOUR FUND)
Performance information in the bar chart below is that of the Fund's
Investor Class shares, which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade. The table below shows the average annual total returns
of Investor Class for various periods ended December 31, 2002.
To obtain the Fund's current 7-day yield information, please call [INVESCO
at 1-800-525-8085]. The information in the chart and table illustrates the
variability of the Fund's total return. Remember, past performance does not
indicate how the Fund will perform in the future.
CASH RESERVES FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)(3)
<Table>
'93......................................................... 2.36%
'94......................................................... 3.70%
'95......................................................... 5.26%
'96......................................................... 4.70%
'97......................................................... 4.81%
'98......................................................... 4.74%
'99......................................................... 4.38%
'00......................................................... 5.63%
'01......................................................... 3.22%
'02......................................................... 0.94%
</Table>
Best Calendar Qtr. 12/00 1.45%
Worst Calendar Qtr. 12/02 0.19%
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/02
----------------------------------
10 YEARS OR
1 YEAR 5 YEARS SINCE INCEPTION
------ ------- ---------------
Investor Class
Cash Reserves Fund(1)(3).................................. 0.94% 3.77% 3.96%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of the class' expenses.
(2) The year-by-year returns are for Investor Class only.
(3) Returns for Investor Class shares of Cash Reserves Fund year-to-date as of
the calendar quarter ended June 30, 2003 was 0.17%.
B-1
AIM MONEY MARKET FUND (BUYING FUND)
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 AIM
Cash Reserve Shares from year to year. AIM Cash Reserve Shares do not have sales
loads.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1994................................................................... 3.44%
1995................................................................... 5.04%
1996................................................................... 4.41%
1997................................................................... 4.66%
1998................................................................... 4.62%
1999................................................................... 4.22%
2000................................................................... 5.45%
2001................................................................... 3.21%
2002................................................................... 0.91%
</Table>
The AIM Cash Reserve Shares' year-to-date total return as of June 30, 2003
was 0.27%.
During the periods shown in the bar chart, the highest quarterly return was
1.41% (quarters ended September 30, 2000 and December 31, 2000) and the lowest
quarterly return was 0.17% (quarter ended December 31, 2002).
PERFORMANCE TABLE
The following performance table reflects the fund's performance over the
period indicated. The fund's performance reflects payment of sales loads, if
applicable.
Average Annual Total Returns (for the Periods Ended December 31, 2002)
<Table>
<Caption>
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
------ ------- --------- ---------
AIM Cash Reserve Shares................................. 0.91% 3.67% 3.95% 10/16/93
</Table>
AIM Cash Reserve Shares' seven day yield on December 31, 2002, was 1.19%.
For the current seven day yield, call (800) 347-4246.
B-2
EXHIBIT C
COMPARISON OF EXPENSES
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C and Investor Class shares of INVESCO Cash Reserves Fund ("Selling
Fund"), and of AIM Cash Reserve Shares, Class B, Class C and Class R shares of
AIM Money Market Fund ("Buying Fund"). Pro Forma Combined Expense Ratios of
Buying Fund giving effect to the reorganization of Selling Fund into Buying Fund
are also provided.
<Table>
<Caption>
SELLING FUND BUYING FUND
(AS OF 5/31/02) (AS OF 7/31/02)
-------------------------------------- --------------------------------------
INVESTOR AIM CASH
CLASS A CLASS B CLASS C CLASS RESERVE CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- -------- -------- ------- ------- -------
SHAREHOLDER FEES
(fees paid directly from your
investment)
(Load) Imposed on Purchases (as a
percentage of offering price)
Maximum Sales Charge.............. None None None None None None None None
Maximum Deferred Sales Charge
(Load)(1)....................... None(2) 5.00% 1.00% None None 5.00% 1.00% None(3)
ANNUAL FUND OPERATING EXPENSES(4)
(expenses that are deducted from
fund assets)
Management fees................... 0.38% 0.38% 0.38% 0.38% 0.53% 0.53% 0.53% 0.53%
Distribution and/or Service
(12b-1) Fees(5)................. 0.35% 1.00% 1.00% None 0.25% 1.00% 1.00% 0.50%
Other Expenses(6)................. 0.39% 0.27% 0.39% 0.44% 0.23% 0.23% 0.23% 0.23%
Total Annual Fund Operating
Expenses(7)(8).................. 1.12% 1.65% 1.77% 0.82% 1.01% 1.76% 1.76% 1.26%
<Caption>
BUYING FUND
PRO FORMA COMBINED
(AS OF 7/31/02)
-------------------------------------------------
AIM CASH INVESTOR
RESERVE CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
-------- ------- ------- ------- --------
SHAREHOLDER FEES
(fees paid directly from your
investment)
(Load) Imposed on Purchases (as a
percentage of offering price)
Maximum Sales Charge.............. None None None None None
Maximum Deferred Sales Charge
(Load)(1)....................... None 5.00% 1.00% None(3) None
ANNUAL FUND OPERATING EXPENSES(4)
(expenses that are deducted from
fund assets)
Management fees................... 0.52% 0.52% 0.52% 0.52% 0.52%
Distribution and/or Service
(12b-1) Fees(5)................. 0.25% 1.00% 1.00% 0.50% None
Other Expenses(6)................. 0.21% 0.21% 0.21% 0.21% 0.21%
Total Annual Fund Operating
Expenses(7)(8).................. 0.98% 1.73% 1.73% 1.23% 0.73%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price. For
Buying Fund and Buying Fund Pro Forma Combined, calculated as a percentage
of original purchase price or redemption proceeds, whichever is less.
(2) For retirement plans investing in Class A shares, you may pay a CDSC of 1%
on your Class A shares if the plan is redeemed within 12 months from initial
deposit in the plan's INVESCO account.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own such shares for a long period of time,
you may pay more than the economic equivalent of the maximum front-end sales
charge for mutual funds by the National Association of Securities Dealers,
Inc.
C-1
(6) Other Expenses for Selling Fund and for Class R shares of Buying Fund are
based on estimated expenses for the current fiscal year.
(7) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
2.10%, 2.75% and 2.75% on Class A, Class B and Class C shares, respectively.
INVESCO has also voluntarily agreed to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
1.25%, 1.90%, 1.90% and 0.90% on Class A, Class B, Class C and Investor
Class shares, respectively. The voluntary expense limitations cannot be
revoked by INVESCO prior to May 2004. Effective June 1, 2002, INVESCO is
entitled to reimbursement from a class, if applicable, for fees and expenses
voluntarily absorbed pursuant to a voluntary commitment between Selling Fund
and INVESCO if such reimbursements do not cause the class to exceed
voluntary expense limitations and the reimbursement is made within three
years after INVESCO incurred the expenses.
(8) The advisor and/or the distributor are voluntarily waiving fees and/or
reimbursing expenses to maintain a minimum yield on Buying Fund.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period....... $114 $356 $ 617 $1,363
Assuming no redemption.............................. $114 $356 $ 617 $1,363
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $668 $820 $1,097 $1,813
Assuming no redemption(3)........................... $168 $520 $ 897 $1,813
Class C shares
Assuming complete redemption at end of period(2).... $280 $557 $ 959 $2,084
Assuming no redemption.............................. $180 $557 $ 959 $2,084
Investor Class shares
Assuming complete redemption at end of period....... $ 84 $262 $ 455 $1,014
Assuming no redemption.............................. $ 84 $262 $ 455 $1,014
BUYING FUND
AIM Cash Reserve Shares(1)
Assuming complete redemption at end of period....... $103 $322 $ 558 $1,236
Assuming no redemption.............................. $103 $322 $ 558 $1,236
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $679 $854 $1,154 $1,875
Assuming no redemption(3)........................... $179 $554 $ 954 $1,875
Class C shares
Assuming complete redemption at end of period(2).... $279 $554 $ 954 $2,073
Assuming no redemption.............................. $179 $554 $ 954 $2,073
Class R shares
Assuming complete redemption at end of period....... $128 $400 $ 692 $1,523
Assuming no redemption.............................. $128 $400 $ 692 $1,523
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
BUYING FUND -- PRO FORMA COMBINED
AIM Cash Reserve Shares(1)
Assuming complete redemption at end of period....... $100 $312 $ 542 $1,201
Assuming no redemption.............................. $100 $312 $ 542 $1,201
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $676 $845 $1,139 $1,842
Assuming no redemption(3)........................... $176 $545 $ 939 $1,842
Class C shares
Assuming complete redemption at end of period(2).... $276 $545 $ 939 $2,041
Assuming no redemption.............................. $176 $545 $ 939 $2,041
Class R shares
Assuming complete redemption at end of period....... $125 $390 $ 676 $1,489
Assuming no redemption.............................. $125 $390 $ 676 $1,489
Investor Class shares
Assuming complete redemption at end of period....... $ 75 $233 $ 406 $ 906
Assuming no redemption.............................. $ 75 $233 $ 406 $ 906
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B to Class A shares at the end of the eighth
year for Selling Fund. Assumes conversion of Class B to AIM Cash Reserve
Shares at the end of the eighth year for Buying Fund and for Buying
Fund -- Pro Forma Combined.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM ALL
COMPENSATION ACCRUED BY BENEFITS UPON INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------
Bob R. Baker............ $8,862 $0 $34,000 $138,000
James T. Bunch.......... 7,895 0 0 124,625
Gerald J. Lewis......... 7,654 0 0 116,500
Larry Soll, Ph.D. ...... 7,974 0 0 126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended May
31, 2003.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended May 31, 2003.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -----------------------------------------------------
Mark H. Williamson -- 1951... 1998 Director, President and Chief Executive Officer, A I
Chairman of the Board M Management Group Inc.; Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief Executive
Officer of the AIM Division of AMVESCAP PLC
(2003-present); formerly, Chief Executive Officer,
Managed Products Division, AMVESCAP PLC (2001-2002);
Chairman of the Board (1998-2002), President
(1998-2002) and Chief Executive Officer (1998-2002)
of INVESCO Funds Group, Inc. (registered investment
advisor) and INVESCO Distributors, Inc. (registered
broker dealer); Chief Operating Officer and Chairman
of the Board of INVESCO Global Health Sciences Fund;
Chairman and Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. 2001 President (2001-present) and Chief Executive Officer
Cunningham -- 1951........ (2003- present) of INVESCO Funds Group, Inc.;
President and Chief Executive Chairman of the Board (2003-present) and President
Officer (2003-present) of INVESCO Distributors, Inc.;
formerly, Chief Operating Officer (2001-2003) and
Senior Vice President (1999-2002) of INVESCO Funds
Group, Inc. and INVESCO Distributors, Inc.; and
Senior Vice President of GT Global -- North America
(1992-1998).
Glen A. Payne -- 1947....... 1989 Senior Vice President, General Counsel and Secretary
Secretary of INVESCO Funds Group, Inc.; Senior Vice President,
Secretary and General Counsel of INVESCO
Distributors, Inc.; formerly, Secretary of INVESCO
Global Health Sciences Fund; General Counsel of
INVESCO Trust Company (1989-1998); and employee of
the Securities and Exchange Commission, Washington,
DC (1973-1989).
Ronald L. Grooms -- 1946.... 1988 Senior Vice President and Treasurer of INVESCO Funds
Chief Accounting Officer, Group, Inc.; and Senior Vice President and Treasurer
Chief Financial Officer and of INVESCO Distributors, Inc.; formerly, Treasurer
Treasurer and Principal Financial and Accounting Officer of
INVESCO Global Health Sciences Fund; and Senior Vice
President and Treasurer of INVESCO Trust Company
(1988-1998).
William J. Galvin, 1992 Senior Vice President and Assistant Secretary INVESCO
Jr. -- 1956............... Funds Group, Inc.; and Senior Vice President and
Assistant Secretary Assistant Secretary of INVESCO Distributors, Inc.;
formerly, Trust Officer of INVESCO Trust Company
(1995-1998).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -----------------------------------------------------
Pamela J. Piro -- 1960...... 1999 Vice President and Assistant Treasurer of INVESCO
Assistant Treasurer Funds Group, Inc.; and Assistant Treasurer of INVESCO
Distributors, Inc.; formerly, Assistant Vice
President (1996-1997).
Tane T. Tyler -- 1965....... 2002 Vice President and Assistant General Counsel of
Assistant Secretary INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY AND
SERIES AND CLASS PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D..........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr........................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr.....................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY DIRECTOR IN THE INVESCO
NAME OF DIRECTOR SECURITIES IN YOUR FUND FUNDS COMPLEX
- ---------------- ----------------------- -------------------------
INDEPENDENT DIRECTORS
Bob R. Baker........................................ $1 - $10,000 $10,001 - $50,000
James T. Bunch...................................... $10,001 - $50,000 $50,001 - $100,000
Gerald J. Lewis..................................... $1 - $10,000 $50,001 - $100,000
Larry Soll, Ph.D.................................... $1 - $10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson.................................. $1 - $10,000 Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley..................................... None None
Bruce L. Crockett................................... None None
Albert R. Dowden.................................... None None
Edward K. Dunn...................................... None None
Jack M. Fields...................................... None None
Carl Frischling..................................... None None
Prema Mathai-Davis.................................. None None
Lewis F. Pennock.................................... None None
Ruth H. Quigley..................................... None None
Louis S. Sklar...................................... None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham.................................... None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, TX 77046.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH AIM PRINCIPAL OCCUPATION
- ------------------ ---------------------------------- -----------------------------------------
Mark H. Williamson Director, Chairman and President See director table under Proposal 2
Kevin M. Carome Director, Senior Vice President, Director, Senior Vice President,
General Counsel and Secretary Secretary and General Counsel, A I M
Management Group Inc.; Vice President,
A I M Capital Management, Inc., A I M
Distributors, Inc. and A I M Fund
Services, Inc., and Director, Vice
President and General Counsel, Fund
Management Company
Gary T. Crum Director and Senior Vice President Chairman, Director and Director of
Investments, A I M Capital Management,
Inc.; Director and Executive Vice
President, A I M Management Group Inc.;
Director, A I M Distributors, Inc. and
AMVESCAP PLC
Dawn M. Hawley Director, Senior Vice President Director, Senior Vice President and Chief
and Chief Financial Officer Financial Officer, A I M Management Group
Inc.; Vice President and Treasurer, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director, Vice
President and Chief Financial Officer,
A I M Fund Services, Inc.; and Vice
President and Chief Financial Officer,
Fund Management Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS OR
TOTAL NET ASSETS INVESCO FUNDS EXPENSE
FOR THE MOST GROUP, INC. FOR THE REIMBURSEMENTS FOR
RECENTLY MOST RECENTLY THE MOST RECENTLY
ANNUAL RATE COMPLETED FISCAL COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- ---------------- ------------------- ------------------
0.50% of the first $300 million; $597,784,134 $3,173,525 $272,134
0.40% of the next $200 million;
0.30% of the excess of $500 million
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO INVESCO
(ADMINISTRATIVE INVESCO (TRANSFER
NAME OF FUND SERVICES)* DISTRIBUTORS, INC.** AGENCY)
- ------------ --------------- -------------------- ----------
INVESCO Cash Reserves Fund................. $406,849 $0 $3,042,841
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
TOTAL NET ASSETS FEE WAIVER, EXPENSE
FOR THE MOST LIMITATIONS AND/OR EXPENSE
RECENTLY COMPLETED REIMBURSEMENTS FOR THE MOST
ANNUAL RATE FISCAL PERIOD RECENTLY COMPLETED FISCAL
NAME OF FUND (BASED ON AVERAGE DAILY NET ASSETS) OR YEAR PERIOD OR YEAR
- ------------ ----------------------------------- ------------------ ---------------------------
AIM V.I. Money Market Fund..... 0.40% of the first $250 million; $ 127,367,060 N/A
0.35% of the excess over $250
million
Liquid Assets Portfolio........ 0.15% $37,318,945,505 Waive 0.075% of advisory
fee on average net assets
Prime Portfolio................ 0.15% $ 7,941,409,852 Waive 0.075% of advisory
fee on average net assets
Government & Agency
Portfolio.................... 0.10% $ 2,802,914,062 Limit Total Operating
Expenses (excluding Rule
12b-1 distribution fees,
interest expense, taxes and
extraordinary items and
indirect expenses resulting
from expense offset
arrangements, if any) to
0.12%
Treasury Portfolio............. 0.15% $ 8,109,819,658 Waive 0.075% of advisory
fee on average net assets
Government TaxAdvantage
Portfolio.................... 0.20% of the first $250 million; $ 234,741,982 Limit Total Operating
0.15% over $250 million up to and Expenses (excluding Rule
including $500 million; 0.10% of 12b-1 distribution fees,
the excess over $500 million interest expense, taxes and
extraordinary items and
indirect expenses resulting
from expense offset
arrangements, if any) to
0.13%
AIM Money Market Fund.......... 0.55% of the first $1 billion; $ 1,958,803,442 N/A
0.50% of the excess over $1 billion
</Table>
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
(BASED ON AVERAGE
NET ASSETS DAILY NET ASSETS)
- ---------- -----------------
First $300 Million.......................................... 0.50%
Next $200 Million........................................... 0.40%
Excess of $500 Million...................................... 0.30%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
7,646,965.33
CLASS B SHARES
587,638.32
CLASS C SHARES
14,489,104.93
INVESTOR CLASS SHARES
544,983,137.48
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF PERCENT OWNED
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED OF RECORD*
- ---------------- --------------- ------------- -------------
Impala Road, LLC................................... Class A 2,531,790.61 33.11%
666 5th Ave.
Box 423
New York, NY 10103-0001
Prudential Securities FBO.......................... Class A 749,996.28 9.81%
Canadian Imperial Holdings Inc.
425 Lexington Ave. Frnt. 5
New York, NY 10017-3903
Prudential Securities FBO.......................... Class A 624,996.28 8.17%
CIHI
Horse H Y 1
425 Lexington Ave. Frnt. 5
New York, NY 10017-3903
Prudential Securities FBO.......................... Class A 399,996.28 5.23%
Canadian Imperial Holdings Inc.
425 Lexington Ave. Frnt. 5
New York, NY 10017-3903
Prudential Securities FBO.......................... Class A 399,996.28 5.23%
Imperial Holdings
425 Lexington Ave. Frnt. 5
New York, NY 10017-3903
BNY Clearing Services LLC.......................... Class A 391,662.16 5.12%
Pentagon MGT Partners LLC
111 E. Kilbourn Ave.
Milwaukee, WI 53202-6633
BNY Clearing Services LLC.......................... Class A 385,789.34 5.04%
Pentagon MGT Partners LLC
111 E. Kilbourn Ave.
Milwaukee, WI 53202-6633
National Investor Services......................... Class B 220,048.57 37.45%
55 Water Street, 32nd Floor
New York, NY 10041-0028
Dean Witter For the Benefit of..................... Class B 71,159.66 12.11%
Kara Berklich & Ben Weber JT TEN
P.O. Box 250, Church Street Station
New York, NY 10008-0250
National Investor Services......................... Class B 47,525.56 8.09%
55 Water Street, 32nd Floor
New York, NY 10041-0028
Sierra Nevada Alternate............................ Class C 739,859.61 5.11%
Equity Fund I LLC
555 Double Eagle Ct. Ste. 1000
Reno, NV 89521-2957
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-1
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
As of July 25, 2003, to the best knowledge of Buyer, there were no holders
of 5% or more of any class of the outstanding shares of your Fund.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO CASH RESERVES FUND,
A SEPARATE PORTFOLIO OF
INVESCO MONEY MARKET FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-5
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares...................................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-5
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-6
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-8
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-8
SECTION 3.14. Taxes....................................................... I-8
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-9
SECTION 3.21. No Distribution............................................. I-9
SECTION 3.22. Liabilities of Selling Fund................................. I-10
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
SECTION 4.3. Financial Statements........................................ I-10
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-10
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.6. Accountants................................................. I-11
SECTION 4.7. Binding Obligation.......................................... I-11
SECTION 4.8. No Breaches or Defaults..................................... I-12
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-12
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-13
SECTION 4.16. Value of Shares............................................. I-14
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-14
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-14
SECTION 5.4. Further Assurances.......................................... I-14
SECTION 5.5. Notice of Events............................................ I-15
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-16
SECTION 6.1. Conditions Precedent of Buyer............................... I-16
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-17
SECTION 7.1. Termination................................................. I-17
SECTION 7.2. Survival After Termination.................................. I-18
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-18
SECTION 8.6. Enforcement................................................. I-18
SECTION 8.7. Interpretation.............................................. I-19
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
SECTION 8.10. Notices..................................................... I-19
SECTION 8.11. Representations by Seller Investment Adviser................ I-19
SECTION 8.12. Representations by Buyer Investment Adviser................. I-20
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Money Market Funds, Inc., a Maryland
corporation ("Seller"), acting on behalf of INVESCO Cash Reserves Fund ("Selling
Fund"), a separate series of Seller, AIM Investment Securities Funds, a Delaware
statutory trust ("Buyer"), acting on behalf of AIM Money Market Fund ("Buying
Fund"), a separate series of Buyer, A I M Advisors, Inc., a Delaware
corporation, and INVESCO Funds Group, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
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"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Investment Securities Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means The Bank of New York acting in its capacity as
custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-05686.
"Buying Fund" means AIM Money Market Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended January 31, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means November 3, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
I-2
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Money Market Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc.
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-02606.
"Selling Fund" means INVESCO Cash Reserves Fund, a separate series of
Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended May 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended November 30, 2002.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
I-3
"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Seller
to consider and vote upon the approval of this Agreement.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Transfer Agency Conversion" means the substitution of A I M Fund Services,
Inc. for Seller Investment Adviser as transfer agent of Selling Fund and the
full integration of transfer agency functions between Buying Fund and Selling
Fund so as to permit exchanges of shares of funds within the family of funds
advised by Buyer Investment Adviser for shares of funds within the family of
funds advised by Seller Investment Adviser.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
I-4
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions contemplated by this
Agreement have been consummated), to be distributed to Selling Fund Shareholders
under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares. Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until such certificates have been surrendered to Buyer for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases
I-5
thereof and holding periods therefor. Seller shall provide to Buyer on or before
the Valuation Date detailed tax basis accounting records for each security to be
transferred to it pursuant to this Agreement. Such records shall be prepared in
accordance with the requirements for specific identification tax lot accounting
and clearly reflect the bases used for determination of gain and loss realized
on the sale of any security transferred to Buying Fund hereunder. Such records
shall be made available by Seller prior to the Valuation Date for inspection by
the Treasurer (or his or her designee) or the auditors of Buyer upon reasonable
request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed in the Selling Fund Financial Statements and no
contingent liabilities of Selling Fund have arisen since the date of the most
recent financial statements included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
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(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of Sections 852 and 4982 of the Code for qualification
as a regulated investment company and avoidance of excise tax liability and (b)
additional distributions, to the extent such additional distributions do not
exceed 50 percent of the value (without giving effect to such distributions) of
the proprietary interest in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by the
shareholders of Selling Fund, constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms
from and with respect to the revenues and assets of Selling Fund, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to or affecting creditors rights generally, or by
general equity principles (whether applied in a court of law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by the
shareholders of Selling Fund, and (i) do not, and on the Closing Date will not,
result in any violation of the Governing Documents of Seller and (ii) do not,
and on the Closing Date will not, result in a breach of any of the terms or
provisions of, or constitute (with or without the giving of notice or the lapse
of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any Lien upon any
property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Seller is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling
I-7
Fund may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Seller or any property of Selling Fund.
Seller is not under the jurisdiction of a court in a proceeding under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Seller in
connection with the due execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts.
Seller is not in default under any contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party
and which involves or affects the assets of Selling Fund, by which the assets,
business, or operations of Selling Fund may be bound or affected, or under which
it or the assets, business or operations of Selling Fund receives benefits, and
which default could reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect, and, to the knowledge of Seller there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default.
SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
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ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Selling Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended May 31,
2003 and for the short taxable year beginning on June 1, 2003 and ending on the
Closing Date and (B) all of Selling Fund's net capital gain recognized in its
taxable year ended May 31, 2003 and in such short taxable year (after reduction
for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
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SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities to be assumed by
Buying Fund, plus the amount of liabilities, if any, to which such transferred
assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements previously delivered to Seller present fairly in all material
respects the financial position of Buying Fund as of the date(s) indicated and
the results of operations and changes in net assets for the period(s) then ended
in accordance with generally accepted accounting principles applied on a
consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of
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any investments made by Buying Fund or occurring in the ordinary course of
business of Buying Fund or Buyer. There are no contingent liabilities of Buying
Fund not disclosed in the Buying Fund Financial Statements which are required to
be disclosed in accordance with generally accepted accounting principles. Except
as set forth on Schedule 4.4, no contingent liabilities of Buying Fund have
arisen since the date of the most recent financial statements included in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles.
SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund entitled to
vote at the Shareholders Meeting. The Combined Proxy Statement/Prospectus and
related Statement of Additional Information of Buying Fund, when they become
effective, shall conform to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading, provided, however, that no
representation or warranty is made with respect to written information provided
by Seller for inclusion in the Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law
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or a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or without the giving of
notice or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Buying Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Buyer is a
party or by which it may be bound and which relates to the assets of Buying Fund
or to which any properties of Buying Fund may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Buyer or any property of Buying
Fund. Buyer is not under the jurisdiction of a court in a proceeding under Title
11 of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Buying Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Buyer's conduct of the business of Buying Fund affecting in any
significant respect the conduct of such business. Buyer is not, and has not
been, to the knowledge of Buyer, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Buying Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
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ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Buying Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Buying Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have acquired directly or
through any transaction, agreement or arrangement with any other person, shares
of Selling Fund with consideration other than shares of Buying Fund. There is no
plan or intention by Buying Fund or any person related to Buying Fund to acquire
or redeem any of the Buying Fund Shares issued in the Reorganization either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Buying Fund's business
as an open-end investment company as required by the Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
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SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization. The fair market value of the
assets of Selling Fund transferred to Buying Fund in the Reorganization will
equal or exceed the sum of the Liabilities assumed by Buying Fund, plus the
amount of liabilities, if any, to which such transferred assets are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
SECTION 5.3. Expenses. Selling Fund and AMVESCAP PLC, on behalf of either
Buyer Investment Adviser or Seller Investment Adviser, shall each, respectively,
bear one half of the costs and expenses incurred in connection with this
Agreement and the Reorganization and other transactions contemplated hereby;
provided that any such expenses incurred by or on behalf of Buying Fund or
Selling Fund shall not be reimbursed or paid for by another Person unless those
expenses are solely and directly related to the Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the
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consummation of the Reorganization, including the execution and delivery of any
documents, certificates, instruments or other papers that are reasonably
required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.5 shall not limit or otherwise affect
the remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund approval of
this Agreement. Seller shall use its reasonable best efforts to hold a
Shareholders Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the Reorganization shall not occur on the
Closing Date but instead shall be postponed until a mutually acceptable date
occurring subsequent to the Exchangeability Date; provided, however, that in no
event shall the consummation of the Reorganization occur on a date subsequent to
the Termination Date. In the case of such postponement of the consummation of
the Reorganization, the parties agree that the term "Closing Date" in this
Agreement shall mean in each instance such mutually acceptable date subsequent
to the Exchangeability Date as the parties may choose to consummate the
Reorganization.
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ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
I-16
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective under the Securities Act and no
stop order suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the
delivery by the terminating party to the other party of a written notice of
such termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result
of a willful and material breach of this Agreement by the party seeking
to terminate this Agreement;
I-17
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Reorganization and such order,
decree, ruling or other action shall have become final and
nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of
I-18
this Agreement in any court of the United States or any state having
jurisdiction, in addition to any other remedy to which they are entitled at law
or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Money Market Funds, Inc.
4350 South Monaco Street
Denver, CO 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Attn: Clifford J. Alexander
(b) If to Buyer:
AIM Investment Securities Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-1173
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the
I-19
representations and warranties of Seller and Selling Fund contained in this
Agreement are true and correct as of the date of this Agreement. For purposes of
this Section 8.11, the best knowledge standard shall be deemed to mean that the
officers of Seller Investment Adviser who have substantive responsibility for
the provision of investment advisory services to Seller do not have actual
knowledge to the contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the provision of investment advisory
services to Buyer do not have actual knowledge to the contrary after due
inquiry.
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
I-20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO MONEY MARKET FUNDS, INC.,
acting on behalf of INVESCO CASH
RESERVES FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM INVESTMENT SECURITIES FUNDS,
acting on behalf of AIM MONEY MARKET
FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-21
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF SHARES
CLASSES OF SHARES OF SELLING FUND OF BUYING FUND
- --------------------------------- -------------------------------
Class A shares.............................................. AIM Cash Reserve Shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST)..................... (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC. ................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC. ........................ AIM BOND FUNDS
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC. .... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC. ............ AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC. ............... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC. ................ AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC. ...................... AIM SECTOR FUNDS
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC. ....................... AIM STOCK FUNDS
(MARYLAND CORPORATION)......................... (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
AIM High Yield Fund
[AIM HIGH YIELD FUND II]
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Short Term Bond Fund
AIM Total Return Bond Fund
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
- -------------------------------- ------------------------------
AIM Cash Reserve Shares..................................... Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Class R shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO International Blue Chip Value
Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science & Technology Fund into INVESCO Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM MONEY MARKET FUND
July 21, 2003
Prospectus
AIM Money Market Fund seeks to provide as high a level
of current income as is consistent with the preservation
of capital and liquidity.
--------------------------------------------------------
This prospectus contains important information about the
Class B, C, R and Investor Class shares and AIM Cash
Reserve Shares of the fund. Please read it before
investing and keep it for future reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
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.
There can be no assurance that the fund will be able to
maintain a stable net asset value of $1.00 per share.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
---------------------
AIM MONEY MARKET FUND
---------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
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
OTHER INFORMATION 4
- ------------------------------------------------------
Sales Charges 4
Dividends and Distributions 4
FINANCIAL HIGHLIGHTS 5
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, 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, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. 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.
---------------------
AIM MONEY MARKET FUND
---------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital and liquidity. The fund's
investment objective may be changed by the Board of Trustees without shareholder
approval.
The fund attempts to meet its objective by investing only in high-quality
U.S. dollar-denominated short-term obligations, including:
- - securities issued by the U.S. Government or its agencies;
- - bankers' acceptances, certificates of deposit, and time deposits from U.S. or
foreign banks;
- - repurchase agreements;
- - commercial paper;
- - taxable municipal securities;
- - master notes; and
- - cash equivalents.
The fund may invest up to 50% of its assets in U.S. dollar-denominated foreign
securities. For cash management purposes, the fund may also hold a portion of
its assets in cash or cash equivalents, including shares of affiliated money
market funds. Any percentage limitations with respect to assets of the fund are
applied at the time of purchase.
The portfolio managers focus on securities that they believe have favorable
prospects for current income, consistent with their concerns for preservation of
capital and liquidity. The portfolio managers usually hold portfolio securities
to maturity, but may sell a particular security when they deem it advisable,
such as when any of the factors above materially changes.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objectives.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the fund.
Additionally, the fund's yield will vary as the short-term securities in its
portfolio mature and the proceeds are reinvested in securities with different
interest rates.
The following factors could reduce the fund's income and/or share price:
- - sharply rising interest rates;
- - downgrades of credit ratings or default of any of the fund's holdings;
- - the risks generally associated with concentrating investments in the banking
industry, such as interest rate risk, credit risk and regulatory developments
relating to the banking and financial services industries; or
- - the risks generally associated with U.S. dollar-denominated foreign
investments, including political and economic upheaval, seizure or
nationalization of deposits, imposition of taxes or other restrictions on the
payment of principal and interest.
If the seller of a repurchase agreement in which the fund invests defaults
on its obligation or declares bankruptcy, the fund may experience delays in
selling the securities underlying the repurchase agreement. As a result, the
fund may incur losses arising from decline in the value of those securities,
reduced levels of income and expenses of enforcing its rights.
1
---------------------
AIM MONEY MARKET 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 AIM Cash
Reserve Shares from year to year. AIM Cash Reserve Shares do not have sales
loads.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1994................................................................... 3.44%
1995................................................................... 5.04%
1996................................................................... 4.41%
1997................................................................... 4.66%
1998................................................................... 4.62%
1999................................................................... 4.22%
2000................................................................... 5.45%
2001................................................................... 3.21%
2002................................................................... 0.91%
</Table>
The AIM Cash Reserve Shares' year-to-date total return as of June 30, 2003
was 0.27%.
During the periods shown in the bar chart, the highest quarterly return was
1.41% (quarters ended September 30, 2000 and December 31, 2000) and the lowest
quarterly return was 0.17% (quarter ended December 31, 2002).
PERFORMANCE TABLE
The following performance table reflects the fund's performance over the period
indicated. The fund's performance reflects payment of sales loads, if
applicable.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2002) 1 YEAR 5 YEARS INCEPTION DATE
- ---------------------------------------------------------------------------------
AIM Cash Reserve Shares 0.91% 3.67% 3.95% 10/16/93
Class B (4.82) 2.53 3.26 10/16/93
Class C (0.81) 2.89 2.97 08/04/97
Class R(1) 0.65 3.41 3.69 10/16/93(1)
Investor Class(2) 0.91 3.67 3.95 10/16/93(2)
- ---------------------------------------------------------------------------------
</Table>
(1) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to Class R shares. The inception date
shown in the table is that of the fund's Class A shares. The inception date
of the Fund's Class R shares is June 3, 2002.
(2) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the Rule
12b-1 fees applicable to Class A shares. Investor Class shares would have
different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
AIM Cash Reserve Shares', Class B shares' and Class C shares' seven day
yields on December 31, 2002, were 1.19%, 0.44% and 0.44%, respectively. For the
current seven day yield, call (800) 347-4246.
2
---------------------
AIM MONEY MARKET 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
- ---------------------------------------------------------------------------------------------
AIM CASH
RESERVE INVESTOR
(fees paid directly from your investment) SHARES CLASS B CLASS C CLASS R CLASS
- ---------------------------------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on
Purchases
(as a percentage of
offering price) None None None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase price or redemption
proceeds,
whichever is less) None 5.00% 1.00% None(1) None
- ---------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(2)
- -------------------------------------------------------------------------------------------
(expenses that are AIM CASH
deducted from RESERVE INVESTOR
fund assets) SHARES CLASS B CLASS C CLASS R CLASS
- -------------------------------------------------------------------------------------------
Management Fees 0.53% 0.53% 0.53% 0.53% 0.53%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00 0.50 0.00
Other Expenses(3) 0.23 0.23 0.23 0.23 0.23
Total Annual Fund
Operating Expenses 1.01 1.76 1.76 1.26 0.76
- -------------------------------------------------------------------------------------------
</Table>
(1) If you are a retirement plan participant, you may pay a 0.75% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(2) There is no guarantee that actual expenses will be the same as those shown
in the table.
(3) Other expenses for Investor Class shares are based on estimated average net
assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of 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. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. 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
- --------------------------------------------------------------------------------
AIM Cash Reserve Shares $103 $322 $ 558 $1,236
Class B 679 854 1,154 1,875
Class C 279 554 954 2,073
Class R 128 400 692 1,523
Investor Class 78 243 422 942
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
AIM Cash Reserve Shares $103 $322 $558 $1,236
Class B 179 554 954 1,875
Class C 179 554 954 2,073
Class R 128 400 692 1,523
Investor Class 78 243 422 942
- --------------------------------------------------------------------------------
</Table>
3
---------------------
AIM MONEY MARKET 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 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2002, the advisor received compensation of
0.53% of average daily net assets.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchase of Class B and Class C Shares of AIM Money Market Fund are subject to
the contingent deferred sales charges listed in the "Shareholder
Information--Choosing a Share Class" section of this prospectus. Certain
purchases of Class R shares may be subject to the contingent deferred sales
charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
ordinary income.
DIVIDENDS
The fund generally declares dividends daily and pays dividends, if any, monthly.
In order to earn dividends on a purchase of fund shares on the day of the
purchase, the transfer agent must receive payment in federal funds before 12:00
noon Eastern Time on that day. Purchases made by payments in other forms, or
payments in federal funds received after 12:00 noon Eastern Time but before the
close of the customary trading session of the New York Stock Exchange, will
begin to earn dividends on the next business day.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
4
---------------------
AIM MONEY MARKET 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 information for the fiscal years 2002 and 2001 has been audited by Ernst
& Young, LLP, whose report, along with the fund's financial statements, is
included in the fund's annual report, which is available upon request.
Information prior to fiscal year 2001 was audited by other public accountants.
<Table>
<Caption>
CASH RESERVE
-----------------------------------------------------------------------------------------------
SIX MONTHS JANUARY 1,
ENDED YEAR ENDED JULY 31, THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, ----------------------- JULY 31, ------------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- ---------- -------- ---------- -------- ---------- --------
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.0036 0.0141 0.0467 0.0300(a) 0.0414 0.0453 0.0456
=================================================================================================================================
Less distributions from net
investment income (0.0036) (0.0141) (0.0467) (0.0300) (0.0414) (0.0453) (0.0456)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.37% 1.42% 4.77% 3.03% 4.22% 4.62% 4.66%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,188,727 $1,121,879 $937,532 $912,042 $989,478 $1,179,072 $344,117
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets(c) 1.00%(d) 1.01% 1.06% 1.07%(e) 1.04% 0.99% 1.05%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income
to average net assets 0.72%(d) 1.40% 4.61% 5.15%(e) 4.16% 4.53% 4.55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for periods
less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.03% for the six months ended January 31, 2003.
(d) Ratios are annualized and based on average net assets of $1,139,401,811.
(e) Annualized.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------------------
SIX MONTHS JANUARY 1,
ENDED YEAR ENDED JULY 31, THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, --------------------- JULY 31, ----------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- -------- -------- ---------- -------- -------- --------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0004 0.0065 0.0392 0.0256(a) 0.0339 0.0371 0.0378
=================================================================================================================================
Less distributions from net
investment income (0.0004) (0.0065) (0.0392) (0.0256) (0.0339) (0.0371) (0.0378)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.04% 0.66% 3.99% 2.59% 3.45% 3.78% 3.84%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $673,939 $717,967 $439,445 $289,327 $404,911 $310,534 $116,058
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets(c) 1.65%(d) 1.76% 1.81% 1.82%(e) 1.79% 1.81% 1.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to
average net assets 0.08%(d) 0.65% 3.86% 4.40%(e) 3.41% 3.71% 3.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.78% for the six months ended January 31, 2003.
(d) Ratios are annualized and based on average net assets of $691,775,145.
(e) Annualized.
5
---------------------
AIM MONEY MARKET FUND
---------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------------------------------
AUGUST 4, 1997
SIX MONTHS JANUARY 1, YEAR ENDED (DATES SALES
ENDED YEAR ENDED JULY 31, THROUGH DECEMBER 31, COMMENCED) THROUGH
JANUARY 31, --------------------- JULY 31, --------------------- DECEMBER 31,
2003 2002 2001 2000 1999 1998 1997
----------- -------- -------- ---------- -------- -------- ------------------
Net asset value, beginning
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.0004 0.0065 0.0393 0.0256(a) 0.0339 0.0371 0.0158
=================================================================================================================================
Less distributions from
net investment income (0.0004) (0.0065) (0.0393) (0.0256) (0.0339) (0.0371) (0.0158)
=================================================================================================================================
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.04% 0.66% 4.00% 2.59% 3.44% 3.78% 3.92%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $117,100 $118,947 $ 86,884 $ 45,457 $ 56,636 $ 27,391 $ 8,287
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to
average net assets(c) 1.65%(d) 1.76% 1.81% 1.82%(d) 1.79% 1.81% 1.80%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment
income to average net
assets 0.08%(d) 0.65% 3.86% 4.40%(d) 3.41% 3.71% 3.80%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.78% for the six months ended January 31, 2003.
(d) Ratios are annualized and based on average net assets of $120,598,012.
(e) Annualized.
<Table>
<Caption>
CLASS R
-----------------------------
JUNE 3, 2002
SIX MONTHS (DATES SALES
ENDED COMMENCED)
JANUARY 31, THROUGH
2003 JULY 31, 2002
----------- -------------
Net asset value, beginning of period $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0023 0.0010
===============================================================================================================
Less distributions from net investment income (0.0023) (0.0010)
===============================================================================================================
Net asset value, end of period $ 1.00 $ 1.00
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(a) 0.23% 0.10%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 7,569 $ 10
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets(b) 1.25%(c) 1.26%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of net investment income to average net assets 0.47%(c) 1.15%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for periods
less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.28% for the six months ended January 31, 2003.
(c) Ratios are annualized and based on average net assets of $1,454,153.
(d) Annualized.
6
-------------
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 consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) 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 at the end of the month which is seven years after the date on 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 the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) 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.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the 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(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
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>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
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
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
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.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) 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 other 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 privileges; 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 Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - 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--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
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 Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE 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 $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase 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 a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
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; and (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 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 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. 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 CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
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--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial 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 or our AIM 24-hour
Automated Investor Line. 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 $250,000;
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. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.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 $250,000; and (4) you have already
provided proper bank information. 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 REDEMPTIONS
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
Redemption 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.
MCF--07/03
A-7
-------------
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 $250,000;
(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 PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
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.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) 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 ($250 for Investor Class shares) 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 ($250 for Investor Class shares)
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 under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
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 into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge 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 initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding 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;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II 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;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - 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 terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
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 you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R 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 or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C 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 ALL OR 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 SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
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' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. 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 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 may 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 that trade on days when the AIM Funds do
not price their shares, 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
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. 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
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend 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. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
---------------------
AIM MONEY MARKET 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>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</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
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM MONEY MARKET FUND
SEC 1940 Act file number: 811-5686
- ------------------------------------
AIMinvestments.com MKT-PRO-1
APPENDIX III
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
III-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
III-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to 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
trustees 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 the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
III-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
III-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
III-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
III-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX IV
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
IV-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
IV-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
IV-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
IV-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
IV-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
IV-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
IV-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
IV-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
IV-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
</Table>
IV-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
IV-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
IV-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
IV-13
(INVESCO LOGO)
INVESCO TAX-FREE BOND FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that
A I M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and
AIM Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund. The portfolio
management team for your Fund will not change as a result of this restructuring.
The attached proxy statement/prospectus seeks your approval of this new
investment advisory agreement. If approved, this new agreement will become
effective only if shareholders do not approve the proposal to consolidate your
Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO TAX-FREE BOND FUND,
A PORTFOLIO OF INVESCO BOND FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO Tax-Free Bond Fund and the Shareholders of
INVESCO Bond Funds, Inc. ("Company"):
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") under
which all of the assets of your Fund, an investment portfolio of Company, will
be transferred to AIM Municipal Bond Fund ("Buying Fund"), an investment
portfolio of AIM Investment Securities Funds ("Buyer"), Buying Fund will assume
the liabilities of your Fund and Buyer will issue shares of each class of Buying
Fund to shareholders of the corresponding class of shares of your Fund and, in
connection therewith, the sale of all of Company's assets and the dissolution of
Company as a Maryland corporation.
2. Elect 16 directors to the Board of Directors of Company, each of whom
will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors, Inc.
for your Fund.
4. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust and,
in connection therewith, the sale of all of Company's assets and the dissolution
of Company as a Maryland corporation.
5. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO TAX-FREE BOND FUND, AIM MUNICIPAL BOND FUND,
A PORTFOLIO OF A PORTFOLIO OF
INVESCO BOND FUNDS, INC. AIM INVESTMENT SECURITIES FUNDS
4350 SOUTH MONACO STREET 11 GREENWAY PLAZA, SUITE 100
DENVER, COLORADO 80237 HOUSTON, TEXAS 77046-1173
(800) 525-8085 (800) 347-4246
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Tax-Free Bond Fund (your Fund) and INVESCO Bond Funds, Inc. ("Company").
The Special Meeting will be held on October 21, 2003. We intend to mail this
Proxy Statement/Prospectus, the enclosed Notice of Special Meeting of
Shareholders and the enclosed proxy card on or about August 25, 2003 to all
shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund and
shareholders of Company to vote on four proposals. The first Proposal to be
voted on is an Agreement and Plan of Reorganization (the "Agreement") which
provides for the combination of your Fund, an investment portfolio of Company,
with AIM Municipal Bond Fund ("Buying Fund"), an investment portfolio of AIM
Investment Securities Funds ("Buyer") (the "Reorganization") and, in connection
therewith, the sale of all of Company's assets and the dissolution of Company as
a Maryland corporation.
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
The investment objective of Buying Fund is similar to that of your Fund.
See "Comparison of Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated December 31, 2002, as supplemented June
30, 2003 and August 14, 2003 (the "Selling Fund Prospectus"), together with the
related Statement of Additional Information dated December 31, 2002, as
supplemented June 12, 2003 and August 14, 2003, are on file with the Securities
and Exchange Commission (the "SEC"). The Selling Fund Prospectus is incorporated
by reference into this Proxy Statement/Prospectus. The Prospectus of Buying Fund
dated July 21, 2003
i
(the "Buying Fund Prospectus"), and the related Statement of Additional
Information dated July 21, 2003, as supplemented July 28, 2003, and the
Statement of Additional Information relating to the Reorganization, dated August
15, 2003, are on file with the SEC. The Buying Fund Prospectus is incorporated
by reference into this Proxy Statement/Prospectus and a copy of the Buying Fund
Prospectus is attached as Appendix II to this Proxy Statement/Prospectus. The
Statement of Additional Information relating to the Reorganization dated August
15, 2003 also is incorporated by reference into this Proxy Statement/Prospectus.
The SEC maintains a website at www.sec.gov that contains the Prospectuses and
Statements of Additional Information described above, material incorporated by
reference, and other information about Company and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining three Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; and the approval of an Agreement and Plan of
Reorganization (the "Plan") which provides for the redomestication of Company as
a Delaware statutory trust and, in connection therewith, the sale of all of
Company's assets and the dissolution of Company as a Maryland corporation. The
Board has approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM. Finally, the Board has approved the Plan as
being advisable.
All four Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 6
Comparison of Fees and Expenses........................... 6
Comparison of Multiple Class Structures................... 6
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 6
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 8
Risks Associated with Buying Fund......................... 8
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 9
Description of Buying Fund Shares......................... 9
Management's Discussion of Fund Performance............... 9
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 9
Board Considerations...................................... 10
Other Terms............................................... 11
Federal Income Tax Consequences........................... 12
Accounting Treatment...................................... 13
RIGHTS OF SHAREHOLDERS...................................... 13
General................................................... 13
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 14
Removal of Directors/Trustees............................. 14
Meetings of Shareholders.................................. 14
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 15
Voting Rights of Shareholders............................. 15
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 17
INTERESTS OF CERTAIN PERSONS................................ 17
LEGAL MATTERS............................................... 17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 18
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 18
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 19
Background................................................ 19
Structure of the Board of Directors....................... 19
Nominees for Directors.................................... 23
The Board's Recommendation on Proposal 2.................. 23
Current Committees of the Board........................... 23
</Table>
i
<Table>
<Caption>
PAGE
----
Board and Committee Meeting Attendance.................... 25
Future Committee Structure................................ 25
Director's Compensation................................... 26
Current Retirement Plan For Directors..................... 26
Current Deferred Compensation Plan........................ 27
New Retirement Plan For Directors......................... 27
New Deferred Compensation Agreements...................... 28
Officers of Company....................................... 28
Security Ownership of Management.......................... 28
Director Ownership of Your Fund's Shares.................. 28
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 29
Background................................................ 29
Your Fund's Current Investment Advisor.................... 29
The Proposed New Investment Advisor for Your Fund......... 30
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 30
Terms of the Current Advisory Agreement................... 30
Additional Services Provided by INVESCO and its
Affiliates............................................. 32
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 32
Terms of the Proposed Advisory Agreement.................. 32
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 36
The Board's Recommendation on Proposal 3.................. 38
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 38
Background................................................ 38
Reasons for the Proposed Redomestication.................. 38
What the Proposed Redomestication Will Involve............ 39
The Federal Income Tax Consequences of the
Redomestication........................................ 40
Appraisal Rights.......................................... 41
The Trust Compared to Company............................. 41
The Board's Recommendation on Proposal 4.................. 42
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 42
Proxy Statement/Prospectus................................ 42
Time and Place of Special Meeting......................... 42
Voting in Person.......................................... 42
Voting by Proxy........................................... 42
Voting by Telephone or the Internet....................... 43
Quorum Requirement and Adjournment........................ 43
Vote Necessary to Approve Each Proposal................... 44
Proxy Solicitation........................................ 44
Other Matters............................................. 44
Shareholder Proposals..................................... 44
Ownership of Shares....................................... 45
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 45
Fees Paid to the Auditor Related to Company............... 45
Fees Paid to the Auditor Not Related to Company........... 45
</Table>
ii
EXHIBIT A.....Classes of Shares of Your Fund and Corresponding Classes of Shares
of Buying Fund
EXHIBIT B.................Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C...............................Comparison Fee Table and Expense Example
EXHIBIT D............................................Director Compensation Table
EXHIBIT E....................................................Officers of Company
EXHIBIT F.......................................Security Ownership of Management
EXHIBIT G......................................Director Ownership of Fund Shares
EXHIBIT H......Principal Executive Officer and Directors of A I M Advisors, Inc.
EXHIBIT I..............................Compensation to INVESCO Funds Group, Inc.
EXHIBIT J...Fees Paid to INVESCO Funds Group, Inc. and Affiliates in Most Recent
Fiscal Year
EXHIBIT K.............................Advisory Fee Schedules for Other AIM Funds
EXHIBIT L..........................Proposed Compensation to A I M Advisors, Inc.
EXHIBIT M...........Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT N.......................................Ownership of Shares of Your Fund
EXHIBIT O.....................................Ownership of Shares of Buying Fund
APPENDIX I.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Reorganization)
APPENDIX II............................................Prospectus of Buying Fund
APPENDIX III............................Discussion of Performance of Buying Fund
APPENDIX IV......Form of Investment Advisory Agreement with A I M Advisors, Inc.
APPENDIX V.....Agreement and Plan of Reorganization for Your Fund (to Effect the
Redomestication)
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, 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, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(K) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO -- YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
iii
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 4 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposal 3
relates to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 4 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as that term is defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these
1
directors/trustees agreed to combine the separate boards and create a unified
board of directors/trustees. Proposal 2 relates to the election of directors of
your Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. We will be unable
to determine whether a particular Proposal other than Proposal 1, if approved,
should go forward until we have determined whether Proposal 1 has been approved.
Therefore, even if you vote in favor of Proposal 1, it is still important that
you vote on each remaining Proposal. For information about the Special Meeting
and voting on Proposals 1 through 4, see "Information About the Special Meeting
and Voting." For a description of the vote necessary to approve each of
Proposals 1 through 4, see "Information About the Special Meeting and
Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust.
If shareholders approve the Agreement by the Combined Shareholder Vote (as
defined under "Information About the Special Meeting and Voting -- Vote
Necessary to Approve Each Proposal") and other closing conditions are satisfied,
all of the assets of your Fund will be transferred to Buying Fund and Buying
Fund will assume the liabilities of your Fund, and Buyer will issue shares of
each class of Buying Fund to shareholders of the corresponding class of shares
of your Fund, as set forth on Exhibit A. For a description of certain of the
closing conditions that must be satisfied, see "Additional Information About the
Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
2
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain would be included in a taxable distribution. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue similar investment objectives and invest
in similar types of securities. As a result, the Reorganization is not expected
to cause significant portfolio turnover or transaction expenses from the sale of
securities that are incompatible with the investment objective of Buying Fund.
The investment objective or goal of your Fund is classified as fundamental,
which means that the Board cannot change it without shareholder approval. The
investment objective of Buying Fund is not classified as fundamental, which
means that the Board of Trustees of Buyer can change it without shareholder
approval. Having the ability to change the investment objective without
shareholder approval allows the Board of Trustees to respond more quickly and
efficiently to changing market conditions and to save Buying Fund and its
shareholders money by eliminating the need to solicit proxies to obtain
shareholder approval to change an investment objective to respond to changing
market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
<Caption>
INVESCO TAX-FREE BOND FUND
(YOUR FUND) AIM MUNICIPAL BOND FUND (BUYING FUND)
- -------------------------------------------- --------------------------------------------
INVESTMENT OBJECTIVE
- - high level of current income - high level of current income exempt from
federal income taxes, consistent with the
preservation of principal
INVESTMENT STRATEGIES
- - invests at least 80% of its net assets in - invests at least 80% of its assets in
municipal securities issued by state, municipal bond securities that (1) pay
county, and city governments, including interest which is excluded from gross
industrial development obligations and income for federal income tax purposes,
private activity bonds which generally are and (2) do not produce income that will be
not guaranteed by the governmental entity considered to be an item of preference for
that issues them purposes of the alternative minimum tax
- - he interest on the foregoing securities is
generally exempt from federal income tax,
although the interest may be included in
your income if you are subject to the
federal alternative minimum tax (the
interest on the foregoing securities may
be subject to state and/or local income
taxes)
</Table>
3
<Table>
<Caption>
INVESCO TAX-FREE BOND FUND
(YOUR FUND) AIM MUNICIPAL BOND FUND (BUYING FUND)
- -------------------------------------------- --------------------------------------------
- - INVESCO seeks to manage your Fund so that
substantially all of the income produced
is exempt from federal income tax when
paid to you, although INVESCO cannot
guarantee this result
- - portions of capital gains distributions
made by your Fund may be taxable
- - municipal securities that may be purchased - invests primarily in a diversified
by your Fund include municipal notes, portfolio of municipal bonds
short-term municipal bonds, and variable
rate debt obligations
- - municipal obligations may be purchased or - invests at least 80% of its total assets
sold on a delayed delivery or a in investment-grade municipal securities
when-issued basis with settlement taking rated by Moody's Investors Service, Inc.
place in the future. Your Fund may ("Moody's"), Standard & Poor's Ratings
purchase securities together with the Services ("S&P") or any other nationally
right to resell them to the company at an recognized statistical rating
agreed upon price or yield within a organization; other securities meeting
specific time period prior to the maturity certain standards set by Buying Fund are
date of the securities. This is commonly included in this category; focus on
known as a "demand feature' or a "put." municipal securities AIM believes have
favorable prospects for current income
consistent with Buying Fund's objective of
preservation of principal
- - up to 20% of its net assets may be
invested in short-term taxable
instruments, including corporate debt
securities, bank obligations, commercial
paper, U.S. government debt, and
repurchase agreements
- - circumstances under which your Fund will
invest in taxable securities include but
are not limited to (a) pending investment
of proceeds of sales of portfolio
securities; (b) pending settlement of
purchases of portfolio securities; and (c)
maintaining liquidity to meet the need for
anticipated redemptions
- - may invest up to 10% of its portfolio in - may invest up to 20% of its total assets
lower-rated securities, i.e., "junk bonds" in lower- quality municipal securities,
(but never securities rated below B by i.e., "junk bonds," or unrated municipal
Moody's or B- by S&P at the time of securities
purchase)
- - no corresponding strategy - generally will not invest 25% or more of
its assets in (a) securities whose issuers
are located in the same state; (b)
securities the interest upon which is paid
from revenues of similar type projects; or
(c) industrial development bonds
- - there are no limitations on the maturities - there are no limitations on the maturities
of the securities held by your Fund, and of the securities held by Buying Fund
your Fund's average maturity will vary as
INVESCO responds to changes in interest
rates
</Table>
4
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
------------------------------------------------------------
INVESCO TAX-FREE BOND FUND AIM MUNICIPAL BOND FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ------- ----------------------------- ----------------------------
Investment Advisor............. INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Sub-advisor.................... A I M Capital Management, None
Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Distributor.................... A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator.................. INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian...................... State Street Bank and Trust The Bank of New York
Company
Transfer Agent and Dividend
Disbursing Agent............... INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Independent Auditors........... PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this Proxy Statement/Prospectus
by reference. For more information regarding the total return of Buying Fund,
see "Information About Buying Fund -- Financial Highlights." Past performance
cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of August 31, 2002, and Buying Fund, as of July
31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can be
found at Exhibit C. Pro forma estimated Expense Ratios for each class of shares
of Buying Fund after giving effect to the Reorganization are also provided as of
July 31, 2002 as part of Exhibit C.
5
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. For
information regarding the features of the various share classes of your Fund and
Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C INVESTOR CLASS
- --------------------- ------------------- ------------------- -------------------
- - subject to an - not subject to an - not subject to an - not subject to an
initial sales initial sales initial sales initial sales
charge* charge charge charge
- - may be subject to a - subject to a CDSC - subject to a CDSC - not subject to a
CDSC on redemptions on certain on certain CDSC
made within 18 redemptions made redemptions made
months from the within 6 years within 12 months
date of certain from the date of from the date of
large purchases** purchase purchase***
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of your Fund is computed based on
their original purchase price. This method of computation changes to conform to
Buying Fund's method of computation effective August 18, 2003.
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
6
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties. The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement -- The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
7
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund and that the income you may receive from your investment may vary.
The value of your investment in Buying Fund will go up and down with the prices
of the securities in which Buying Fund invests. Interest rate increases can
cause the price of a debt security to decrease. The longer a debt security's
duration, the more sensitive it is to this risk. Junk bonds are less sensitive
to this risk than are higher-quality bonds. A municipality may default or
otherwise be unable to honor a financial obligation. Revenue bonds are generally
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 Buying 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 economics of the
regions in which Buying Fund invests.
Compared to higher-quality debt securities, junk bonds involve greater risk
of default or price changes due to changes in the credit quality of the issuer
and because they may be unsecured and may be subordinated to other creditors'
claims. The value of junk bonds often fluctuates in response to company,
political or economic developments and can decline significantly over short
periods of time or during periods of general or regional economic difficulty.
During those times the bonds could be difficult to value or to sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to those
described above for Buying Fund because of the similarities in their investment
objectives and strategies. Set forth below is a discussion of certain risks that
differ between Buying Fund and your Fund. You can find more detailed
descriptions of specific risks associated with your Fund in the Selling Fund
Prospectus.
Buying Fund may invest up to 20% of its net assets in junk bonds and
unrated debt securities deemed by the portfolio managers to be of comparable
quality. Your Fund may invest up to 10% of its portfolio in junk bonds (but
never in securities rated below B by Moody's or B- by S&P). Buying Fund's
potentially greater exposure to junk bonds and unrated debt securities may give
it greater exposure to credit risks involved in junk bonds and unrated debt
securities.
Although both Buying Fund and your Fund invest at least 80% of their assets
in municipal securities, Buying Fund limits such investments to those that do
not produce income that will be considered to be an item of preference for
purposes of the alternative minimum tax ("alternative minimum securities"). Up
to 20% of Buying Fund's assets may be invested in alternative minimum
securities. Your Fund does not have any restriction on investing in alternative
minimum securities. As a result, if your Fund acquires more of such securities
than Buying Fund, shareholders of your Fund may be subject to a greater extent
to the Federal alternative minimum tax.
Buying Fund generally will not invest 25% or more of its assets in
securities whose issuers are located in the same state, securities the interest
upon which is paid from revenues of similar type projects, or industrial
development bonds. Because your Fund has no such restrictions, it may be subject
to greater concentration risk than Buying Fund.
8
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund 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 Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended July 31, 2002 is set forth in Appendix
III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
October 27, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 24, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the
9
Closing and (b) all of your Fund's net capital gain recognized in its taxable
year ended August 31, 2003 and in such short taxable year (after reduction for
any capital loss carryover).
In addition to the Special Meeting to vote on the Reorganization, the Board
has called special meetings for the shareholders of each of Company's three
other series portfolios to approve for each such series portfolio an agreement
and plan of reorganization that is similar to the Agreement, under which all of
the assets of each such series portfolio will be sold to a series portfolio of
Buyer, resulting in the combination of the two series portfolios. If the
Reorganization and all three other reorganizations are approved by shareholders
by the 1940 Act Vote (as defined under "Information About the Special Meeting
and Voting -- Vote Necessary to Approve Each Proposal"), the resulting
transactions will constitute a sale of all of Company's assets and, under
applicable Maryland law and Company's Charter, the Reorganization and all three
other reorganizations will require approval by shareholders by the Maryland Law
Vote in addition to the 1940 Act Vote.
If the Agreement and all three other reorganizations are approved by
shareholders by the Combined Shareholder Vote, the Reorganization and all three
other reorganizations will be consummated and Company and Buyer will cause
Articles of Transfer to be filed with the State Department of Assessments and
Taxation of Maryland to transfer all of the assets of Company as soon as
reasonably practicable after the Closing. Following the filing of Articles of
Transfer, Company will file Articles of Dissolution with the State Department of
Assessments and Taxation of Maryland to dissolve Company as a Maryland
corporation and an application for deregistration on Form N-8F under the 1940
Act with the Securities and Exchange Commission to deregister Company as an
investment company.
The Reorganization will also be consummated if shareholders approve the
Agreement by the 1940 Act Vote and the Maryland Law Vote is ultimately not
required because one or more of the three other reorganizations are not approved
by the 1940 Act Vote. If shareholders approve the Agreement and all three other
reorganizations by the 1940 Act Vote, but not by the Maryland Law Vote, the
Board will determine whether to consummate the Reorganization and/or one or more
of the other three reorganizations; provided, however, that in no event may the
Reorganization and all three other reorganizations be consummated.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at an in-person meeting of the
Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the
10
Board with written materials concerning the structure of the proposed
Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund, particularly
for the past year.
- Management's representation that AIM's fixed income department could
provide more depth and resources than INVESCO's fixed income department.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that your Fund and AMVESCAP, on behalf of INVESCO, will
each bear one half of the costs and expenses incurred in connection with the
Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommends the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
11
- the shareholders shall have approved the Agreement by the Combined
Shareholder Vote; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund and Company do not approve the Agreement or if the Closing does not
occur on or before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the
12
accuracy, as of the Effective Time, of certain representations of Company and
Buyer upon which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering
its opinion. The conclusions reached in that opinion could be jeopardized if the
representations of Company or Buyer are incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements, amendments and
supplements thereto (the "Articles of Incorporation"), and applicable Maryland
law. The operations of Buyer, as a Delaware statutory trust, are governed by its
Amended and Restated Agreement and Declaration of Trust, as amended (the
"Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be subject to any personal liability for acts or obligations of the
Trust and that every written agreement, obligation or other undertaking made or
issued by the Trust shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his or her investment due to shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations and
the express disclaimer of shareholder liabilities is determined not to be
effective. Given the nature of the assets and operations of the Trust, the
possibility of the Trust being unable to meet its obligations is considered
remote, and even if a claim were brought against the Trust and a court
determined that shareholders were personally liable, it would likely not impose
a material obligation on a shareholder.
13
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the holders of a majority of the
outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be called by the president
or, in his or her absence, the vice-president or by a majority of the Board of
Directors or holders of shares entitled to cast at least 10% of the votes
entitled to be cast at the special meeting. Requests for special meetings must,
among other things, state the purpose of such meeting and the matters to be
voted upon. No special meeting need be called to consider any matter previously
voted upon at a special meeting called by the shareholders during the preceding
twelve months, unless requested by a majority of all shares entitled to vote at
such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith,
14
gross negligence or reckless disregard of the duties involved in the conduct of
the office of trustee. Delaware law allows a statutory trust to indemnify and
hold harmless any trustee or other person against any and all claims and
demands. The Declaration of Trust provides for the indemnification of its
trustees and officers to the extent that such trustees and officers act in good
faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust; and (vii) approval
of such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes
15
entitled to be cast on the matter. The directors shall have the power to alter,
amend or repeal the bylaws of Company or adopt new bylaws at any time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
16
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS A SHARES CLASS A SHARES
-------------- -------------- --------------
Net Assets......................................... $2,867,322 $346,569,832 $349,437,154
Shares Outstanding................................. 183,210 42,661,464 43,014,572
Net Asset Value Per Share.......................... $ 15.65 $ 8.12 $ 8.12
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
Net Assets......................................... $568,681 $107,694,746 $108,263,427
Shares Outstanding................................. 36,263 13,234,667 13,304,520
Net Asset Value Per Share.......................... $ 15.68 $ 8.14 $ 8.14
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
-------------- -------------- --------------
Net Assets.......................................... $2,289,340 $26,636,201 $28,925,541
Shares Outstanding.................................. 129,162 3,279,625 3,561,491
Net Asset Value Per Share........................... $ 17.72 $ 8.12 $ 8.12
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR INVESTOR INVESTOR
CLASS SHARES CLASS SHARES(1) CLASS SHARES
-------------- --------------- --------------
Net Assets........................................ $197,597,481 0 $197,597,481
Shares Outstanding................................ 12,599,978 0 24,330,992
Net Asset Value Per Share......................... $ 15.68 $ 8.12 $ 8.12
</Table>
- ---------------
(1) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $203 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
17
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-2674. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-5686. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Company and Buyer and other registrants that file
electronically with the SEC.
18
PROPOSAL 2 -- ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 11 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Richard W. Healey, Gerald L. Lewis, John W. McIntyre, Larry Soll,
Ph.D. and Mark H. Williamson. Eight of the current directors are "independent,"
meaning they are not "interested persons" of Company within the meaning of the
1940 Act. Three of the current directors are "interested persons" because of
their business and financial relationships with Company and INVESCO, its
investment advisor, and/or INVESCO's parent, AMVESCAP. Six of the current
directors have declined to stand for re-election as directors of Company.
Therefore, their terms as directors of Company will end upon the election and
qualification of their successor directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 11 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
19
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- --------------------------------- --------------------------
Bob R. Baker -- 1936.... 1983 Consultant (2000-present); None
formerly, President and Chief
Executive Officer (1988-2000) of
AMC Cancer Research Center,
Denver, Colorado; until
mid-December 1988, Vice Chairman
of the Board of First Columbia
Financial Corporation, Englewood,
Colorado; formerly, Chairman of
the Board and Chief Executive
Officer of First Columbia
Financial Corporation.
James T. Bunch -- 1942.. 2000 Co-President and Founder of None
Green, Manning & Bunch Ltd.,
Denver, Colorado (1988-present)
(investment banking firm);
Director and Vice President of
Western Golf Association and
Evans Scholars Foundation;
Executive Committee, United
States Golf Association;
formerly, General Counsel and
Director of Boettcher & Co.,
Denver, Colorado; and formerly,
Chairman and Managing Partner,
law firm of Davis, Graham &
Stubbs, Denver, Colorado.
Gerald J.
Lewis -- 1933......... 2000 Chairman of Lawsuit Resolution General Chemical Group,
Services, San Diego, California Inc., Hampdon, New
(1987-present); formerly, Hampshire (1996- present),
Associate Justice of the Wheelabrator Technologies,
California Court of Appeals; and Inc. (waste management
Of Counsel, law firm of Latham & company), Fisher
Watkins, San Diego, California Scientific, Inc.
(1987-1997). Principal (laboratory supplies),
Occupation(s) Henley Manufacturing,
Inc., and California
Coastal Properties, Inc.
Other Directorship(s)
Larry Soll,
Ph.D. -- 1942......... 1997 Retired; formerly, Chairman of Synergen Inc. (since
the Board (1987-1994), Chief incorporation in 1982) and
Executive Officer (1982-1989 and Isis Pharmaceuticals, Inc.
1993-1994) and President
(1982-1989) of Synergen Inc.
(biotechnology company); and
formerly, trustee of INVESCO
Global Health Sciences Fund.
</Table>
20
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- --------------------------- --------------------------
Mark H.
Williamson(1) -- 1951..... 1998 Director, President and Director/trustee of each
Chief Executive Officer, of the 17 A I M Funds
A I M Management Group
Inc.; Director, Chairman
and President, A I M
Advisors, Inc. (registered
investment advisor);
Director, A I M
Distributors, Inc.
(registered broker dealer);
and Chief Executive Officer
of the A I M Division of
AMVESCAP PLC
(2003-present); formerly,
Chief Executive Officer,
Managed Products Division,
AMVESCAP PLC (2001-2002);
Chairman of the Board
(1998-2002), President
(1998-2002) and Chief
Executive Officer
(1998-2002) of INVESCO
Funds Group, Inc.
(registered investment
advisor) and INVESCO
Distributors, Inc.
(registered broker dealer);
Chief Operating Officer and
Chairman of the Board of
INVESCO Global Health
Sciences Fund; Chairman and
Chief Executive Officer of
NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
21
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- --------------------------- ---------------------------
Frank S. Bayley -- 1939................... Of Counsel, law firm of Badgley Funds, Inc.
Baker & McKenzie (registered investment
company)
Bruce L. Crockett -- 1944................. Chairman, Crockett ACE Limited (insurance
Technology Associates company); Captaris, Inc.
(technology consulting (unified messaging
company) and Captaris, Inc. provider)
(unified messaging
provider)
Albert R. Dowden -- 1941.................. Director of a number of Cortland Trust, Inc.
public and private business (Chairman) (registered
corporations, including the investment company);
Boss Group, Ltd. (private Annuity and Life Re
investment and management) (Holdings), Ltd. (insurance
and Magellan Insurance company)
Company; formerly,
President, Chief Executive
Officer and Director, Volvo
Group North America, Inc.;
Senior Vice President, AB
Volvo and director of
various affiliated Volvo
Group companies
Edward K. Dunn, Jr. -- 1935............... Formerly, Chairman, None
Mercantile Mortgage Corp.;
President and Chief
Operating Officer,
Mercantile-Safe Deposit &
Trust Co.; and President,
Mercantile Bankshares Corp.
Jack M. Fields -- 1952.................... Chief Executive Officer, Administaff
Twenty First Century Group,
Inc. (government affairs
company) and Texana Timber
LP
Carl Frischling -- 1937................... Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel (registered investment
LLP company)
Prema Mathai-Davis -- 1950................ Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock -- 1942.................. Partner, law firm of None
Pennock & Cooper
Ruth H. Quigley -- 1935................... Retired None
Louis S. Sklar -- 1939.................... Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
22
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- --------------------------- ---------------------------
Robert H. Graham(1) -- 1946............... Director and Chairman, None
A I M Management Group Inc.
(financial services holding
company); and Director and
Vice Chairman, AMVESCAP PLC
(parent of AIM and a global
investment management firm)
and Chairman, AMVESCAP
PLC -- AIM Division;
formerly, President and
Chief Executive Officer,
A I M Management Group
Inc.; Director, Chairman
and President, A I M
Advisors, Inc. (registered
investment advisor);
Director and Chairman,
A I M Capital Management,
Inc. (registered investment
advisor), A I M
Distributors, Inc.
(registered broker dealer),
A I M Fund Services, Inc.
(registered transfer
agent), and Fund Management
Company (registered broker
dealer); and Chief
Executive Officer, AMVESCAP
PLC -- Managed Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
23
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under applicable law, may only be exercised by
the full Board, the committee may exercise all powers and authority of the Board
in the management of the business of Company. All decisions are subsequently
submitted for ratification by the Board. The current members of the executive
committee are Messrs. Baker, Bunch, McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
24
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended August 31, 2002, the Board met eight times,
the audit committee met four times, the investments and management liaison
committee met four times, the brokerage committee met four times, the
derivatives committee met four times, the nominating committee met two times,
the legal committee met three times, the compensation committee met four times,
and the executive, valuation and retirement plan committees did not meet. All of
the current directors then serving attended at least 75% of the meetings of the
Board or applicable committee during the most recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
25
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor'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.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically reviewing
the advisor's procedures for valuing securities ("Procedures"), and making any
recommendations to the advisor with respect thereto; (ii) reviewing proposed
changes to the Procedures recommended by the advisor from time to time; (iii)
periodically reviewing information provided by the advisor regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
26
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate per annum (currently 5.75%), will provide the Participating Qualified
Director with an account value of $340,000 upon reaching age 72. Once the
initial dollar amount of the Account is established, Account proceeds are
invested in shares of one or more of the INVESCO Funds. The value of the Account
fluctuates with the appreciation or depreciation in the shares of the INVESCO
Funds owned by the Account and Account shares are increased by the amount of any
dividends and capital gains distributions paid with respect to the shares. Upon
retirement, a Participating Qualified Director is entitled to receive the value
in the Account either in a lump sum payment or in payments over a stipulated
number of months. The Account value continues to fluctuate as long as monthly
payments are made. If a Participating Qualified Director becomes disabled or
dies prior to his or her retirement and if, at the time of disability or death,
the value of a Participating Qualified Director's Account is less than $340,000,
the Director or the Director's beneficiary or estate will not be paid the value
in the Account but will receive $34,000 per annum for ten years. If, at the time
of the Participating Qualified Director's death or disability prior to
retirement, the value in the director's Account is $340,000 or more, the
Participating Qualified Director or his or her estate or beneficiary will
receive the value in the Account either in a lump sum or in quarterly
installments. The cost of providing the initial dollar amount to be allocated to
a Participating Qualified Director's Account and the cost of payment of any
death or disability benefit that aggregates more than the Account value will be
allocated among the INVESCO Funds in a manner determined to be fair and
equitable by a committee appointed to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited
27
service as a director (including service to a predecessor fund) for a Covered
Fund. The retirement benefits will equal 75% of the director's annual retainer
paid or accrued by any Covered Fund to such director during the twelve-month
period prior to retirement, including the amount of any retainer deferred under
a separate deferred compensation agreement between the Covered Fund and the
director. The annual retirement benefits will be payable in quarterly
installments for a number of years equal to the lesser of (i) ten or (ii) the
number of such director's credited years of service. A death benefit will also
be available under the New Retirement Plan that will provide a surviving spouse
with a quarterly installment of 50% of a deceased director's retirement benefits
for the same length of time that the director would have received the benefits
based on his or her service. A director must have attained the age of 65 (55 in
the event of death or disability) to receive any retirement benefit. Payment of
benefits under the New Retirement Plan will not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director 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. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds and the AIM Funds complex can be found in Exhibit G.
28
PROPOSAL 3 --
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund. The portfolio management
team for your Fund will not change as a result of this restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on August
13, 1999. Your Fund's initial shareholder initially approved the agreement and
your Fund's public shareholders have not subsequently voted on the agreement.
The Board, including a majority of the independent directors, last approved the
current advisory agreement on May 15, 2003.
29
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A 1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised, and calculates the net asset value of your Fund, subject to
such procedures established by the Board and based upon information provided by
your Fund, the custodian of your Fund or other source as designated by the
Board. INVESCO provides sub-accounting, recordkeeping and administrative
services to your Fund under an administrative services agreement. Under the
advisory agreement, as administrator, INVESCO also provides, at its expense and
at the request of your Fund, executive, statistical, administrative, internal
accounting and clerical services and office space, equipment and facilities.
Under the terms of the current advisory agreement, INVESCO has no liability
to Company, your Fund or to your Fund's shareholders or creditors, for any error
of judgment, mistake of law, or for any loss arising out of any investment, nor
for any other act or omission, in the performance of its obligations to Company
or your Fund unless such act or omission involves willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties
under the current advisory agreement.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund and each other series portfolio of
Company, and (ii) the vote of a majority of the directors of Company who are not
interested persons of INVESCO or Company by votes cast in person at a meeting
called for such purpose. The current advisory agreement provides that the Board,
a majority of the outstanding voting securities of your Fund and each other
series portfolio of Company or INVESCO may terminate the agreement with respect
to your Fund on 60 days' written notice without penalty. The agreement
terminates automatically in the event of its assignment, unless an order is
issued by the SEC conditionally or unconditionally exempting such assignment
from the applicable provisions of the 1940 Act.
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
30
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
- compensation and expenses of the Board;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
31
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, 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 trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and each other series portfolio of Company
(each, an "Investing Fund") to invest their uninvested cash 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 the Investing Fund. AIM
will receive advisory fees from the Affiliated Money Market Fund to the extent
an Investing Fund invests uninvested cash in such Affiliated Money Market Fund.
If the Board approves AIM's use of the exemptive order for Company, AIM intends
to waive a portion of the advisory fees payable by each Investing Fund in an
amount equal to 25% of the advisory fee AIM
32
receives from the Affiliated Money Market Fund as a result of such Investing
Fund's investment of uninvested cash in such Affiliated Money Market Fund.
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- expand provisions regarding broker-dealer relationships that are set
forth in the current advisory agreement to make them consistent with
similar provisions in other AIM advisory agreements;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- simplify certain rights applicable to your Fund's right to terminate
advisory services or amend the proposed advisory agreement;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
ADMINISTRATIVE SERVICES
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
BROKER-DEALER RELATIONSHIPS AND AFFILIATED BROKERAGE
The current advisory agreement requires INVESCO, when selecting brokers or
dealers, to first obtain the most favorable execution and price for your Fund;
after fulfilling this primary requirement INVESCO may consider, as secondary
factors whether such firms provide statistical research and other information to
INVESCO. The proposed advisory agreement specifies that AIM's primary
consideration in effecting a security transaction will be to obtain the best
execution. In selecting broker-dealers to execute particular transactions, AIM
will consider the best net price available, the reliability, integrity and
financial condition of the broker-dealer, the size of and difficulty in
executing the order and the value of the expected contribution of the
broker-dealer to the investment performance of Company's portfolio funds on a
continuing basis. Accordingly, the price to your Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the fund
33
execution services offered by the broker-dealer. The broker-dealer relationship
provisions of the current advisory agreement with INVESCO for your Fund do not
specify these factors.
Although AIM does not currently execute trades through brokers or dealers
that are affiliated with AIM, the proposed advisory agreement includes a new
provision that would permit such trades, subject to compliance with applicable
federal securities laws, rules, interpretations and exemptions.
SECURITIES LENDING
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative 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 loans; (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.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
PAYMENT OF EXPENSES AND RESTRICTIONS ON FEES RECEIVED
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
TERMINATION/AMENDMENT RIGHTS
The current advisory agreement with INVESCO provides that Company can
terminate the agreement with INVESCO or amend the terms of the agreement upon
receipt of the affirmative vote of a majority of the outstanding securities (as
defined in the 1940 Act) of all series portfolios of Company. Under the 1940
34
Act and the regulations thereunder, as interpreted by the SEC, advisory services
provided to your Fund cannot be terminated or amended without the approval by a
majority of the outstanding securities of your Fund, unless, in the case of an
amendment, the Board may approve the changes. The proposed advisory agreement
simplifies the language regarding termination and amendment of the agreement to
be consistent with the 1940 Act and the regulations thereunder, as interpreted
by the SEC.
NON-EXCLUSIVITY PROVISIONS
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
DELEGATION
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in connection with rendering of the
services required of INVESCO. INVESCO must supervise all such services and
remain fully responsible for the services provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor.
LIMITATION OF LIABILITY OF AIM, COMPANY AND SHAREHOLDERS
As described above under the descriptions of the terms of the current
advisory agreement and the proposed advisory agreement, respectively, both
agreements provide limitation of liability for the advisor.
35
The limitation of liability provisions of the 1940 Act also apply to both
INVESCO and AIM in their capacity as advisor. In addition, the proposed advisory
agreement states that no series of Company shall be liable for the obligations
of other series of Company and the liability of AIM to one series of Company
shall not automatically render AIM liable to any other series of Company.
Consistent with applicable law, the proposed advisory agreement would also
include a provision stating that AIM's obligations under the agreement are not
binding on any shareholders of Company individually and that shareholders are
entitled to the same limitation on personal liability as shareholders of private
corporations for profit. The primary reason for this change is to make your
Fund's agreement consistent with similar agreements for the AIM Funds.
STATE LAW GOVERNING THE AGREEMENT
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund, and noted that the persons providing portfolio management services
to your Fund would not change if Proposal 3 is approved by shareholders.
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an
36
investment objective and strategies similar to those of your Fund and is
able, therefore, to provide advisory and administrative services to your
Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these funds. The Board noted that the cash collateral
relates to assets of your Fund that have already been invested, and the
investment of the cash collateral is intended to benefit your Fund by
providing it with additional income. The Board also noted that an
investment of the cash collateral in an AIM-advised money market fund
would have a positive effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they believe to
be in your best interests. In so doing, they were advised by independent
counsel, retained by the
37
independent directors and paid for by Company, as to the nature of the matters
to be considered and the standards to be used in reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve Proposal 3, the current advisory
agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 -- APPROVAL OF THE PLAN TO REDOMESTICATE
COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If Proposal 1 is approved by the shareholders of your Fund, your Fund will
be combined with Buying Fund and will not be redomesticated as a new series
portfolio of the Trust. You are being asked to approve Proposal 4 so that, in
the event that Proposal 1 is not approved, your Fund will still be able to
benefit from redomesticating as a new series portfolio of the Trust.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix V.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act. As permitted by
SEC rules, the Trust will adopt as its own the registration statement of
Company.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
38
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive compliance with any condition
contained in the Plan, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
39
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with A I M Fund Services, Inc., each of which currently
provides such services to the corresponding Current Fund, and a multiple
class plan pursuant to Rule 18f-3 of the 1940 Act which will be
substantially identical to the multiple class plan that has been approved
by the Board for the corresponding Current Fund and which is expected to
become effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on accounts of shareholders under the Current Funds will be
replicated on the New Fund account. No sales charges will be imposed in
connection with the Redomestication.
Assuming your approval of Proposal 4, Company currently contemplates that
the Redomestication will be consummated on November 4, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication
40
in light of their individual circumstances and as to state and local
consequences, if any, of the Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
STRUCTURE OF THE TRUST
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
TRUSTEES OF THE TRUST
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
SHARES OF THE TRUST
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing
41
discussion and the discussion under the caption "Rights of Shareholders" in
Proposal 1 above is only a summary of certain differences and is not a complete
description of all the differences. Shareholders should refer to the provisions
of the governing documents of Company and Trust and state law directly for a
more thorough comparison. Copies of the Articles of Incorporation and Amended
and Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit M.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
42
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of Company set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposal 1 if (a) shareholders entitled to vote one-third of the
issued and outstanding shares of Company on the Record Date and (b) shareholders
entitled to vote one-third of the issued and outstanding shares of your Fund on
the Record Date are present at the Special Meeting in person or by proxy. A
quorum will exist for Proposals 2 and 4 if shareholders entitled to vote
one-third of the issued and outstanding shares of Company on the Record Date are
present at the Special Meeting in person or by proxy. A quorum will exist for
Proposal 3 if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
43
VOTE NECESSARY TO APPROVE EACH PROPOSAL
Proposals 1 and 3. Approvals of Proposals 1 and 3 requires the lesser of
(a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund (the "1940 Act Vote"). Applicable
Maryland law and the Charter of Company may also require that Proposal 1 be
approved by the affirmative vote of a majority of the issued and outstanding
shares of Company, which includes the shares of your Fund and the shares of the
three other series portfolios of Company, all voting together (the "Maryland Law
Vote" and together with the 1940 Act Vote, the "Combined Shareholder Vote"). See
"Additional Information About the Agreement -- The Reorganization." Abstentions
and broker non-votes are counted as present but are not considered votes cast at
the Special Meeting. As a result, they have the same effect as a vote against
Proposals 1 and 3 because approval of Proposals 1 and 3 requires the affirmative
vote of a percentage of the voting securities present or represented by proxy or
a percentage of the outstanding voting securities or the issued and outstanding
shares, as applicable.
Proposal 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposal 4. Approval of Proposal 4 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $7,600. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. Your Fund and AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization, including
Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
44
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit N.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit O.
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending August 31, 2003. A representative of the Auditor is expected to be
available at the Special Meeting and to have the opportunity to make a statement
and respond to appropriate questions from the shareholders. The audit committee
of the Board has considered whether the provisions of the services below is
compatible with maintaining the Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of four separate series portfolios)
aggregate fees for professional services rendered for the 2002 fiscal year as
follows:
<Table>
Audit Fees.................................................. $79,950
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $12,137
-------
Total Fees.................................................. $92,087
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2002 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $149,083
--------
Total Fees.................................................. $149,083
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
45
EXHIBIT A
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF YOUR FUND SHARES OF BUYING FUND
------------------------------ ------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO TAX-FREE BOND FUND (YOUR FUND)
Performance information in the bar charts below is that of the Fund's
Investor Class shares which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade. The table below shows the pre-tax and after-tax average
annual total returns of Investor Class for various periods ended December 31,
2001 compared to the Lehman Municipal Bond Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption returns assume you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption returns assume payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rates in effect
at the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax returns shown is not relevant.
The information in the chart and table illustrates the variability of the
Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
TAX-FREE BOND FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)
<Table>
'92......................................................... 8.77%
'93......................................................... 12.11%
'94......................................................... (5.52)%
'95......................................................... 15.64%
'96......................................................... 2.36%
'97......................................................... 8.67%
'98......................................................... 4.72%
'99......................................................... (3.36)%
'00......................................................... 12.07%
'01......................................................... 3.19%
</Table>
Best Calendar Qtr. 12/95 5.65%
Worst Calendar Qtr. 3/94 (5.76%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/01
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Tax-Free Bond Fund(1)(2)
Return Before Taxes....................................... 3.19% 4.93% 5.66%
Return After Taxes on Distributions....................... 3.18% 4.76% 5.29%
Return After Taxes on Distributions and Sale of Fund
Shares................................................. 3.70% 4.82% 5.39%
Lehman Municipal Bond Index(3) (reflects no deduction for
fees, expenses, or taxes)................................. 5.13% 5.98% 6.63%
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of each class' expenses.
(2) Returns before taxes for Investor Class shares of Tax-Free Bond Fund
year-to-date as of the calendar quarter ended September 30, 2002 was 10.24%.
(3) The Lehman Municipal Bond Index is an unmanaged index indicative of the high
yield bond, broad domestic fixed-income, municipal government bond and
longer-term government bond markets. Please keep in mind that the index does
not pay brokerage, management, administrative, or distribution expenses, all
of which are paid by the classes and are reflected in its annual returns.
Index returns also do not include sales charges or CDSC that may be paid by
the shareholder.
AIM MUNICIPAL BOND FUND (BUYING FUND)
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 11.66%
1994................................................................... -3.79%
1995................................................................... 13.04%
1996................................................................... 3.90%
1997................................................................... 7.27%
1998................................................................... 5.28%
1999................................................................... -2.45%
2000................................................................... 8.63%
2001................................................................... 3.82%
2002................................................................... 8.26%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was
3.96%.
During the periods shown in the bar chart, the highest quarterly return was
4.90% (quarter ended March 31, 1995) and the lowest quarterly return was -4.22%
(quarter ended March 31, 1994).
B-2
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of
a broad-based securities market index and a peer group index. The fund's
performance reflects payment of sales loads, if applicable. The indices do not
reflect payment of fees, expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
INCEPTION
1 YEAR 5 YEARS 10 YEARS DATE
------ ------- -------- ---------
Class A 03/28/77
Return Before Taxes................................... 3.16% 3.61% 4.92%
Return After Taxes on Distributions................... 3.16% 3.60% 4.86%
Return After Taxes on Distributions and Sale of Fund
Shares............................................. 3.74% 3.83% 4.93%
Lehman Brothers Municipal Bond Index(1)................. 9.60% 6.06% 6.71%
Lipper General Municipal Debt Fund Index(2)............. 8.63% 4.96% 5.99%
</Table>
- ---------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depends on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts.
(1) The Lehman Brothers Municipal Bond Index is a broad-based, total return
index comprised of 8000 actual bonds, all of which are investment grade,
fixed rate, long term maturities (greater than two years) and are selected
from issues larger than $50 million dated since January 1984.
(2) The Lipper General Municipal Debt Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper General Municipal Debt
category. These funds invest primarily in Municipal debt issues rated in the
top four credit ratings.
B-3
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C and Investor Class shares of INVESCO Tax-Free Bond Fund ("Selling
Fund"), and of Class A, Class B and Class C shares of AIM Municipal Bond Fund
("Buying Fund"). Pro Forma Combined Expense Ratios of Buying Fund giving effect
to the reorganization of Selling Fund into Buying Fund are also provided.
<Table>
<Caption>
SELLING FUND BUYING FUND
(AS OF 8/31/02) (AS OF 7/31/02)
------------------------------------------ -------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- -------- ------- ------- -------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)........................ 4.75% None None None 4.75% None None
Maximum Deferred Sales Charge
(Load)(1)..................... None(2)(3) 5.00% 1.00% None None (2)(4) 5.00% 1.00%
ANNUAL FUND OPERATING
EXPENSES(5)
(expenses that are deducted
from fund assets)
Management Fees................. 0.55% 0.55% 0.55% 0.55% 0.44% 0.44% 0.44%
Distribution and/or Service
(12b-1) Fees(6)............... 0.35% 1.00% 1.00% 0.25% 0.25% 1.00% 1.00%
Other Expenses(7)............... 0.32% 0.27% 0.46% 0.28% 0.12% 0.12% 0.12%
Total Annual Fund Operating
Expenses(8)................... 1.22% 1.82% 2.01% 1.08% 0.81% 1.56% 1.56%
<Caption>
BUYING FUND
PRO FORMA COMBINED
(AS OF 7/31/02)
------------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS
SHARES SHARES SHARES SHARES
------- ------- ------- --------
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)........................ 4.75% None None None
Maximum Deferred Sales Charge
(Load)(1)..................... None (2)(4) 5.00% 1.00% None
ANNUAL FUND OPERATING
EXPENSES(5)
(expenses that are deducted
from fund assets)
Management Fees................. 0.42% 0.42% 0.42% 0.42%
Distribution and/or Service
(12b-1) Fees(6)............... 0.25% 1.00% 1.00% 0.25%
Other Expenses(7)............... 0.13% 0.13% 0.13% 0.13%
Total Annual Fund Operating
Expenses(8)................... 0.80% 1.55% 1.55% 0.80%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price. For
Buying Fund and Buying Fund Pro Forma Combined, calculated as a percentage
of original purchase price or redemption proceeds, whichever is less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Selling Fund Class A shares, you may pay a
CDSC of 1% on your Class A shares if the plan is redeemed within 12 months
from initial deposit in the plan's INVESCO account.
C-1
(4) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(5) There is no guarantee that actual expenses will be the same as those shown
in the table.
(6) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own shares for a long period of time, you
pay more than the economic equivalent of the maximum front-end sales charge
permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(7) Other Expenses for Selling Fund's Class A and Class B are based on estimated
expenses for the current fiscal year.
(8) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
2.10%, 2.75% and 2.75% on Class A, Class B and Class C shares, respectively.
INVESCO has also voluntarily agreed to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
1.10%, 1.80%, 1.65% and 0.90% on Class A, Class B, Class C and Investor
Class shares, respectively. The voluntary expense limitations cannot be
revoked by INVESCO prior to May 2004. Effective June 1, 2002, INVESCO is
entitled to reimbursement by Selling Fund of any fees waived pursuant to
this arrangement if such reimbursement does not cause Selling Fund to exceed
the current expense limitations and the reimbursement is made within three
years in which INVESCO incurred the expenses.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period....... $593 $844 $1,113 $1,882
Assuming no redemption.............................. $593 $844 $1,113 $1,882
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $685 $873 $1,185 $1,980
Assuming no redemption(3)........................... $185 $573 $ 985 $1,980
Class C shares
Assuming complete redemption at end of period(2).... $304 $630 $1,083 $2,338
Assuming no redemption.............................. $204 $630 $1,083 $2,338
Investor Class shares
Assuming complete redemption at end of period.... $110 $343 $ 595 $1,317
Assuming no redemption........................... $110 $343 $ 595 $1,317
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period....... $554 $721 $ 903 $1,429
Assuming no redemption.............................. $554 $721 $ 903 $1,429
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $659 $793 $1,050 $1,655
Assuming no redemption(3)........................... $159 $493 $ 850 $1,655
Class C shares
Assuming complete redemption at end of period(2).... $259 $493 $ 850 $1,856
Assuming no redemption.............................. $159 $493 $ 850 $1,856
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period....... $553 $718 $ 898 $1,418
Assuming no redemption.............................. $553 $718 $ 898 $1,418
Class B shares
Assuming complete redemption at end of
period(2)(3)..................................... $658 $790 $1,045 $1,643
Assuming no redemption(3)........................... $158 $490 $ 845 $1,643
</Table>
C-3
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ------ ------
Class C shares
Assuming complete redemption at end of period(2).... $258 $490 $ 845 $1,845
Assuming no redemption.............................. $158 $490 $ 845 $1,845
Investor Class shares
Assuming complete redemption at end of period....... $ 82 $255 $ 444 $ 990
Assuming no redemption.............................. $ 82 $255 $ 444 $ 990
</Table>
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
TOTAL
COMPENSATION
AGGREGATE RETIREMENT ESTIMATED ANNUAL FROM ALL
COMPENSATION BENEFITS ACCRUED BENEFITS UPON INVESCO
NAME OF DIRECTOR FROM COMPANY(1) BY COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ---------------- ---------------- ------------
Bob R. Baker...................... $7,363 $931 $34,000 $138,000
James T. Bunch.................... 6,818 0 0 124,625
Gerald J. Lewis................... 6,754 0 0 116,500
Larry Soll, Ph.D. ................ 7,000 0 0 126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended
August 31, 2002.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended August 31, 2002.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -------------------------------------------
Mark H. Williamson -- 1951
Chairman of the Board.................... 1998 Director, President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Distributors,
Inc. (registered broker dealer); and Chief
Executive Officer of the AIM Division of
AMVESCAP PLC (2003-present); formerly,
Chief Executive Officer, Managed Products
Division, AMVESCAP PLC (2001-2002);
Chairman of the Board (1998-2002),
President (1998-2002) and Chief Executive
Officer (1998-2002) of INVESCO Funds Group,
Inc. (registered investment advisor) and
INVESCO Distributors, Inc. (registered
broker dealer); Chief Operating Officer and
Chairman of the Board of INVESCO Global
Health Sciences Fund; Chairman and Chief
Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham -- 1951
President and Chief Executive Officer.... 2001 President (2001-present) and Chief
Executive Officer (2003-present) of INVESCO
Funds Group, Inc.; Chairman of the Board
(2003-present) and President (2003-present)
of INVESCO Distributors, Inc.; formerly,
Chief Operating Officer (2001-2003) and
Senior Vice President (1999-2002) of
INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc.; and Senior Vice
President of GT Global -- North America
(1992-1998).
Glen A. Payne -- 1947
Secretary................................ 1989 Senior Vice President, General Counsel and
Secretary of INVESCO Funds Group, Inc.;
Senior Vice President, Secretary and
General Counsel of INVESCO Distributors,
Inc.; formerly, Secretary of INVESCO Global
Health Sciences Fund; General Counsel of
INVESCO Trust Company (1989-1998); and
employee of the Securities and Exchange
Commission, Washington, DC (1973-1989).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- -------------------------------------------
Ronald L. Grooms -- 1946
Chief Accounting Officer, Chief Financial
Officer and Treasurer.................... 1988 Senior Vice President and Treasurer of
INVESCO Funds Group, Inc.; and Senior Vice
President and Treasurer of INVESCO
Distributors, Inc.; formerly, Treasurer and
Principal Financial and Accounting Officer
of INVESCO Global Health Sciences Fund; and
Senior Vice President and Treasurer of
INVESCO Trust Company (1988-1998).
William J. Galvin, Jr. -- 1956
Assistant Secretary...................... 1992 Senior Vice President and Assistant
Secretary INVESCO Funds Group, Inc.; and
Senior Vice President and Assistant
Secretary of INVESCO Distributors, Inc.;
formerly, Trust Officer of INVESCO Trust
Company (1995-1998).
Pamela J. Piro -- 1960
Assistant Treasurer...................... 1999 Vice President and Assistant Treasurer of
INVESCO Funds Group, Inc.; and Assistant
Treasurer of INVESCO Distributors, Inc.;
formerly, Assistant Vice President
(1996-1997).
Tane T. Tyler -- 1965
Assistant Secretary...................... 2002 Vice President and Assistant General
Counsel of INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY
SERIES AND CLASS AND PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker..............................................
Sueann Ambron.............................................
Victor L. Andrews.........................................
Lawrence H. Budner........................................
James T. Bunch............................................
Raymond R. Cunningham.....................................
Richard W. Healey.........................................
Gerald J. Lewis...........................................
John W. McIntyre..........................................
Larry Soll, Ph.D. ........................................
Mark H. Williamson........................................
Frank S. Bayley...........................................
Bruce L. Crockett.........................................
Albert R. Dowden..........................................
Edward K. Dunn, Jr. ......................................
Jack M. Fields............................................
Carl Frischling...........................................
Robert H. Graham..........................................
Prema Mathai-Davis........................................
Lewis F. Pennock..........................................
Ruth H. Quigley...........................................
Louis S. Sklar............................................
Glen A. Payne.............................................
Ronald L. Grooms..........................................
William J. Galvin, Jr. ...................................
Pamela J. Piro............................................
Tane T. Tyler.............................................
</Table>
- ---------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current executive
officers of Company as a group constituted less than 1% of each class of each
series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY DIRECTOR IN THE INVESCO
NAME OF DIRECTOR SECURITIES IN YOUR FUND FUNDS COMPLEX
- ---------------- ----------------------- -------------------------
INDEPENDENT DIRECTORS
Bob R. Baker........................................ $1 - $10,000 $10,001 - $50,000
James T. Bunch...................................... $1 - $10,000 $50,001 - $100,000
Gerald J. Lewis..................................... $1 - $10,000 $50,001 - $100,000
Larry Soll, Ph.D. .................................. $1 - $10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson.................................. None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley..................................... None None
Bruce L. Crockett................................... None None
Albert R. Dowden.................................... None None
Edward K. Dunn...................................... None None
Jack M. Fields...................................... None None
Carl Frischling..................................... None None
Prema Mathai-Davis.................................. None None
Lewis F. Pennock.................................... None None
Ruth H. Quigley..................................... None None
Louis S. Sklar...................................... None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham.................................... None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
A I M ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of A I M Advisors, Inc. ("AIM"). The
business address of the principal executive officer and the directors of AIM is
11 Greenway Plaza, Suite 100, Houston, TX 77046.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH AIM PRINCIPAL OCCUPATION
- ---------------- ----------------------------- -----------------------------
Mark H. Williamson........... Director, Chairman and See director table under
President Proposal 2
Kevin M. Carome.............. Director, Senior Vice Director, Senior Vice
President, General Counsel President, Secretary and
and Secretary General Counsel, A I M
Management Group Inc.; Vice
President, A I M Capital
Management, Inc., A I M
Distributors, Inc. and A I M
Fund Services, Inc., and
Director, Vice President and
General Counsel, Fund
Management Company
Gary T. Crum................. Director and Senior Vice Chairman, Director and
President Director of Investments,
A I M Capital Management,
Inc.; Director and Executive
Vice President, A I M
Management Group Inc.;
Director, A I M Distributors,
Inc. and AMVESCAP PLC
Dawn M. Hawley............... Director, Senior Vice Director, Senior Vice
President and Chief Financial President and Chief Financial
Officer Officer, A I M Management
Group Inc.; Vice President
and Treasurer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Director,
Vice President and Chief
Financial Officer, A I M Fund
Services, Inc.; and Vice
President and Chief Financial
Officer, Fund Management
Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO
TOTAL NET ASSETS INVESCO FUNDS FEE WAIVERS OR EXPENSE
FOR THE MOST GROUP, INC. FOR THE REIMBURSEMENTS FOR THE
RECENTLY MOST RECENTLY MOST RECENTLY
ANNUAL RATE COMPLETED FISCAL COMPLETED FISCAL COMPLETED FISCAL
(BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------------------------- ---------------- ------------------- -----------------------
0.55% of the first $300 million; $197,998,864 $700,166 $345,925
0.45% of the next $200 million;
0.35% from $500 million
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO INVESCO INVESCO
NAME OF FUND (ADMINISTRATIVE SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
- ------------ --------------------------- -------------------- -----------------
INVESCO Tax-Free Bond Fund............. $95,589 $378,815 $245,597
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
FEE WAIVER, EXPENSE
TOTAL NET ASSETS LIMITATIONS AND/OR
FOR THE EXPENSE REIMBURSEMENTS
MOST RECENTLY FOR THE MOST RECENTLY
ANNUAL RATE COMPLETED FISCAL COMPLETED FISCAL
NAME OF FUND (BASED ON AVERAGE DAILY NET ASSETS) PERIOD OR YEAR PERIOD OR YEAR
- ------------ ----------------------------------- ---------------- ---------------------------
AIM High Income Municipal
Fund..................... 0.60% of the first $500 million; $134,192,908 Limit Total Operating
0.55% over $500 million up to and Expenses (excluding
including $1 billion; 0.50% over $1 interest, taxes, dividends
billion up to and including $1.5 on short sales,
billion; 0.45% of the excess over extraordinary items and
$1.5 billion increases in expenses due
to expense offset
arrangements, if any):
Class A, 0.55%; Class B,
1.30%; and Class C, 1.30%
AIM Municipal Bond Fund.... 0.50% of the first $200 million; $472,869,327 N/A
0.40% over $200 million up to and
including $500 million; 0.35% over
$500 million up to and including $1
billion; 0.30% of the excess over
$1 billion
</Table>
K-1
EXHIBIT L
PROPOSED COMPENSATION TO A I M ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to A I M Advisors, Inc. by your Fund
under the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
NET ASSETS (BASED ON AVERAGE DAILY NET ASSETS)
- ---------- -----------------------------------
First $300 Million...................................... 0.55%
Next $200 Million....................................... 0.45%
From $500 Million....................................... 0.35%
</Table>
L-1
EXHIBIT M
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
CLASS A SHARES
136,633.91
CLASS B SHARES
38,462.28
CLASS C SHARES
150,297.36
INVESTOR CLASS SHARES
12,209,320.58
M-1
EXHIBIT N
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
Charles Schwab & Co. Inc. ..................... Class A 34,347.08 25.14%
Special Custody Acct. for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
Raymond James & Assoc. Inc. ................... Class A 6,928.84 5.07%
FBO Sampson MT
880 Carillon Pkwy.
St. Petersburg, FL 33716-1100
LPL Financial Services......................... Class B 5,399.09 14.04%
9785 Towne Centre Dr.
San Diego, CA 92121-1968
LPL Financial Services......................... Class B 4,022.12 10.46%
9785 Towne Centre Dr.
San Diego, CA 92121-1968
Citigroup Global Markets Inc. ................. Class B 3,838.77 9.98%
333 West 34th St. 3rd Floor
New York, NY 10001-2402
Marylee M. Schmidt............................. Class B 3,311.65 8.61%
P.O. Box 210613
Auke Bay, AK 99821-0613
American Enterprise Investment Svcs. .......... Class B 3,203.07 8.33%
P.O. Box 9446
Minneapolis, MN 55440-9446
Dean Witter for the Benefit of................. Class B 2,826.70 7.35%
James C. McMillan Jr. &
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Pershing, LLC.................................. Class B 2,577.32 6.70%
P.O. Box 2052
Jersey City, NJ 07303-2052
American Enterprise Investment Svcs. .......... Class B 1,926.91 5.01%
P.O. Box 9446
Minneapolis, MN 55440-9446
Merrill Lynch.................................. Class C 24,932.71 16.59%
4800 Deer Lake Drive East
Jacksonville, FL 32246-6486
</Table>
N-1
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
Brenda Himmel Stationary....................... Class C 10,200.19 6.79%
A Partnership
1126 Montana Ave.
Santa Monica, CA 90403-1610
Charles Schwab & Co. Inc. ..................... Investor Class 686,227.22 5.62%
Special Custody Acct. for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
N-2
EXHIBIT O
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Buyer owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
</Table>
- ---------------
* Buyer has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
O-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO TAX-FREE BOND FUND,
A SEPARATE PORTFOLIO OF
INVESCO BOND FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS.................................................
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller....................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-6
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...........................
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-7
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-8
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-9
SECTION 3.14. Taxes....................................................... I-9
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-10
SECTION 3.21. No Distribution............................................. I-10
SECTION 3.22. Liabilities of Selling Fund................................. I-10
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.3. Financial Statements........................................ I-10
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-11
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-12
SECTION 4.7. Binding Obligation.......................................... I-12
SECTION 4.8. No Breaches or Defaults..................................... I-12
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-13
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-14
SECTION 4.16. Value of Shares............................................. I-14
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-14
ARTICLE 5 COVENANTS..........................................................
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-15
SECTION 5.4. Further Assurances.......................................... I-15
SECTION 5.5. Notice of Events............................................ I-15
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-16
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION.........................
SECTION 6.1. Conditions Precedent of Buyer............................... I-16
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT...........................................
SECTION 7.1. Termination................................................. I-18
SECTION 7.2. Survival After Termination.................................. I-18
ARTICLE 8 MISCELLANEOUS......................................................
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-19
SECTION 8.6. Enforcement................................................. I-19
SECTION 8.7. Interpretation.............................................. I-19
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.10. Notices..................................................... I-19
SECTION 8.11. Representations by Seller Investment Adviser................ I-20
SECTION 8.12. Representations by Buyer Investment Adviser................. I-20
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Bond Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO Tax-Free Bond Fund ("Selling Fund"), a
separate series of Seller, AIM Investment Securities Funds, a Delaware statutory
trust ("Buyer"), acting on behalf of AIM Municipal Bond Fund ("Buying Fund"), a
separate series of Buyer, A I M Advisors, Inc., a Delaware corporation, and
INVESCO Funds Group, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Investment Securities Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means The Bank of New York acting in its capacity as
custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-2674.
"Buying Fund" means AIM Municipal Bond Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended January 31, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means October 27, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
I-2
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund, and, if so required by the Maryland General
Corporation Law and Seller's Charter, the affirmative vote of a majority of the
outstanding voting securities of Seller.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Bond Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc.
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-5686.
"Selling Fund" means INVESCO Tax-Free Bond Fund, a separate series of
Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended August 31, 2002 and the unaudited
financial statements of Selling Fund for the period ended February 28, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
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"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
and the shareholders of Seller convened in accordance with Applicable Law and
the Governing Documents of Seller to consider and vote upon the approval of this
Agreement and, in connection therewith, the sale of all of Seller's assets and
the dissolution of Seller as a Maryland corporation.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
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shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions contemplated by this
Agreement have been consummated), to be distributed to Selling Fund Shareholders
under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series, Redemption of Selling Fund Shares and
Dissolution of Seller.
(a) Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
(b) If required by the Maryland General Corporation Law, following receipt
of the Required Shareholder Vote and as soon as reasonably practicable after the
Closing Date, Seller and Buyer shall cause Articles of Transfer to be filed with
the State Department of Assessments and Taxation of Maryland and, following the
filing of Articles of Transfer, Seller shall file Articles of Dissolution with
the State Department of Assessments and Taxation of Maryland to dissolve Seller
as a Maryland corporation and an application for deregistration on Form N-8F
under the Investment Company Act with the SEC; provided, however, that the
filing of Articles of Transfer, Articles of Dissolution and an application for
deregistration on Form N-8F as aforesaid shall not be required if the
Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until
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such certificates have been surrendered to Buyer for cancellation, or if such
certificates are lost or misplaced, until lost certificate affidavits have been
executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed
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in the Selling Fund Financial Statements and no contingent liabilities of
Selling Fund have arisen since the date of the most recent financial statements
included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of Sections 852 and 4982 of the Code for qualification
as a regulated investment company and avoidance of excise tax liability and (b)
additional distributions, to the extent such additional distributions do not
exceed 50 percent of the value (without giving effect to such distributions) of
the proprietary interest in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by
shareholders by the Required Shareholder Vote, constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by
shareholders by the Required Shareholder Vote, and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Seller and (ii) do not, and on the Closing Date will not,
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result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Selling Fund (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Seller is a party or by which it may be bound and which
relates to the assets of Selling Fund or to which any property of Selling Fund
may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Seller or any property of Selling Fund.
Seller is not under the jurisdiction of a court in a proceeding under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Seller in
connection with the due execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
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SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Selling Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended August
31, 2003 and for the short taxable year beginning on September 1, 2003 and
ending on the Closing Date and (B) all of Selling Fund's net capital gain
recognized in its taxable year ended August 31, 2003 and in such short taxable
year (after reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement and, in connection therewith, the sale of all of Seller's
assets and the dissolution of Seller as a Maryland corporation.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and
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outstanding shares owned by each Selling Fund Shareholder and the state or other
jurisdiction in which such shares were offered and sold, are complete and
accurate in all material respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities to be assumed by
Buying Fund, plus the amount of liabilities, if any, to which such transferred
assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally
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accepted accounting principles applied on a consistent basis. The audited Buying
Fund Financial Statements previously delivered to Seller present fairly in all
material respects the financial position of Buying Fund as of the date(s)
indicated and the results of operations and changes in net assets for the
period(s) then ended in accordance with generally accepted accounting principles
applied on a consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund and the
shareholders of Seller entitled to vote at the Shareholders Meeting. The
Combined Proxy Statement/Prospectus and related Statement of Additional
Information of Buying Fund, when they become effective, shall conform to the
applicable requirements of the Securities Act and the Investment Company Act and
shall not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
materially misleading, provided, however, that no representation or warranty is
made with respect to written information provided by Seller for inclusion in the
Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
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SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or without the giving of
notice or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Buying Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Buyer is a
party or by which it may be bound and which relates to the assets of Buying Fund
or to which any properties of Buying Fund may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Buyer or any property of Buying
Fund. Buyer is not under the jurisdiction of a court in a proceeding under Title
11 of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to
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have, individually or in the aggregate, a Material Adverse Effect with respect
to Buying Fund. There are not in existence on the date hereof any plea
agreements, judgments, injunctions, consents, decrees, exceptions or orders that
were entered by, filed with or issued by any Governmental Authority relating to
Buyer's conduct of the business of Buying Fund affecting in any significant
respect the conduct of such business. Buyer is not, and has not been, to the
knowledge of Buyer, the target of any investigation by the SEC or any state
securities administrator with respect to its conduct of the business of Buying
Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Buying Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Buying Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have
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acquired directly or through any transaction, agreement or arrangement with any
other person, shares of Selling Fund with consideration other than shares of
Buying Fund. There is no plan or intention by Buying Fund or any person related
to Buying Fund to acquire or redeem any of the Buying Fund Shares issued in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization. The fair market value of the
assets of Selling Fund transferred to Buying Fund in the Reorganization will
equal or exceed the sum of the Liabilities assumed by Buying Fund, plus the
amount of liabilities, if any, to which such transferred assets are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
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SECTION 5.3. Expenses. Selling Fund and AMVESCAP PLC, on behalf of either
Buyer Investment Adviser or Seller Investment Adviser, shall each, respectively,
bear one half of the costs and expenses incurred in connection with this
Agreement and the Reorganization and other transactions contemplated hereby;
provided that any such expenses incurred by or on behalf of Buying Fund or
Selling Fund shall not be reimbursed or paid for by another Person unless those
expenses are solely and directly related to the Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.5 shall not limit or otherwise affect
the remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund and the
shareholders of Seller approval of this Agreement and, in connection therewith,
the sale of all of Seller's assets and the dissolution of Seller as a Maryland
corporation. Seller shall use its reasonable best efforts to hold a Shareholders
Meeting as soon as practicable after the date hereof.
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SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the Reorganization shall not occur on the
Closing Date but instead shall be postponed until a mutually acceptable date
occurring subsequent to the Exchangeability Date; provided, however, that in no
event shall the consummation of the Reorganization occur on a date subsequent to
the Termination Date. In the case of such postponement of the consummation of
the Reorganization, the parties agree that the term "Closing Date" in this
Agreement shall mean in each instance such mutually acceptable date subsequent
to the Exchangeability Date as the parties may choose to consummate the
Reorganization.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to
I-16
conditions that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by shareholders
on the record date by the Required Shareholder Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective under the Securities Act and no
stop order suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
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ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result of
a willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against
I-18
the assets of Buying Fund only and not against the assets of Buyer generally or
assets belonging to any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Bond Funds, Inc.
4350 South Monaco Street
Denver, Colorado 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Attn: Clifford J. Alexander
I-19
(b) If to Buyer:
AIM Investment Securities Funds
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the provision of investment advisory
services to Buyer do not have actual knowledge to the contrary after due
inquiry.
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
I-20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO BOND FUNDS, INC., acting on
behalf of
INVESCO TAX-FREE BOND FUND
By:
------------------------------------
AIM INVESTMENT SECURITIES FUNDS,
acting on
behalf of AIM MUNICIPAL BOND FUND
By:
------------------------------------
A I M ADVISORS, INC.
By:
------------------------------------
INVESCO FUNDS GROUP, INC.
By:
------------------------------------
I-21
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC. ................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC. ........................ AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC. .... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC. ............ AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC. ............... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC. ................ AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC. ...................... AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC. ....................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Limited Maturity Treasury Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Short Term Bond Fund
AIM Total Return Bond Fund
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
- -------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM MUNICIPAL BOND FUND
July 21, 2003
Prospectus
AIM Municipal Bond Fund seeks to achieve a high level of
current income exempt from federal income taxes,
consistent with the preservation of principal.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C and Investor Class shares of the fund.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
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.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
Special Tax Information Regarding the Fund 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, 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, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. 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.
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high level of current income
exempt from federal income taxes, consistent with the preservation of principal.
The fund will attempt to achieve its objective by investing primarily in a
diversified portfolio of municipal bonds. The fund's investment objective may be
changed by the Board of Trustees without shareholder approval.
The fund attempts to meet its objective by investing, normally, at least 80%
of its assets in municipal bond 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. In complying with this 80% investment
requirement, the fund's investments may include investments in synthetic
instruments. Synthetic instruments are investments that have economic
characteristics similar to the fund's direct investments, and may include
futures and options. Municipal bonds 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. Certain types of industrial development bonds, such as
private activity bonds, that meet certain standards, are treated as municipal
bonds.
The fund will also invest at least 80% of its total assets in
investment-grade municipal securities rated by Moody's Investors Service, Inc.,
Standard & Poor's Ratings Services or any other nationally recognized
statistical rating organization. Other securities meeting certain standards set
by the fund are included in this category. The fund may invest up to 20% of its
total assets in lower-quality municipal securities, i.e. "junk bonds," or
unrated municipal securities. For cash management purposes, the fund may also
hold a portion of its assets in cash or cash equivalents, including shares of
affiliated money market funds. Any percentage limitations with respect to assets
of the fund are applied at the time of purchase.
The portfolio managers focus on municipal securities they believe have
favorable prospects for current income consistent with the fund's objective of
preservation of principal. The portfolio managers consider whether to sell a
particular security when any of these factors materially changes.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. 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 can cause the
price of a debt security to decrease. The longer a debt security's duration, the
more sensitive it is to this risk. Junk bonds are less sensitive to this risk
than are higher-quality bonds. A municipality may default or otherwise be unable
to honor a financial obligation. Revenue bonds are generally 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.
Compared to higher quality debt securities, junk bonds involve greater risk
of default or price changes due to changes in the credit quality of the issuer
and because they may be unsecured and may be subordinated to other creditors'
claims. The value of junk bonds often fluctuates in response to company,
political or economic developments and can decline significantly over short
periods of time or during periods of general or regional economic difficulty.
During those times the bonds could be difficult to value or sell at a fair
price. Credit ratings on junk bonds do not necessarily reflect their actual
market risk.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
-----------------------
AIM MUNICIPAL BOND 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 (before and after taxes) 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.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1993................................................................... 11.66%
1994................................................................... -3.79%
1995................................................................... 13.04%
1996................................................................... 3.90%
1997................................................................... 7.27%
1998................................................................... 5.28%
1999................................................................... -2.45%
2000................................................................... 8.63%
2001................................................................... 3.82%
2002................................................................... 8.26%
</Table>
The Class A shares' year-to-date total return as of June 30, 2003 was 3.96%.
During the periods shown in the bar chart, the highest quarterly return was
4.90% (quarter ended March 31, 1995) and the lowest quarterly return was -4.22%
(quarter ended March 31, 1994).
2
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index and a peer group index. The fund's
performance reflects payment of sales loads, if applicable. The indices do not
reflect payment of fees, expenses or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2002) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- -----------------------------------------------------------------------------------------
Class A 03/28/77
Return Before Taxes 3.16% 3.61% 4.92% --
Return After Taxes on
Distributions 3.16 3.60 4.86 --
Return After Taxes on
Distributions and Sale of
Fund Shares 3.74 3.83 4.93 --
Class B 09/01/93
Return Before Taxes 2.31 3.48 -- 4.14%
Class C 08/04/97
Return Before Taxes 6.33 3.80 -- 3.95
Investor Class(2) 03/28/77(2)
Return Before Taxes 8.26 4.63 5.43 --
- -----------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index(3) 9.60 6.06 6.71 --
Lipper General Municipal Debt
Fund Index(4) 8.63 4.96 5.99 --
- -----------------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depends on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C and Investor Class will vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the Rule
12b-1 fees applicable to Class A shares. Investor Class shares would have
different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(3) The Lehman Brothers Municipal Bond Index is a broad-based, total return
index comprised of 8000 actual bonds, all of which are investment grade,
fixed rate, long term maturities (greater than two years) and are selected
from issues larger than $50 million dated since January 1984.
(4) The Lipper General Municipal Debt Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper General Municipal Debt
category. These funds invest primarily in Municipal debt issues rated in the
top four credit ratings.
3
-----------------------
AIM MUNICIPAL BOND 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 INVESTOR
your investment) CLASS A CLASS B CLASS C CLASS
- --------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is less) None(1,2) 5.00% 1.00% None
- --------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(3)
- -------------------------------------------------------------------------------------------
(expenses that are deducted INVESTOR
from fund assets) CLASS A CLASS B CLASS C CLASS
- -------------------------------------------------------------------------------------------
Management Fees 0.44% 0.44% 0.44% 0.44%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00 0.25
Other Expenses(4) 0.12 0.12 0.12 0.12
Total Annual Fund
Operating Expenses 0.81 1.56 1.56 0.81
- -------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) There is no guarantee that actual expenses will be the same as those shown
in the table.
(4) Other expenses for Investor Class shares are based on estimated average net
assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of 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. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. 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
- -------------------------------------------------------------------------------------
Class A $554 $721 $ 903 $1,429
Class B 659 793 1,050 1,655
Class C 259 493 850 1,856
Investor Class 83 259 450 1,002
- -------------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------
Class A $554 $721 $903 $1,429
Class B 159 493 850 1,655
Class C 159 493 850 1,856
Investor Class 83 259 450 1,002
- -------------------------------------------------------------------------------------
</Table>
4
-----------------------
AIM MUNICIPAL BOND 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 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2002, the advisor received compensation of
0.44% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team (co-managers) who are primarily responsible for the
management of the fund's portfolio are
- - Richard A. Berry, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1987.
- - Stephen D. Turman, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1985.
They are assisted by the Municipal Bond Team. More information on the fund's
management team may be found on our website (http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Municipal Bond Fund are subject to the
maximum 4.75% initial sales charge as listed under the heading "CATEGORY II
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Certain purchases of Class A shares at net asset
value may be subject to the contingent deferred sales charge listed in that
section. Purchases of Class B and Class C shares are subject to the contingent
deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
tax-exempt 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.
5
-----------------------
AIM MUNICIPAL BOND 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 information for the fiscal years 2002 and 2001 has been audited by Ernst
& Young LLP, whose report, along with the fund's financial statements, is
included in the fund's annual report, which is available upon request.
Information prior to fiscal year 2001 was audited by other public accountants.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, JANUARY 1,
ENDED THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, ----------------------- JULY 31, ----------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- -------- -------- ---------- -------- -------- --------
Net asset value, beginning of
period $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35 $ 8.34 $ 8.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.19 0.38(a) 0.40 0.24(b) 0.41 0.42 0.42
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.04 0.00 0.23 0.09 (0.61) 0.01 0.16
=================================================================================================================================
Total from investment
operations 0.23 0.38 0.63 0.33 (0.20) 0.43 0.58
=================================================================================================================================
Less dividends from net
investment income (0.19) (0.38) (0.40) (0.24) (0.41) (0.42) (0.43)
=================================================================================================================================
Net asset value, end of period $ 8.10 $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35 $ 8.34
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.86% 4.84% 8.28% 4.32% (2.45)% 5.28% 7.27%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $342,010 $339,545 $322,437 $283,416 $294,720 $327,705 $318,469
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 0.81%(d) 0.81% 0.85% 0.85%(e) 0.84% 0.82% 0.90%
=================================================================================================================================
Ratio of net investment income
to average net assets 4.58%(d) 4.79%(a) 5.06% 5.32%(e) 5.01% 5.00% 5.14%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 12% 35% 28% 18% 28% 19% 24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing market discounts on debt securities. Had the Fund not amortized
market discounts on debt securities, the net investment income per share and
the ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August 1,
2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $340,651,090.
(e) Annualized.
(f)Not annualized for periods less than one year.
6
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, JANUARY 1,
ENDED THROUGH YEAR ENDED DECEMBER 31,
JANUARY 31, ---------------------- JULY 31, --------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- -------- ------- ---------- -------- ------- -------
Net asset value, beginning of
period $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37 $ 8.36 $ 8.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.32(a) 0.34 0.21(b) 0.35 0.36 0.36
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.04 0.00 0.23 0.08 (0.62) 0.01 0.17
=================================================================================================================================
Total from investment
operations 0.20 0.32 0.57 0.29 (0.27) 0.37 0.53
=================================================================================================================================
Less dividends from net investment
income (0.16) (0.32) (0.34) (0.20) (0.35) (0.36) (0.36)
=================================================================================================================================
Net asset value, end of period $ 8.11 $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37 $ 8.36
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.48% 4.05% 7.46% 3.84% (3.28)% 4.48% 6.59%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $106,973 $104,150 $86,565 $67,363 $72,256 $72,723 $47,185
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.56%(d) 1.56% 1.60% 1.61%(e) 1.59% 1.57% 1.66%
=================================================================================================================================
Ratio of net investment income to
average net assets 3.83%(d) 4.04%(a) 4.31% 4.56%(e) 4.26% 4.25% 4.38%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 12% 35% 28% 18% 28% 19% 24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing market discounts on debt securities. Had the Fund not amortized
market discounts on debt securities, the net investment income per share and
the ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August 1,
2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $106,588,104.
(e) Annualized.
(f)Not annualized for periods less than one year.
7
-----------------------
AIM MUNICIPAL BOND FUND
-----------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------------------------
AUGUST 4,
1997
(DATE SALES
SIX MONTHS YEAR ENDED JULY 31, JANUARY 1, YEAR ENDED DECEMBER COMMENCED)
ENDED THROUGH 31, THROUGH
JANUARY 31, --------------------- JULY 31, -------------------- DECEMBER 31,
2003 2002 2001 2000 1999 1998 1997
----------- ------- ------- ---------- -------- ------ ------------
Net asset value, beginning of
period $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35 $ 8.35 $ 8.30
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.16 0.32(a) 0.34 0.21(b) 0.35 0.36 0.15
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.04 0.01 0.22 0.08 (0.61) 0.00 0.04
=================================================================================================================================
Total from investment
operations 0.20 0.33 0.56 0.29 (0.26) 0.36 0.19
=================================================================================================================================
Less dividends from net
investment income (0.16) (0.32) (0.34) (0.20) (0.35) (0.36) (0.14)
=================================================================================================================================
Net asset value, end of period $ 8.10 $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35 $ 8.35
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.49% 4.19% 7.34% 3.85% (3.16)% 4.36% 2.36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $26,640 $29,175 $17,889 $8,252 $9,652 $9,565 $ 825
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.56%(d) 1.56% 1.60% 1.61%(e) 1.59% 1.57% 1.67%(e)
=================================================================================================================================
Ratio of net investment income
to average net assets 3.83%(d) 4.04%(a) 4.31% 4.56%(e) 4.26% 4.25% 4.37%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 12% 35% 28% 18% 28% 19% 24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing market discounts on debt securities. Had the Fund not amortized
market discounts on debt securities, the net investment income per share and
the ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to August 1,
2001 have not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $27,554,534.
(e) Annualized.
(f)Not annualized for periods less than one year.
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 consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) 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 at the end of the month which is seven years after the date on 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 the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) 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.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the 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(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
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>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
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
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
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.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) 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 other 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 privileges; 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 Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - 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--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
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 Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE 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 $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase 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 a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
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; and (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 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 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. 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 CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
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--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial 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 or our AIM 24-hour
Automated Investor Line. 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 $250,000;
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. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.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 $250,000; and (4) you have already
provided proper bank information. 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 REDEMPTIONS
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
Redemption 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.
MCF--07/03
A-7
-------------
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 $250,000;
(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 PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
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.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) 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 ($250 for Investor Class shares) 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 ($250 for Investor Class shares)
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 under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
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 into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge 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 initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding 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;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II 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;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - 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 terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
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 you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R 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 or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C 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 ALL OR 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 SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
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' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. 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 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 may 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 that trade on days when the AIM Funds do
not price their shares, 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
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. 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
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend 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. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
-----------------------
AIM MUNICIPAL BOND 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>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77046-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</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
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM MUNICIPAL BOND FUND
SEC 1940 Act file number: 811-5686
- ------------------------------------
AIMinvestments.com MBD-PRO-1
APPENDIX III
VOLATILE MARKETS HEIGHTEN INTEREST IN MUNIS
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
AIM Municipal Bond Fund seeks to provide shareholders with a high level of
current income exempt from federal income taxes. As shown in the table nearby,
the fund did exactly that during the fiscal year ended July 31, 2002.
The fund's total return of 4.84% (Class A shares at net asset value, meaning
excluding sales charges) for the fiscal year slightly lagged that of its peer
group, the Lipper General Municipal Debt Fund Index, which returned 5.53%. But
we manage the fund primarily for net asset value (NAV) stability and relatively
high yield--not total return. We do this because we believe that yield is more
important to tax-conscious investors, since capital appreciation, the other
component of total return, is taxable.
During the fiscal year, the fund's NAV remained in a relatively narrow range
of $7.85 and $8.15 for all share classes, continuing the fund's long history of
relative price stability. While we endeavor to maintain a relatively stable NAV,
the fund should not be confused with a money market fund. The fund's net asset
value will not be as stable as that of a money market fund.
WHAT WERE THE TRENDS IN THE ECONOMY?
As the fiscal year began, the economy was weakening, and the events of September
11, 2001, stunned the world. Gross domestic product (GDP), the broadest measure
of goods and services produced and purchased in the United States, contracted in
the first three quarters of 2001, prompting the National Bureau of Economic
Research to declare that the country had slipped into a recession in March. In
an effort to stimulate economic growth, the U.S. Federal Reserve (the Fed)
aggressively cut short-term interest rates throughout 2001, and the fed funds
rate ended the year at 1.75%, a four-decade low. In all, the Fed cut short-term
interest rates 11 times in 2001, including two cuts totaling 100 basis points
(1.0%) in the month immediately following the September 11 attacks.
GDP inched into positive territory in the fourth quarter of 2001 and
remained positive for the first two quarters of 2002. First quarter GDP grew at
a robust annualized rate of 5.0%, suggesting that the economy was rebounding
strongly. (Second quarter GDP growth, while positive, was just 1.1%.) Since
March, the Fed has maintained a neutral bias, indicating its belief that future
risks to the economy are evenly weighted between weakness and inflation. For the
fiscal year as a whole, retail sales and consumer confidence remained relatively
strong, and inflation remained contained.
HOW DID THE MUNI MARKET PERFORM?
Municipal bonds slumped immediately following the attacks of September 11, with
New York and airport revenue issues particularly hard hit. But munis recovered
quickly as investors sought relative safety and capital preservation; munis also
were up strongly in the third quarter of 2001. Later in the year, interest rates
continued to fall, U.S. anti-terrorist efforts were meeting with success in
Afghanistan, and a sprinkling of positive economic data suggested the economy
might be improving. All these things sent investors out of bonds and back into
the stock market, driving bond prices lower and yields higher. Indeed, for the
fourth quarter of 2001, munis delivered negative returns.
In 2002, municipal issues were weak in the first quarter but strong in the
second. The first quarter is historically weak as investors sell holdings to pay
taxes. This year, municipal bonds had become relatively expensive compared to
Treasuries, prompting some investors to sell. Seasonal selling, high valuations
and little new supply combined to hurt muni performance.
================================================================================
FUND PROVIDES SOLID INCOME
As of 7/31/02
TAXABLE-
EQUIVALENT TAXABLE-
30-DAY 30-DAY EQUIVALENT
FUND DISTRIBUTION DISTRIBUTION 30-DAY 30-DAY
CLASS RATE RATE* YIELD YIELD*
A 4.47% 7.28% 3.74% 6.09%
B 3.94 6.42 3.18 5.18
C 3.95 6.43 3.18 5.18
* Assumes highest marginal federal income tax rate in effect on July 31,
2002--38.6%
================================================================================
================================================================================
GROWTH OF NET ASSETS
In millions
[BAR CHART]
7/31/00 $359.0
7/31/01 $426.9
7/31/02 $472.9
The increase in net assets between 7/31/01 and 7/31/02 is attributable to net
inflows into the fund as well as the reorganization of the assets of the former
AIM Tax-Exempt Bond Fund of Connecticut into AIM Municipal Bond Fund in
September 2001.
================================================================================
2
PORTFOLIO COMPOSITION
As of 7/31/02, based on total net assets
================================================================================
TOP FIVE BOND HOLDINGS
As of 7/31/02
% OF TOTAL
COUPON MATURITY NET ASSETS
- --------------------------------------------------------------------------------
1. Detroit (City of) Water Supply System 5.00% 7/1/30 1.8%
2. Illinois (State of) Development 1.45 5/1/31 1.5
Finance Authority
3. Louisiana (State of) Local Government 6.55 9/1/25 1.4
Environmental Facilities & Community
Development Authority
4. Mississippi (State of) Higher Education 7.50 9/1/09 1.1
Assistance Corp.
5. New Jersey (State of) Economic 6.25 9/15/29 1.1
Development Agency
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
================================================================================
================================================================================
As of 7/31/02
BOND HOLDINGS BY TYPE
TOTAL NUMBER OF HOLDINGS: 360
WEIGHTED AVERAGE MATURITY: 18.3 YEARS
DURATION: 6.4 YEARS
AVERAGE CREDIT QUALITY: [PIE CHART] AA/Aa
ESCROWED, PRE-REFUNDED AND OTHER 16.2%
GENERAL OBLIGATION 21.5%
REVENUE 62.3%
================================================================================
Things improved in the second quarter as a series of accounting scandals
caused many investors to prefer munis for their stability and predictable
returns.
WHAT WERE ISSUANCE AND DEMAND TRENDS LIKE?
Issuance hit a record in 2001 and remained strong into 2002. Issuance for all of
2001 was 42% higher than in 2000, and issuance for the second quarter of 2002
was 20% above year-earlier levels.
Reasons for this strong issuance included a weak economy, which lowered many
states' and localities tax receipts. As a result, states and localities in need
of cash increasingly turned to the debt market to finance needed projects or
simply even out their cash flow. Second, historically low interest rates led to
strong refunding volume, i.e. state and local governments refinancing existing
debt in the same way many homeowners have refinanced their mortgages.
Fortunately, strong issuance was met with strong investor demand. Since the
stock market turned negative in 2000, demand for fixed-income investments
generally, and higher-quality fixed-income investments in particular, has
remained strong--as have inflows into municipal bond funds. At the close of the
fiscal year, it seemed possible that 2002 could be the third consecutive year of
disappointing stock market returns--a fact that has encouraged many investors to
diversify into fixed-income investments and to seek the relative safety of
principal available with high-quality munis.
HOW DID YOU MANAGE THE FUND?
As might be expected, we made no dramatic adjustments to the fund during the
fiscal year. Because of large inflows into the fund, and our desire to further
enhance diversification, we increased the number of holdings. The fund's average
credit quality remained AA and Aa according to Standard & Poor's and Moody's
(two widely known credit-rating agencies), respectively. The types of bonds held
in the fund changed little between the start and the end of the fiscal year.
Duration and weighted average maturity (WAM) increased over the course of the
year. Duration measures the sensitivity of a bond's price (and thus, the fund's
net asset value) to interest rate changes. Lengthening the fund's WAM increases
risk but also enhances returns, particularly in a falling interest rate
environment.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE FISCAL YEAR?
There was widespread agreement that the economy was recovering--but there was
disagreement about the pace of that recovery. In its July "beige book" report,
the Fed reported modest and uneven growth across sectors and regions. It also
cited mixed retail sales, an improving manufacturing sector, and a relatively
stable labor market. Together with the lack of any inflationary threat, these
signs suggested that the Fed was unlikely to raise interest rates anytime soon.
Assuming that interest rates are unlikely to rise or fall dramatically, we
believe municipal bonds could remain strong--and could remain an important
component of a well-diversified investment portfolio.
PORTFOLIO MANAGEMENT TEAM
Richard A. Berry
Stephen D. Turman
See important fund and index disclosures inside front cover.
3
YOUR FUND'S LONG-TERM PERFORMANCE
The line chart at right compares the performance of AIM Municipal Bond Fund to
its benchmark index. It is intended to give you a general idea of how your fund
performed compared to its index over the period 7/31/92-7/31/02.
It is important to understand the difference between your fund and an index.
A market index such as the Lehman Municipal Bond Index is not managed and incurs
no sales charges, expenses or fees. If you could buy all the securities that
make up a market index, you would incur expenses that would affect your
investment return.
Your fund's total return includes sales charges, expenses and management
fees. Performance of the fund's Class A, Class B and Class C shares will differ
due to different sales charge structures and class expenses. For fund
performance calculations and indexes used in this report, please see the inside
front cover.
Performance shown in the chart does not reflect taxes a shareholder would
pay on redemption of fund shares. Index performance does not reflect the effects
of taxes either.
================================================================================
CALENDAR YEAR TOTAL RETURNS (%)
Class A Shares, excluding sales charges
1992 9.10
1993 11.66
1994 -3.79
1995 13.04
1996 3.90
1997 7.27
1998 5.28
1999 -2.45
2000 8.63
2001 3.82
================================================================================
RESULTS OF A $10,000 INVESTMENT
7/31/92-7/31/02
[MOUNTAIN CHART]
AIM MUNICIPAL BOND FUND CLASS A SHARES LEHMAN MUNICIPAL BOND INDEX
7/92 9525 7/97 12649 7/92 10000 7/97 14059
9228 12767 9869 14183
9676 13085 10267 14624
10023 13077 10631 14576
7/93 10239 7/98 13307 7/93 10883 7/98 14902
10624 13588 11259 15321
10835 13808 11525 15597
10284 13800 10862 15589
7/94 10501 7/99 13607 7/94 11089 7/99 15332
10254 13322 10769 15049
10517 13257 11116 15030
10834 13538 11584 15445
7/95 11178 7/00 13894 7/95 11962 7/00 15991
11390 14129 12367 16330
11699 14547 12789 17028
11555 14621 12505 17048
7/96 11724 7/01 15044 7/96 12751 7/01 17604
11954 15260 13073 18046
12127 15251 13280 18031
12184 15413 13335 18241
7/02 15778 7/02 18784
Source: Lipper
Past performance cannot guarantee comparable future results. DUETO RECENT
SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY MAY
DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOU FINANCIAL
ADVISOR FOR MORE CURRENT PERFORMANCE.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/02, including sales charges
AFTER TAXES
ON DISTRIBUTIONS
BEFORE AFTER TAXES AND SALE OF
TAXES ON DISTRIBUTIONS FUND SHARES
CLASS A SHARES
Inception (3/28/77) 6.32% 6.02% 6.04%
10 years 4.67 4.58 4.71
5 years 3.51 3.50 3.76
1 year -0.12 -0.12 1.69
CLASS B SHARES
Inception (9/1/93) 3.98% 3.91% 4.02%
5 years 3.38 3.37 3.54
1 year -0.95 -0.95 0.97
CLASS C SHARES
Inception (8/4/97) 3.75% 3.74% 3.84%
1 year 3.19 3.19 3.52
================================================================================
================================================================================
In addition to fund returns as of the close of the fiscal year, industry
regulations require us to provide average annual total returns as of 6/30/02,
the most recent calendar quarter-end, including sales charges, which were as
follows:
AFTER TAXES
ON DISTRIBUTIONS
BEFORE AFTER TAXES AND SALE OF
TAXES ON DISTRIBUTIONS FUND SHARES
CLASS A SHARES
Inception (3/28/77) 6.30% 6.00% 6.02%
10 years 4.95 4.86 4.96
5 years 3.65 3.64 3.89
1 year 0.22 0.22 1.92
CLASS B SHARES
Inception (9/1/93) 3.90% 3.83% 3.96%
5 years 3.56 3.54 3.69
1 year -0.55 -0.55 1.23
CLASS C SHARES
Inception (8/4/97) 3.58% 3.57% 3.71%
1 year 3.33 3.33 3.62
After-tax returns include sales charges and are calculated using the historical
highest individual federal marginal income tax rate and do not reflect the
effect of state and local taxes. Actual after-tax returns depend on the
investor's tax situation and may differ from those shown. After-tax returns
shown are not relevant to investors who hold their shares in tax-deferred
accounts such as 401(k)s or IRAs.
================================================================================
4
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to 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
trustees 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 the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
V-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
V-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
V-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
V-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
V-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
V-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
V-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
V-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
V-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By: ----------------------------------------------------
- --------------------------------------------
Title:
--------------------------------------------------
</Table>
V-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
V-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
V-13
AIM HIGH YIELD FUND,
AIM INCOME FUND,
AIM INTERMEDIATE GOVERNMENT FUND,
AIM MONEY MARKET FUND AND
AIM MUNICIPAL BOND FUND,
EACH A PORTFOLIO OF AIM INVESTMENT SECURITIES FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
INVESCO HIGH YIELD FUND, INVESCO CASH RESERVES FUND,
INVESCO SELECT INCOME FUND, A PORTFOLIO OF INVESCO MONEY
INVESCO TAX-FREE BOND FUND AND MARKET FUNDS,INC.
INVESCO U.S. GOVERNMENT SECURITIES FUND 4350 South Monaco Street
EACH A PORTFOLIO OF INVESCO BOND FUNDS, INC. Denver, Colorado 80237
4350 South Monaco Street Toll Free: (800) 525-8085
Denver, Colorado 80237
Toll Free: (800) 525-8085
STATEMENT OF ADDITIONAL INFORMATION
(October 21, 2003 Special Meetings of Shareholders of INVESCO Cash Reserves
Fund, INVESCO High Yield Fund, INVESCO Select Income Fund, INVESCO Tax-Free Bond
Fund and INVESCO U.S. Government Securities Fund)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement and Prospectus dated
August 25, 2003 of each of AIM High Yield Fund, AIM Income Fund, AIM
Intermediate Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund
for use in connection with the Special Meetings of Shareholders of INVESCO Cash
Reserves Fund, INVESCO High Yield Fund, INVESCO Select Income Fund, INVESCO
Tax-Free Bond Fund and INVESCO U.S. Government Securities Fund to be held on
October 21, 2003. Copies of each Combined Proxy Statement and Prospectus may be
obtained at no charge by writing AIM Fund Services, Inc., P.O. Box 4739,
Houston, Texas 77210-4739 or by calling 1-800-347-4246. Unless otherwise
indicated, capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in each Combined Proxy Statement and Prospectus.
A Statement of Additional Information for AIM Investment Securities Funds
dated July 21, 2003, as supplemented July 28, 2003, has been filed with the
Securities and Exchange Commission and is attached hereto as Appendix I which is
incorporated herein by this reference.
The date of this Statement of Additional Information is August 15, 2003.
TABLE OF CONTENTS
THE TRUST ......................................... 4
DESCRIPTION OF PERMITTED INVESTMENTS .............. 4
TRUSTEES AND OFFICERS OF THE TRUST ................ 4
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 4
ADVISORY AND MANAGEMENT RELATED SERVICES
AGREEMENTS AND PLANS OF DISTRIBUTION ......... 4
PORTFOLIO TRANSACTIONS ............................ 4
DESCRIPTION OF SHARES ............................. 5
DETERMINATION OF NET ASSET VALUE .................. 5
TAXES ............................................. 5
PERFORMANCE DATA .................................. 5
FINANCIAL INFORMATION ............................. 5
Appendix I - Statement of Additional Information of the Trust
Appendix II - Audited Financial Statements of INVESCO Cash Reserves
Fund (5/31/03)
Appendix III - Audited Financial Statements of INVESCO Bond Funds Inc.
(8/31/02)
Appendix IV - Unaudited Financial Statements of INVESCO Bond Funds Inc.
(2/28/03)
S-2
Appendix V - Pro forma financial statements for AIM High Yield Fund
Appendix VI - Pro forma financial statements for AIM Income Fund
Appendix VII - Pro forma financial statements for AIM Intermediate
Government Fund
Appendix VIII - Pro forma financial statements for AIM Money Market Fund
Appendix IX - Pro forma financial statements for AIM Municipal Bond
Fund
S-3
THE TRUST
This Statement of Additional Information relates to AIM Investment Securities
Funds (the "Trust") and its investment portfolios, AIM High Yield Fund, AIM
Income Fund, AIM Intermediate Government Fund, AIM Money Market Fund and AIM
Municipal Bond Fund (the "Funds"). The Trust is registered as an open-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Funds are separate series of shares of beneficial
interest of the Trust. For additional information about the Trust, see heading
"General Information About the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Funds adopted by the Trust's Board of Trustees, see heading "Description of
the Funds and Their Investments and Risks" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of each of the
Trust's trustees and executive officers identifying those who are interested
persons of the Trust as well as stating their aggregate remuneration, see
heading "Management of the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a disclosure of the control persons of the Funds, the principal holders of
shares of the Funds and the ownership by officers and trustees of the Funds, see
heading "Control Persons and Principal Holders of Securities" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related services
agreements and plans of distribution, see headings "Investment Advisory and
Other Services" and "Distribution of Securities" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
S-4
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the characteristics of
the Trust's shares of beneficial interest, see heading "General Information
About the Trust" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Trust's
shares, see heading "Dividends, Distributions and Tax Matters" in the Trust's
Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Trust,
see heading "Calculation of Performance Data" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of AIM High Yield Fund, and the report thereon
by Ernst & Young LLP, are set forth under the heading "Financial Statements" in
the Trust's Statement of Additional Information attached hereto as Appendix I.
The unaudited financial statements of AIM High Yield Fund, and the report
thereon by Ernst & Young LLP, are set forth as Appendix I.
The audited financial statements of AIM Income Fund, and the report thereon by
Ernst & Young LLP, are set forth under the heading "Financial Statements" in the
Trust's Statement of Additional Information attached hereto as Appendix I.
The unaudited financial statements of AIM Income Fund, and the report thereon by
Ernst & Young LLP, are set forth as Appendix I.
The audited financial statements of AIM Intermediate Government Fund, and the
report thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The unaudited financial statements of AIM Intermediate Government Fund, and the
report thereon by Ernst & Young LLP, are set forth as Appendix I.
S-5
The audited financial statements of AIM Money Market Fund, and the report
thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The unaudited financial statements of AIM Money Market Fund, and the report
thereon by Ernst & Young LLP, are set forth as Appendix I.
The audited financial statements of AIM Municipal Bond Fund, and the report
thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The unaudited financial statements of AIM Municipal Bond Fund, and the report
thereon by Ernst & Young LLP, are set forth as Appendix I.
The audited financial statements of INVESCO Cash Reserves Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of
INVESCO Cash Reserves Fund, dated May 31, 2003, which is incorporated herein by
reference and attached hereto as Appendix II.
The audited financial statements of INVESCO High Yield Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of
INVESCO High Yield Fund, dated August 31, 2002, which is incorporated herein by
reference and attached hereto as Appendix III.
The unaudited financial statements of INVESCO High Yield Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Semi-Annual Report
of INVESCO High Yield Fund dated February 28, 2003, which is incorporated herein
by reference and attached hereto as Appendix IV.
The audited financial statements of INVESCO Select Income Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of
INVESCO Select Income Fund, dated August 31, 2002, which is incorporated herein
by reference and attached hereto as Appendix III.
The unaudited financial statements of INVESCO Select Income Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Semi-Annual Report
of INVESCO Select Income Fund dated February 28, 2003, which is incorporated
herein by reference and attached hereto as Appendix IV.
The audited financial statements of INVESCO Tax-Free Bond Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of
INVESCO Tax-Free Bond Fund, dated August 31, 2002, which is incorporated herein
by reference and attached hereto as Appendix III.
The unaudited financial statements of INVESCO Tax-Free Bond Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Semi-Annual Report
of INVESCO Tax-Free Bond Fund dated February 28, 2003, which is incorporated
herein by reference and attached hereto as Appendix IV.
S-6
The audited financial statements of INVESCO U.S. Government Securities Fund, and
the report thereon by PricewaterhouseCoopers LLP, are set forth in the Annual
Report of INVESCO U.S. Government Securities Fund, dated August 31, 2002, which
is incorporated herein by reference and attached hereto as Appendix III.
The unaudited financial statements of INVESCO U.S. Government Securities Fund,
and the report thereon by PricewaterhouseCoopers LLP, are set forth in the
Semi-Annual Report of INVESCO U.S. Government Securities Fund dated February 28,
2003, which is incorporated herein by reference and attached hereto as Appendix
IV.
Pro forma financial statements for AIM High Yield Fund, giving effect to the
reorganization of INVESCO High Yield Fund into AIM High Yield Fund, are attached
hereto as Appendix V.
Pro forma financial statements for AIM Income Fund, giving effect to the
reorganization of INVESCO Select Income Fund into AIM Income Fund, are attached
hereto as Appendix VI.
Pro forma financial statements for AIM Intermediate Government Fund, giving
effect to the reorganization of INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund, are attached hereto as Appendix VII.
Pro forma financial statements for AIM Money Market Fund, giving effect to the
reorganization of INVESCO Cash Reserves Fund into AIM Money Market Fund, are
attached hereto as Appendix VIII.
Pro forma financial statements for AIM Municipal Bond Fund, giving effect to the
reorganization of INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund, are
attached hereto as Appendix IX.
S-7
APPENDIX I
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT SECURITIES FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
----------
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE CLASS A, CLASS A3, CLASS
B, CLASS C, CLASS R, AIM CASH RESERVE AND INVESTOR CLASS SHARES, AS APPLICABLE,
OF EACH PORTFOLIO (EACH A "FUND", COLLECTIVELY THE "FUNDS") OF AIM INVESTMENT
SECURITIES FUNDS LISTED BELOW. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES FOR THE
CLASS A, CLASS A3, CLASS B, CLASS C, CLASS R, AIM CASH RESERVE AND INVESTOR
CLASS SHARES, AS APPLICABLE, OF THE FUNDS LISTED BELOW. YOU MAY OBTAIN A COPY OF
ANY PROSPECTUS FOR ANY FUND LISTED BELOW FROM AN AUTHORIZED DEALER OR BY WRITING
TO:
A I M FUND SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING
(800) 347-4246
----------
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED JULY 21, 2003, RELATES TO THE
CLASS A, CLASS A3, CLASS B, CLASS C, AIM CASH RESERVE, CLASS R AND INVESTOR
CLASS SHARES, AS APPLICABLE, OF THE FOLLOWING PROSPECTUSES:
<Table>
<Caption>
FUND DATED
---- -----
AIM HIGH YIELD FUND JULY 21, 2003
AIM INCOME FUND JULY 21, 2003
AIM INTERMEDIATE GOVERNMENT FUND JULY 21, 2003
AIM LIMITED MATURITY TREASURY FUND DECEMBER 2, 2002
AIM MONEY MARKET FUND JULY 21, 2003
AIM MUNICIPAL BOND FUND JULY 21, 2003
AIM SHORT TERM BOND FUND DECEMBER 2, 2002
AIM TOTAL RETURN BOND FUND DECEMBER 2, 2002
</Table>
AIM INVESTMENT SECURITIES FUNDS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
GENERAL INFORMATION ABOUT THE TRUST...............................................................................1
Fund History.............................................................................................1
Shares of Beneficial Interest............................................................................1
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS..........................................................3
Classification...........................................................................................3
Investment Strategies and Risks..........................................................................4
Equity Investments............................................................................7
Foreign Investments...........................................................................7
Debt Investments..............................................................................9
Other Investments............................................................................16
Investment Techniques........................................................................17
Derivatives..................................................................................22
Fund Policies...........................................................................................28
Temporary Defensive Positions...........................................................................32
MANAGEMENT OF THE TRUST..........................................................................................32
Board of Trustees.......................................................................................32
Management Information..................................................................................32
Trustee Ownership of Fund Shares.............................................................33
Factors Considered in Approving the Investment Advisory Agreement............................33
Compensation............................................................................................34
Retirement Plan For Trustees.................................................................34
Deferred Compensation Agreements.............................................................34
Purchase of Class A Shares of the Funds at Net Asset Value...................................35
Codes of Ethics.........................................................................................35
Proxy Voting Policies...................................................................................35
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..............................................................36
INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................36
Investment Advisor......................................................................................36
Service Agreements......................................................................................38
Other Service Providers.................................................................................38
BROKERAGE ALLOCATION AND OTHER PRACTICES.........................................................................39
Brokerage Transactions..................................................................................39
Commissions.............................................................................................40
Brokerage Selection.....................................................................................40
Directed Brokerage (Research Services)..................................................................41
Regular Brokers or Dealers..............................................................................41
Allocation of Portfolio Transactions....................................................................41
Allocation of Initial Public Offering ("IPO") Transactions..............................................42
PURCHASE, REDEMPTION AND PRICING OF SHARES.......................................................................43
Purchase and Redemption of Shares.......................................................................43
Offering Price..........................................................................................59
Redemption In Kind......................................................................................61
Backup Withholding......................................................................................61
</Table>
i
<Table>
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................62
Dividends and Distributions.............................................................................62
Tax Matters.............................................................................................63
DISTRIBUTION OF SECURITIES.......................................................................................71
Distribution Plans......................................................................................71
Distributor.............................................................................................73
CALCULATION OF PERFORMANCE DATA..................................................................................75
APPENDICIES:
RATINGS OF DEBT SECURITIES......................................................................................A-1
TRUSTEES AND OFFICERS...........................................................................................B-1
TRUSTEE COMPENSATION TABLE......................................................................................C-1
PROXY VOTING POLICIES...........................................................................................D-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.............................................................E-1
MANAGEMENT FEES.................................................................................................F-1
ADMINISTRATIVE SERVICES FEES....................................................................................G-1
BROKERAGE COMMISSIONS...........................................................................................H-1
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE OF SECURITIES OF REGULAR BROKERS OR DEALERS.................I-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS.........................................J-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS...................................................K-1
TOTAL SALES CHARGES.............................................................................................L-1
PERFORMANCE DATA................................................................................................M-1
FINANCIAL STATEMENTS.............................................................................................FS
</Table>
ii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Investment Securities Fund (the "Trust") is a Delaware statutory
trust and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company. The Trust
currently consists of eight separate portfolios: AIM High Yield Fund, AIM Income
Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM
Money Market Fund, AIM Municipal Bond Fund, AIM Short Term Bond Fund and AIM
Total Return Bond Fund (each a "Fund" and collectively, the "Funds"). Under the
Amended and Restated Agreement and Declaration of Trust, dated May 15, 2002, as
amended (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.
The Trust was originally organized as a Maryland corporation on
November 4, 1988. Pursuant to an Agreement and Plan of Reorganization, AIM
Limited Maturity Treasury Fund was reorganized on October 15, 1993 as a series
portfolio of the Trust. Pursuant to another Agreement and Plan of
Reorganization, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Money Market Fund and AIM Municipal Bond Fund were
reorganized on June 1, 2000 as series portfolios of the Trust. In connection
with their reorganization as series portfolios of the Trust, the fiscal year end
of each of AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government
Fund, AIM Money Market Fund and AIM Municipal Bond Fund changed from December 31
to July 31.
AIM Limited Maturity Treasury Fund succeeded to the assets and assumed
the liabilities of a series portfolio with a corresponding name (the
"Predecessor Fund") of Short-Term Investments Co., a Massachusetts business
trust, on October 15, 1993. All historical financial information and other
information contained in this Statement of Additional Information for periods
prior to October 15, 1993, relating to AIM Limited Maturity Treasury Fund (or a
class thereof) is that of the Predecessor Fund (or a corresponding class
thereof). AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government
Fund, AIM Money Market Fund and AIM Municipal Bond Fund succeeded to the assets
and assumed the liabilities of series portfolios with corresponding names (the
"Predecessor Funds") of AIM Funds Group, a Delaware business trust, on June 1,
2000. All historical financial information and other information contained in
this Statement of Additional Information for periods prior to June 1, 2000,
relating to AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government
Fund, AIM Money Market Fund or AIM Municipal Bond Fund (or any classes thereof)
is that of the Predecessor Funds (or the corresponding classes thereof).
SHARES OF BENEFICIAL INTEREST
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.
The Trust allocates moneys and other property it receives from the
issue or sale of shares of each of its series of shares, and all income,
earnings and profits from such issuance and sales, subject only to the rights of
creditors, to the appropriate Fund. These assets constitute the underlying
assets of each Fund, are segregated on the Trust's books of account, and are
charged with the expenses of such Fund and its respective classes. The Trust
allocates any general expenses of the Trust not readily identifiable as
belonging to a particular Fund 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. EACH FUND OFFERS SEPARATE CLASSES OF SHARES AS FOLLOWS:
1
<Table>
<Caption>
AIM CASH
RESERVE INSTITUTIONAL INVESTOR
FUND CLASS A CLASS A3 SHARES CLASS B CLASS C CLASS R CLASS CLASS
- ---- --------- -------- ----------- --------- --------- --------- -------------- -----------
AIM High Yield Fund X X X X
--------- -------- ----------- --------- --------- --------- -------------- -----------
AIM Income Fund X X X X X
--------- -------- ----------- --------- --------- --------- -------------- -----------
AIM Intermediate X X X X X
Government Fund
--------- -------- ----------- --------- --------- --------- -------------- -----------
AIM Limited Maturity X X X
Treasury Fund
--------- -------- ----------- --------- --------- --------- -------------- -----------
AIM Money Market Fund X X X X X
--------- -------- ----------- --------- --------- --------- -------------- -----------
AIM Municipal Bond Fund X X X X
--------- -------- ----------- --------- --------- --------- -------------- -----------
AIM Short Term Bond Fund X
--------- -------- ----------- --------- --------- --------- -------------- -----------
AIM Total Return Bond
Fund X X X
--------- -------- ----------- --------- --------- --------- -------------- -----------
</Table>
This Statement of Additional Information relates solely to the Class A,
Class A3, AIM Cash Reserve Shares, Class B, Class C, Class R and Investor Class
shares, if applicable, of the Funds. The Institutional Class shares, which are
discussed in a separate Statement of Additional Information, are intended for
use by certain eligible institutional investors and are available to the
following:
o banks and trust companies acting in a fiduciary or similar
capacity;
o bank and trust company common and collective trust funds;
o banks and trust companies investing for their own account;
o entities acting for the account of a public entity (e.g.
Taft-Hartley funds, states, cities or government agencies);
o retirement plans;and
o platform sponsors with which A I M Distributors, Inc. ("AIM
Distributors") has entered into an agreement.
Each class of shares represents an interest in the same portfolio of
investments. Differing sales charges and expenses 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.
Each share of a Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of a Fund is subject
to different sales loads, conversion features, exchange privileges and
class-specific expenses. Only shareholders of a specific class may vote on
matters relating to that class' distribution plan.
Because Class B shares automatically convert to Class A shares, or AIM
Cash Reserve shares with respect to AIM Money Market Fund, at month-end eight
years after the date of purchase, the Fund's
2
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act requires
that Class B shareholders must also approve any material increase in
distribution fees submitted to Class A shareholders, or AIM Cash Reserve
shareholders with respect to AIM Money Market Fund, of that Fund. A pro rata
portion of shares from reinvested dividends and distributions convert along with
the Class B shares.
Except as specifically noted above, 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 shares of a Fund.
However, on matters affecting an individual Fund or class of shares, a separate
vote of shareholders of that Fund or class is required. Shareholders of a Fund
or class are not entitled to vote on any matter which does not affect that Fund
or class but that requires a separate vote of another Fund or class. An example
of a matter that would be voted on separately by shareholders of each Fund is
the approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an
example of a matter that would be voted on separately by shareholders of each
class of shares is approval of the distribution plans. When issued, shares of
each Fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are freely transferable. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect 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.
Under Delaware law, shareholders of a Delaware statutory trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility, however, 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. 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 is unable to meet its obligations and
the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act,
omission or obligation of the Trust or any trustee or officer; however, a
trustee or officer is not protected 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
("Disabling Conduct"). The Trust Agreement provides for indemnification by the
Trust of the trustees, the officers and employees or agents of the Trust,
provided that such persons have not engaged in Disabling Conduct. The Trust
Agreement also authorizes the purchase of liability insurance on behalf of
trustees and officers.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to
demand or require the Trust to issue share certificates.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the
Funds is "diversified" for purposes of the 1940 Act.
3
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and
investment techniques used by AIM in managing The AIM Family of
Funds--Registered Trademark--. The table has been marked to indicate those
securities and investment techniques that AIM may use to manage a Fund. A Fund
may not use all of these techniques at any one time. A Fund's transactions in a
particular security or use of a particular technique is subject to limitations
imposed by a Fund's investment objective, policies and restrictions described in
that Fund's Prospectus and/or this Statement of Additional Information, as well
as federal securities laws. The Funds' investment objectives, policies,
strategies and practices are non-fundamental unless otherwise indicated. A more
detailed description of the securities and investment techniques, as well as the
risks associated with those securities and investment techniques that the Funds
utilize, follows the table. The descriptions of the securities and investment
techniques in this section supplement the discussion of principal investment
strategies contained in each Fund's Prospectus; where a particular type of
security or investment technique is not discussed in a Fund's Prospectus, that
security or investment technique is not a principal investment strategy.
4
AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
FUND AIM AIM
SECURITY/ AIM LIMITED AIM AIM AIM SHORT TOTAL
INVESTMENT INTERMEDIATE MATURITY MONEY MUNICIPAL TERM RETURN
TECHNIQUE AIM INCOME GOVERNMENT TREASURY MARKET BOND BOND BOND
AIM HIGH YIELD FUND FUND FUND FUND FUND FUND FUND FUND
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
EQUITY INVESTMENTS
Common Stock
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Preferred Stock X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Convertible Securities X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Alternative Entity
Securities
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
FOREIGN INVESTMENTS
Foreign Securities X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Foreign Government
Obligations X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Foreign Exchange
Transactions X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
DEBT INVESTMENTS
U.S. Government
Obligations X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Rule 2a-7 Requirements X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Mortgage-Backed and
Asset-Backed Securities X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Collateralized Mortgage
Obligations X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Bank Instruments X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Commercial Instruments X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Participation Interests X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Municipal Securities X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Municipal Lease
Obligations X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Investment Grade
Corporate Debt
Obligations X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Junk Bonds X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
OTHER INVESTMENTS
REITs X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Other Investment
Companies X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Defaulted Securities X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Municipal Forward
Contracts
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Variable or Floating
Rate Instruments X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Indexed Securities
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Zero-Coupon and
Pay-in-Kind Securities X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Synthetic Municipal
Instruments
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
</Table>
5
AIM INVESTMENT SECURITIES FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
FUND AIM AIM
SECURITY/ AIM LIMITED AIM AIM AIM SHORT TOTAL
INVESTMENT INTERMEDIATE MATURITY MONEY MUNICIPAL TERM RETURN
TECHNIQUE AIM INCOME GOVERNMENT TREASURY MARKET BOND BOND BOND
AIM HIGH YIELD FUND FUND FUND FUND FUND FUND FUND FUND
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
INVESTMENT TECHNIQUES
Delayed Delivery
Transactions X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
When-Issued Securities X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Short Sales X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Margin Transactions
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Swap Agreements X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Interfund Loans X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Borrowing X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Lending Portfolio X X X X X X X X
Securities
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Repurchase Agreements X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Reverse Repurchase X X X X X X X X
Agreements
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Dollar Rolls X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Illiquid Securities X X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Rule 144A Securities X X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Unseasoned Issuers X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Sale of Money Market
Securities X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Standby Commitments
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
DERIVATIVES
Equity-Linked
Derivatives
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Put Options X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Call Options X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Straddles X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Warrants X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Futures Contracts and
Options on Futures
Contracts X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Forward Currency
Contracts X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
Cover X X X X X X
- ----------------------- ------------------- ----------- ------------ --------- -------- ---------- --------- ------
</Table>
6
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise
cash for business purposes and represents a residual interest in the issuing
company. A Fund participates in the success or failure of any company in which
it holds stock. The prices of equity securities change in response to many
factors including the historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the interest to be paid is set by auction and
will often be reset at stated intervals. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
AIM High Yield Fund will not acquire equity securities, other than
preferred stocks, except when (a) attached to or included in a unit with
income-generating securities that otherwise would be attractive to the Fund; (b)
acquired through the exercise of equity features accompanying convertible
securities held by the Fund, such as conversion or exchange privileges or
warrants for the acquisition of stock or equity interests of the same or a
different issuer; or (c) in the case of an exchange offer whereby the equity
security would be acquired with the intention of exchanging it for a debt
security issued on a "when-issued" basis.
CONVERTIBLE SECURITIES. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may be converted
into a prescribed amount of common stock or other equity securities at a
specified price and time. The holder of convertible securities is entitled to
receive interest paid or accrued on debt, or dividends paid or accrued on
preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the
yield of similar nonconvertible securities, the financial strength of the issuer
and the seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to the Fund.
The Funds will invest in a convertible debt security based primarily on
the characteristics of the equity security into which it converts, and without
regard to the credit rating of the convertible security (even if the credit
rating is below investment grade). To the extent that a Fund invests in
convertible debt securities with credit ratings below investment grade, such
securities may have a higher likelihood of default, although this may be
somewhat offset by the convertibility feature. See also "Junk Bonds" below.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities
issued by issuers outside the United States, and include securities in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers.
Depositary receipts are typically issued by a bank or trust company and evidence
ownership of underlying securities issued by foreign corporations.
7
AIM High Yield Fund and AIM Total Return Bond Fund may invest up to 25%
of their total assets, AIM Income Fund may invest up to 40% of its total assets,
AIM Money Market Fund may invest up to 50% of its total assets and AIM Short
Term Bond Fund may invest up to 15% of its total assets in foreign securities;
however, AIM Money Market Fund and AIM Short Term Bond Fund may only invest in
foreign securities denominated in U.S. dollars. In addition, AIM Total Return
Bond Fund may only invest up to 5% of its total assets in foreign securities
that are non-U.S. dollar denominated.
Investments by a Fund in foreign securities, whether denominated in
U.S. dollars or foreign currencies, may entail all of the risks set forth below.
Investments by a Fund in ADRs, EDRs or similar securities also may entail some
or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the
Securities and Exchange Commission ("SEC") and are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign securities
than is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU") established a common European currency known as the
"euro" and each member's local currency became a denomination of the euro. Each
participating country (currently, Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) has
replaced its local currency with the euro effective January 1, 2002.
Risk of Developing Countries. AIM High Yield Fund, AIM Income Fund, AIM
Short Term Bond Fund and AIM Total Return Bond Fund may each invest up to 5% of
their total assets in securities of companies located in developing countries.
Investments in developing countries present risks greater than, and in addition
to, those presented by investments in foreign issuers in general. A number of
developing countries restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur subsequent to investments in these currencies by the
Funds. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
8
certain emerging market countries. Many of the developing securities markets are
relatively small or less diverse, have low trading volumes, suffer periods of
relative liquidity, and are characterized by significant price volatility. There
is a risk in developing countries that a future economic or political crisis
could lead to price controls, forced mergers of companies, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies, any of which may have a detrimental effect on a Fund's investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions, agencies or instrumentalities,
that issue them. These securities involve the risks discussed above with respect
to foreign securities. Additionally the issuer of the debt or the governmental
authorities that control repayment of the debt may be unwilling or unable to pay
interest or repay principal when due. Political or economic changes or the
balance of trade may affect a country's willingness or ability to service its
debt obligations. Periods of economic uncertainty may result in the volatility
of market prices of sovereign debt obligations, especially debt obligations
issued by the governments of developing countries. Foreign government
obligations of developing countries and some structures of emerging market debt
securities, both of which are generally below investment grade, are sometimes
referred to as "Brady Bonds."
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include
direct purchases of futures contracts with respect to foreign currency, and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies
of the different countries in which it will invest as a hedge against possible
variations in the foreign exchange rates between those currencies. A Fund may
commit the same percentage of its assets to foreign exchange hedges as it can
invest in foreign securities.
The Funds may utilize either specific transactions ("transaction
hedging") or portfolio positions ("position hedging") to hedge foreign currency
exposure through foreign exchange transactions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of a Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions (or underlying portfolio security positions, such as in an ADR)
denominated or quoted in a foreign currency. Additionally, foreign exchange
transactions may involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities include bills, notes and
bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities since investors receive no payment until maturity. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, though
issued by an instrumentality chartered by the U.S. Government, like the Federal
Farm Credit Bureau ("FFCB"), are supported only by the credit of the
instrumentality. The U.S. Government may choose not to provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not legally
obligated to do so.
9
RULE 2a-7 REQUIREMENTS. 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 (as defined below) in one of the two highest
short-term rating categories, or a security issued by an issuer that has
received a rating by the Requisite NRSROs in one of the two highest short-term
rating categories with respect to a class of debt obligations (or any debt
obligation within that class). Eligible Securities may also include unrated
securities determined by AIM (under the supervision of and pursuant to
guidelines established by the Board of Trustees) to be of comparable quality to
such rated securities. If an unrated security is subject to a guarantee, to be
an Eligible Security, the guarantee generally must have received a rating from a
NRSRO in one of the two highest short-term rating categories or be issued by a
guarantor that has received a rating from a NRSRO in one of the two highest
short-term rating categories with respect to a class of debt obligations (or any
debt obligation within that class). Since the Fund may invest 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 their share
price. 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 a
Fund acquires the security, that NRSRO.
AIM Money Market Fund will limit investments in money market
obligations to those which are denominated in U.S. dollars and which at the date
of purchase are "First Tier" securities as defined in Rule 2a-7 under the 1940
Act, as such Rule may be amended from time to time. Briefly, "First Tier"
securities are securities that are rated in the highest rating category for
short-term debt obligations by two NRSROs, or, if only rated by one NRSRO, are
rated in the highest rating category by the NRSRO, or if unrated, are determined
by the Fund's investment advisor (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 the foregoing quality standards, as well as
securities issued by a registered investment company that is a money market fund
and U.S. Government securities.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities
are mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, or issued by nongovernment entities.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various government agencies such as GNMA and government-related
organizations such as FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings
and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities they issue. Mortgage-related securities issued by GNMA
include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes")
which are guaranteed as to the timely payment of principal and interest. That
guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a
corporation wholly owned by the U.S. Government within the Department of Housing
and Urban Development. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and
are guaranteed as to payment of principal and interest by FNMA itself and backed
by a line of credit with the U.S. Treasury. FNMA is a government-sponsored
entity wholly owned by public stockholders. Mortgage-related securities issued
by FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs") guaranteed as to payment of principal and interest by FHLMC
itself and backed by a line of credit with the U.S. Treasury. FHLMC is a
government-sponsored entity wholly owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor
10
vehicle installment sales or installment loan contracts, leases of various types
of real and personal property, and receivables from credit card agreements.
Regular payments received in respect of such securities include both interest
and principal. Asset-backed securities typically have no U.S. Government
backing. Additionally, the ability of an issuer of asset-backed securities to
enforce its security interest in the underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at
a premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying collateral. As with other interest-bearing securities, the prices
of such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-backed or other asset-backed security may decline
when interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages and loans underlying the securities
are prone to prepayment, thereby shortening the average life of the security and
shortening the period of time over which income at the higher rate is received.
When interest rates are rising, though, the rate of prepayment tends to
decrease, thereby lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-backed or other
asset-backed security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). AIM Total Return Bond
Fund may invest in CMOs. The Fund can also invest in mortgage-backed bonds and
asset-backed securities. A CMO is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Similar to a bond, interest and prepaid
principal is paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of
its agencies or instrumentalities will be considered U.S. government securities
by the Funds, while other CMOs, even if collateralized by U.S. government
securities, will have the same status as other privately issued securities for
purposes of applying the Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC
Participation Certificates ("PCs"), payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the
11
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and the Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.
Credit risk reflects the risk that the Fund may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
BANK INSTRUMENTS. AIM Money Market Fund, AIM Short Term Bond Fund and
AIM Total Return Bond Fund may invest in certificates of deposits, time
deposits, and bankers' acceptances from U.S. or foreign banks. A bankers'
acceptance is a bill of exchange or time draft drawn on and accepted by a
commercial bank. A certificate of deposit is a negotiable interest-bearing
instrument with a specific maturity. Certificates of deposit are issued by banks
and savings and loan institutions in exchange for the deposit of funds, and
normally can be traded in the secondary market prior to maturity. A time deposit
is a non-negotiable receipt issued by a bank in exchange for the deposit of
funds. Like a certificate of deposit, it earns a specified rate of interest over
a definite period of time; however, it cannot be traded in the secondary market.
AIM Money Market Fund may invest in certificates of deposit
("Eurodollar CDs") and time deposits ("Eurodollar time deposits") of foreign
branches of domestic banks. Accordingly, an investment in the Fund may involve
risks that are different in some respects from those incurred by an investment
company which invests only in debt obligations of U.S. domestic issuers. Such
risks include future political and economic developments, the possible seizure
or nationalization of foreign deposits and the possible imposition of foreign
country withholding taxes on interest income.
COMMERCIAL INSTRUMENTS. AIM Money Market Fund intends to invest in
commercial instruments, including commercial paper, master notes and other
short-term corporate instruments, that are
12
denominated in U.S. dollars. Commercial paper consists of short-term promissory
notes issued by corporations. Commercial paper may be traded in the secondary
market after its issuance. Master notes are demand notes that permit the
investment of fluctuating amounts of money at varying rates of interest pursuant
to arrangements with issuers who meet the quality criteria of the Fund. The
interest rate on a master note may fluctuate based upon changes in specified
interest rates or be reset periodically according to a prescribed formula or may
be a set rate. Although there is no secondary market in master demand notes, if
such notes have a demand feature, the payee may demand payment of the principal
amount of the note upon relatively short notice.
PARTICIPATION INTERESTS. AIM Money Market Fund may purchase
participations in corporate loans. Participation interests generally will be
acquired from a commercial bank or other financial institution (a "Lender") or
from other holders of a participation interest (a "Participant"). The purchase
of a participation interest either from a Lender or a Participant will not
result in any direct contractual relationship with the borrowing company ("the
Borrower"). Instead, the Fund will be required to rely on the Lender or the
Participant that sold the participation interest both for the enforcement of the
Fund's rights against the Borrower and for the receipt and processing of
payments due to the Fund under the loans. The Fund is thus subject to the credit
risk of both the Borrower and a Participant. Participation interests are
generally subject to restrictions on resale. The Fund considers participation
interests to be illiquid and therefore subject to the Fund's percentage
limitation for investments in illiquid securities.
MUNICIPAL SECURITIES. "Municipal Securities" include debt obligations
of states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities,
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works.
Other public purposes for which Municipal Securities may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated housing
facilities, airport, mass transit, industrial, port or parking facilities, air
or water pollution control facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. The 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.
13
Municipal Securities also include the following securities:
o 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.
o 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.
o 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.
o Tax-Exempt Commercial Paper (Municipal Paper) is similar 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.
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.
Quality Standards. 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 "Appendix
A - Ratings of Debt Securities".
At least 80% of AIM Municipal Bond Fund's total assets will be invested
in municipal securities rated within the four highest ratings for municipal
obligations by Moody's (Aaa, Aa, A, or Baa), S&P (AAA, AA, A, or BBB), or have
received a comparable rating from another NRSRO. The Fund may invest up to 20%
of its total assets in municipal securities that are rated below Baa/BBB (or a
comparable rating of any other NRSRO) or that are unrated. For purposes of the
foregoing percentage limitations, municipal securities (i) which have been
collateralized with U.S. Government obligations held in escrow until the
municipal securities' scheduled redemption date or final maturity, but (ii)
which have not been rated by a NRSRO subsequent to the date of escrow
collateralization, will be treated by the Fund as the equivalent of Aaa/AAA
rated securities.
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.
The Fund may invest in securities which are insured by financial
insurance companies. Since a limited number of entities provide such insurance,
the Fund may invest more than 25% of its assets in securities insured by the
same insurance company.
Other Considerations. The ability of the Fund to achieve its investment
objective depends upon the continuing ability of the issuers or guarantors of
Municipal Securities held by the Fund to meet their
14
obligations for the payment of interest and principal when due. The securities
in which the Fund invests 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.
There is a risk that some or all of the interest received by the Fund
from Municipal Securities might become taxable as a result of tax law changes or
determinations of the Internal Revenue Service ("IRS").
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. Generally, 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 the 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.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations, a type of
Municipal Security, 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 Fund may purchase these obligations
directly, or it may purchase participation interests in such obligations.
Municipal leases are generally subject to greater risks than general obligation
or revenue bonds. State laws set forth requirements that states or
municipalities must meet in order to issue municipal obligations, and such
obligations may contain a covenant by the issuer to budget for, appropriate, and
make payments due under the obligation. However, certain municipal lease
obligations may contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal leases
are secured by the underlying capital asset, it may be difficult to dispose of
such assets in the event of non-appropriation or other default. All direct
investments by the Fund in municipal lease obligations shall be deemed illiquid
and shall be valued according to the Fund's Procedures for Valuing Securities
current at the time of such valuation.
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund (except AIM
Limited Maturity Treasury Fund) may invest in U.S. dollar-denominated debt
obligations issued or guaranteed by U.S. corporations or U.S. commercial banks,
U.S. dollar-denominated obligations of foreign issuers and debt obligations of
foreign issuers denominated in foreign currencies. Such debt obligations
include, among others, bonds, notes, debentures and variable rate demand notes.
In choosing corporate debt securities on behalf of a Fund, its investment
adviser may consider (i) general economic and financial conditions; (ii) the
specific issuer's (a) business and management, (b) cash flow, (c) earnings
coverage of interest and dividends, (d) ability to operate under adverse
economic conditions, (e) fair market value of assets, and (f) in the case of
foreign issuers, unique political, economic or social conditions applicable to
such issuer's country; and, (iii) other considerations deemed appropriate.
A portion of each Fund's assets may be held in cash and high quality,
short-term money market instruments such as certificates of deposit, commercial
paper, bankers' acceptances, short-term U.S. Government obligations, taxable
municipal securities, master notes, and repurchase agreements, pending
investment in portfolio securities, to meet anticipated short-term cash needs
such as dividend payments or redemptions of shares, or for temporary defensive
purposes. The Funds, other than AIM High Yield Fund, AIM Income Fund and AIM
Municipal Bond Fund, will purchase only investment grade corporate debt
securities.
JUNK BONDS. Junk bonds are lower-rated or non-rated debt securities.
Junk bonds are considered speculative with respect to their capacity to pay
interest and repay principal in accordance
15
with the terms of the obligation. While generally providing greater income and
opportunity for gain, non-investment grade debt securities are subject to
greater risks than higher-rated securities.
Companies that issue junk bonds are often highly leveraged, and may not
have more traditional methods of financing available to them. During an economic
downturn or recession, highly leveraged issuers of high yield securities may
experience financial stress, and may not have sufficient revenues to meet their
interest payment obligations. Economic downturns tend to disrupt the market for
junk bonds, lowering their values, and increasing their price volatility. The
risk of issuer default is higher with respect to junk bonds because such issues
are generally unsecured and are often subordinated to other creditors of the
issuer.
The credit rating of a junk bond does not necessarily address its
market value risk, and ratings may from time to time change to reflect
developments regarding the issuer's financial condition. The lower the rating of
a junk bond, the more speculative its characteristics.
AIM High Yield Fund, AIM Income Fund and AIM Municipal Bond Fund may
have difficulty selling certain junk bonds because they may have a thin trading
market. The lack of a liquid secondary market may have an adverse effect on the
market price and a Fund's ability to dispose of particular issues and may also
make it more difficult for each Fund to obtain accurate market quotations of
valuing these assets. In the event a Fund experiences an unexpected level of net
redemptions, the Fund could be forced to sell its junk bonds at an unfavorable
price. 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.
Descriptions of debt securities ratings are found in Appendix A.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell
equity or debt securities to investors and use the proceeds to invest in real
estate or interests therein. A REIT may focus on particular projects, such as
apartment complexes, or geographic regions, such as the southeastern United
States, or both.
To the extent consistent with their respective investment objectives
and policies, each Fund may invest up to 15% of its total assets in equity
and/or debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain an exemption from the 1940 Act. Changes in interest rates
may also affect the value of debt securities held by a Fund. By investing in
REITs indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OTHER INVESTMENT COMPANIES. With respect to a Fund's purchase of shares
of another investment company, including Affiliated Money Market Funds (defined
below), the Fund will indirectly
16
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 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 the investing Fund.
The following restrictions apply to investments in other investment
companies other than Affiliated Money Market Funds: (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.
DEFAULTED SECURITIES. The Funds may invest in defaulted securities. In
order to enforce its rights in defaulted securities, the Funds 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 a Fund's operating expenses and adversely affect its net asset value.
Any investments by the Funds 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.
VARIABLE OR FLOATING RATE INSTRUMENTS. A Fund may invest in 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 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 securities than for fixed
rate obligations. Many 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
securities held by the Funds.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. A Fund may 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 Short Term Bond Fund and AIM
Total Return Bond 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.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also
referred to as forward commitments, involve commitments by a Fund to dealers or
issuers to acquire or sell securities at a specified future date beyond the
customary settlement for such securities. These commitments may fix the payment
price and interest rate to be received or paid on the investment. A Fund may
purchase securities on a delayed delivery basis to the extent it can anticipate
having available cash on settlement date. Delayed delivery agreements will not
be used as a speculative or leveraging technique.
17
Investment in securities on a delayed delivery basis may increase a
Fund's exposure to market fluctuation and may increase the possibility that the
Fund will incur short-term gains subject to federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
delayed delivery commitment. Until the settlement date, a Fund will segregate
liquid assets of a dollar value sufficient at all times to make payment for the
delayed delivery transactions. Such segregated liquid assets will be
marked-to-market daily, and the amount segregated will be increased if necessary
to maintain adequate coverage of the delayed delivery commitments. No additional
delayed delivery agreements or when-issued commitments (as described below) will
be made by a Fund if, as a result, more than 25% of the Fund's total assets
would become so committed.
The delayed delivery securities, which will not begin to accrue
interest or dividends until the settlement date, will be recorded as an asset of
a Fund and will be subject to the risk of market fluctuation. The purchase price
of the delayed delivery securities is a liability of a Fund until settlement.
Absent extraordinary circumstances, a Fund will not sell or otherwise transfer
the delayed delivery securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed
delivery agreement). In a buy/sell back transaction, a Fund enters a trade to
sell securities at one price and simultaneously enters a trade to buy the same
securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that 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. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in
a Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if a Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
Investment in securities on a when-issued basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must sell another security in order to honor a when-issued commitment.
If a Fund purchases a when-issued security, the Fund will segregate liquid
assets in an amount equal to the when-issued commitment. If the market value of
such segregated assets declines, additional liquid assets will be segregated on
a daily basis so that the market value of the segregated assets will equal the
amount of the Fund's when-issued commitments. No additional delayed delivery
agreements (as described above) or when-issued commitments will be made by a
Fund if, as a result, more than 25% of the Fund's total assets would become so
committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. A Fund is said
to have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A Fund will make a
short sale, as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security, or when the Fund
does not want to sell the security it owns, because it wishes to defer
recognition of gain or loss for federal income tax purposes. In such case, any
future losses in a Fund's long position should be
18
reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
such gains or losses are reduced will depend upon the amount of the security
sold short relative to the amount a Fund owns, either directly or indirectly,
and, in the case where the Fund owns convertible securities, changes in the
conversion premium. In determining the number of shares to be sold short against
a Fund's position in a convertible security, the anticipated fluctuation in the
conversion premium is considered. A Fund may also make short sales to generate
additional income from the investment of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at
all times when a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and in an amount
equal to, the securities sold short. To secure its obligation to deliver the
securities sold short, a Fund will segregate with its custodian an equal amount
to the securities sold short or securities convertible into or exchangeable for
such securities. Each Fund (except for AIM Limited Maturity Treasury Fund and
AIM Money Market Fund) may pledge no more than 10% of its total assets as
collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on
margin, except that each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities. The
payment by a Fund of initial or variation margin in connection with futures or
related options transactions will not be considered the purchase of a security
on margin.
SWAP AGREEMENTS. AIM Short Term Bond Fund, AIM Total Return Bond Fund
and AIM Income Fund may enter into interest rate, index and currency exchange
rate swap agreements for purposes of attempting to obtain a particular desired
return at a lower cost to the Fund than if it had invested directly in an
instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index. Commonly used swap agreements include: (i) interest rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interest rates exceed a specified rate, or "cap"; (ii)
interest rate floors, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates fall below a
specified level, or "floor"; and (iii) interest rate collars, under which a
party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
The "notional amount" of the swap agreement is only a fictitious basis
on which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by the Fund would
calculate the obligations on a "net basis." Consequently, the Fund's obligations
(or rights) under a swap agreement will generally be equal only to the net
amount to be paid or received under the agreement based on the relative values
of the positions held by each party to the agreement (the "net amount").
Obligations under a swap agreement will be accrued daily (offset against amounts
owing to the Fund) and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by segregating liquid assets, to avoid any
potential leveraging of the Fund. The Fund will not enter into a swap agreement
with any single party if the net amount owed to or to be received under existing
contracts with that party would exceed 5% of the Fund's total assets. For a
discussion of the tax considerations relating to swap agreements, see
"Dividends, Distributions and Tax Matters - Swap Agreements."
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its
net assets to other AIM Funds and each Fund may borrow from other AIM Funds to
the extent permitted under such Fund's investment restrictions. During temporary
or emergency periods, the percentage of a Fund's net assets that may be loaned
to other AIM Funds may be increased as permitted by the SEC. If any interfund
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borrowings are outstanding, the Fund cannot make any additional investments. If
a Fund has borrowed from other AIM Funds and has aggregate borrowings from all
sources that exceed 10% of such Fund's total assets, such Fund will secure all
of its loans from other AIM Funds. The ability of the Funds to lend its
securities to other AIM Funds is subject to certain other terms and conditions.
BORROWING. The Funds may borrow money to a limited extent for temporary
or emergency purposes. If there are unusually heavy redemptions because of
changes in interest rates or for any other reason, a Fund may have to sell a
portion of its investment portfolio at a time when it may be disadvantageous to
do so. Selling fund securities under these circumstances may result in a lower
net asset value per share or decreased dividend income, or both. The Trust
believes that, in the event of abnormally heavy redemption requests, a Fund's
borrowing ability would help to mitigate any such effects and could make the
forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio
securities (principally to broker-dealers) where such loans are callable at any
time and are continuously secured by segregated collateral equal to no less than
the market value, determined daily, of the loaned securities. Such collateral
will be cash, letters of credit, or debt securities issued or guaranteed by the
U.S. Government or any of its agencies. Each Fund may lend portfolio securities
to the extent of one-third of its total assets.
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 any cash collateral. A Fund will not have the right to vote
securities while they are lent, but it can call a loan in anticipation of an
important vote. Any cash collateral pursuant to these loans would be invested in
short-term money market instruments or Affiliated Money Market Funds. Lending
securities entails a risk of loss to the Funds if and to the extent that the
market value of the securities loaned increases and the collateral is not
increased accordingly or in the event of default by the borrower. The Fund could
also experience delays and costs in gaining access to the collateral.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which
a Fund acquires ownership of a security from a broker-dealer or bank that agrees
to repurchase the security at a mutually agreed upon time and price (which is
higher than the purchase price), thereby determining the yield during a Fund's
holding period. A Fund may, however, enter into a "continuing contract" or
"open" repurchase agreement under which the seller is under a continuing
obligation to repurchase the underlying obligation from the Fund on demand and
the effective interest rate is negotiated on a daily basis. Each of the Funds
may engage in repurchase agreement transactions involving the types of
securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the
security in accordance with the terms of the agreement, a Fund might incur
expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying security and loss of income. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon.
The Funds may invest their cash balances in joint accounts with other
AIM Funds for the purpose of investing in repurchase agreements with maturities
not to exceed 60 days, and in certain other money market instruments with
remaining maturities not to exceed 90 days. Repurchase agreements are considered
loans by a Fund under the 1940 Act.
AIM Limited Maturity Treasury Fund's investment policies permit it to
invest in repurchase agreements with banks and broker-dealers pertaining to U.S.
Treasury obligations. However, in order to maximize the Fund's dividends which
are exempt from state income taxation, as a matter of operating policy, the Fund
does not currently invest in repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
agreements that involve the sale of securities held by a Fund to financial
institutions such as banks and broker-dealers,
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with an agreement that the Fund will repurchase the securities at an agreed upon
price and date. A Fund may employ reverse repurchase agreements (i) for
temporary emergency purposes, such as to meet unanticipated net redemptions so
as to avoid liquidating other portfolio securities during unfavorable market
conditions; (ii) to cover short-term cash requirements resulting from the timing
of trade settlements (except AIM Limited Maturity Treasury Fund); or (iii) to
take advantage of market situations where the interest income to be earned from
the investment of the proceeds of the transaction is greater than the interest
expense of the transaction. At the time it enters into a reverse repurchase
agreement, a Fund will segregate liquid assets (U.S. Treasury obligations in the
case of AIM Limited Maturity Treasury Fund) having a dollar value equal to the
repurchase price, and will subsequently continually monitor the account to
ensure that such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of securities to be purchased
by the Fund may decline below the price at which it is obligated to repurchase
the securities, or that the other party may default on its obligation, so that
the Fund is delayed or prevented from completing the transaction. Reverse
repurchase agreements are considered borrowings by a Fund under the 1940 Act.
DOLLAR ROLLS. AIM Income Fund, AIM Intermediate Government Fund, AIM
Short Term Bond Fund and AIM Total Return Bond Fund may engage in dollar roll
transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC.
A dollar roll involves the sale of a security, with an agreement to repurchase a
substantially similar (i.e., same type, coupon and maturity) security at an
agreed upon price and date. The mortgage securities that are purchased will bear
the same interest rate as those sold, but will generally be collateralized by
different pools of mortgages with different prepayment histories. During the
period between the sale and repurchase, a Fund will not be entitled to receive
interest and principal payments on the securities sold. Proceeds of the sale
will be invested in short-term instruments, and the income from these
investments, together with any additional fee income received on the sale, could
generate income for a Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of
the securities may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. At the time a Fund enters into a dollar roll, it will segregate
liquid assets having a dollar value equal to the repurchase price, and will
monitor the account to ensure that such equivalent value is maintained. The
Funds typically enter into dollar roll transactions on mortgage securities to
enhance their return either on an income or total return basis or to manage
pre-payment risk. Dollar rolls are considered borrowings by a Fund under the
1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the 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 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A, and thus may or may not
constitute illiquid securities.
Each Fund (except AIM Money Market Fund) may invest up to 15% of its
net assets in securities that are illiquid. AIM Money Market Fund may invest up
to 10% of its net assets in securities that are illiquid, including repurchase
agreements with remaining maturities in excess of seven (7) days. Limitations on
the resale of restricted securities may have an adverse effect on their
marketability, which may prevent a Fund from disposing of them promptly at
reasonable prices. A Fund may have to bear the expense of registering such
securities for resale, and the risk of substantial delays in effecting such
registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Funds'
21
restriction on investment in illiquid securities. Determination of whether a
Rule 144A security is liquid or not is a question of fact. In making this
determination AIM will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security. In
addition, AIM could consider the (i) frequency of trades and quotes; (ii) number
of dealers and potential purchasers; (iii) dealer undertakings to make a market;
and (iv) nature of the security and of market place trades (for example, the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). AIM will also monitor the liquidity of Rule 144A
securities and, if as a result of changed conditions, AIM determines that a Rule
144A security is no longer liquid, AIM will review a Fund's holdings of illiquid
securities to determine what, if any, action is required to assure that such
Fund complies with its restriction on investment in illiquid securities.
Investing in Rule 144A securities could increase the amount of each Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments in the securities of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources. As a result,
securities of unseasoned issuers tend to be more volatile than securities of
more established companies.
SALE OF MONEY MARKET SECURITIES. AIM Money Market Fund does not seek
profits through short-term trading and will generally hold portfolio securities
to maturity. However, AIM may seek to enhance the yield of the Fund by taking
advantage of yield disparities that occur in the money markets. For example,
market conditions frequently result in similar securities trading at different
prices. AIM may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with AIM's judgment as to desirable portfolio maturity structure. AIM
may also dispose of any portfolio security prior to maturity to meet redemption
requests, and as a result of a revised credit evaluation of the issuer or other
circumstances or considerations. The Fund's policy of investing in securities
with maturities of 397 days or less will result in high portfolio turnover.
Since brokerage commissions are not normally paid on investments of the type
made by the Fund, the high turnover should not adversely affect the Fund's net
income.
Derivatives
AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund,
AIM Short Term Bond Fund and AIM Total Return Bond Fund may each invest in
forward currency contracts (except for AIM Intermediate Government Fund and AIM
Short Term Bond Fund), futures contracts, options on securities, options on
indices, options on currencies, and options on futures contracts to attempt to
hedge against the overall level of investment and currency risk normally
associated with each Fund's investments. These instruments are often referred to
as "derivatives," which may be defined as financial instruments whose
performance is derived, at least in part, from the performance of another asset
(such as a security, currency or an index of securities).
AIM Limited Maturity Treasury Fund, AIM Money Market Fund and AIM
Municipal Bond Fund may not invest in puts, calls, straddles, spreads or any
combination thereof, except, however, AIM Municipal Bond Fund may purchase and
sell options on financial futures contracts and may sell covered call options.
PUT AND CALL OPTIONS. A call option gives the purchaser the right to
buy the underlying security, contract or foreign currency at the stated exercise
price at any time prior to the expiration of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the call option, the writer
of a call option is obligated to sell the underlying security, contract or
foreign currency. A put option gives the purchaser the right to write (sell) the
underlying security, contract or foreign currency at the stated exercise price
at any time prior to the expiration date of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise.
22
If the purchaser exercises the put option, the writer of a put option is
obligated to buy the underlying security, contract or foreign currency. The
premium paid to the writer is consideration for undertaking the obligations
under the option contract. Until an option expires or is offset, the option is
said to be "open." When an option expires or is offset, the option is said to be
"closed."
A Fund will not write (sell) options if, immediately after such sale,
the aggregate value of securities or obligations underlying the outstanding
options exceeds 20% of the Fund's total assets. A Fund will not purchase options
if, at any time of the investment, the aggregate premiums paid for the options
will exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes
options it may be required to set aside assets to reduce the risks associated
with writing those options. This process is described in more detail below in
the section "Cover."
Writing Options. A Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, contract, or foreign currency alone. A Fund
may only write a call option on a security if it owns an equal amount of such
securities or securities convertible into, or exchangeable, without payment of
further consideration, for securities of the same issue as, and equal in amount
to, the securities subject to the call option. In return for the premium
received for writing a call option, the Fund foregoes the opportunity for profit
from a price increase in the underlying security, contract, or foreign currency
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security, contract, or foreign currency
decline.
A Fund may write a put option without owning the underlying security if
it covers the option as described below in the section "Cover." A Fund may only
write a put option on a security as part of an investment strategy, and not for
speculative purposes. In return for the premium received for writing a put
option, the Fund assumes the risk that the price of the underlying security,
contract, or foreign currency will decline below the exercise price, in which
case the put would be exercised and the Fund would suffer a loss.
If an option that a Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If the call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset by the premium received. A Fund would write a put option at
an exercise price that, reduced by the premium received on the option, reflects
the price it is willing to pay for the underlying security, contract or
currency. The obligation imposed upon the writer of an option is terminated upon
the expiration of the option, or such earlier time at which a Fund effects a
closing purchase transaction by purchasing an option (put or call as the case
may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, contract or currency from being called or to permit the sale of the
underlying security, contract or currency. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security, contract or currency with either a different exercise price or
expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose
of acquiring the underlying security, contract or currency for its portfolio.
The Fund is not required to own the underlying security in order to purchase a
call option, and may only cover this transaction with cash, liquid assets and/or
short-term debt securities. Utilized in this fashion, the purchase of call
options would enable a Fund to acquire the security, contract or currency at the
exercise price of the call option plus the premium paid. So long as it holds
such a call option, rather than the underlying security or currency itself, the
Fund is partially protected from any unexpected increase in the market price of
the underlying security, contract
23
or currency. If the market price does not exceed the exercise price, the Fund
could purchase the security on the open market and could allow the call option
to expire, incurring a loss only to the extent of the premium paid for the
option. The Funds may also purchase call options on underlying securities,
contracts or currencies against which it has written other call options. For
example, where a Fund has written a call option on an underlying security,
rather than entering a closing transaction of the written option, it may
purchase a call option with a different exercise strike and/or expiration date
that would eliminate some or all of the risk associated with the written call.
Used in combinations, these strategies are commonly referred to as "call
spreads."
A Fund may only purchase a put option on an underlying security,
contract or currency ("protective put") owned by the Fund in order to protect
against an anticipated decline in the value of the security, contract or
currency. Such hedge protection is provided only during the life of the put
option. The premium paid for the put option and any transaction costs would
reduce any profit realized when the security, contract or currency is delivered
upon the exercise of the put option. Conversely, if the underlying security,
contract or currency does not decline in value, the option may expire worthless
and the premium paid for the protective put would be lost. A Fund may also
purchase put options on underlying securities, contracts or currencies against
which it has written other put options. For example, where a Fund has written a
put option on an underlying security, rather than entering a closing transaction
of the written option, it may purchase a put option with a different exercise
price and/or expiration date that would eliminate some or all of the risk
associated with the written put. Used in combinations, these strategies are
commonly referred to as "put spreads." Likewise, a Fund may write call options
on underlying securities, contracts or currencies against which it has purchased
protective put options. This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange
or traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation) and have standardized strike
prices and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. A Fund will not purchase an OTC option
unless it believes that daily valuations for such options are readily
obtainable. OTC options differ from exchange-traded options in that OTC options
are transacted with dealers directly and not through a clearing corporation
(which guarantees performance). Consequently, there is a risk of non-performance
by the dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Because purchased OTC options in certain cases may be difficult to dispose
of in a timely manner, the Fund may be required to treat some or all of these
options as (i.e., the market value) illiquid securities. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are
similar in many respects to options on securities, except that an index option
gives the holder the right to receive, upon exercise, cash instead of
securities, if the closing level of the securities index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
call or put times a specified multiple (the "multiplier"), which determines the
total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter,
24
acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held
will not be perfectly correlated with the value of the index.
Pursuant to federal securities rules and regulations, if a Fund writes
index options it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover."
STRADDLES. A 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.
WARRANTS. Warrants are, in effect, longer-term call options. They give
the holder the right to purchase a given number of shares of a particular
company at specified prices within certain periods of time. The purchaser of a
warrant expects that the market price of the security will exceed the purchase
price of the warrant plus the exercise price of the warrant, thus giving him a
profit. Since the market price may never exceed the exercise price before the
expiration date of the warrant, the purchaser of the warrant risks the loss of
the entire purchase price of the warrant. Warrants generally trade in the open
market and may be sold rather than exercised. Warrants are sometimes sold in
unit form with other securities of an issuer. Units of warrants and common stock
may be employed in financing young, unseasoned companies. The purchase price of
a warrant varies with the exercise price of the warrant, the current market
value of the underlying security, the life of the warrant and various other
investment factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract
is a two party agreement to buy or sell a specified amount of a specified
security or currency (or delivery of a cash settlement price, in the case of an
index future) for a specified price at a designated date, time and place
(collectively, "Futures Contracts"). A stock index Futures Contract provides for
the delivery, at a designated date, time and place, of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of trading on the contract and the price agreed upon in the Futures
Contract; no physical delivery of stocks comprising the index is made. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only;
that is, Futures Contracts will be sold to protect against a decline in the
price of securities or currencies that the Fund owns, or Futures Contracts will
be purchased to protect the Fund against an increase in the price of securities
or currencies it has committed to purchase or expects to purchase. A Fund's
hedging may include sales of Futures Contracts as an offset against the effect
of expected increases in interest rates, and decreases in currency exchange
rates and stock prices, and purchases of Futures Contracts as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Funds currently may not invest in any security (including futures
contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC").
Foreign futures exchanges and trading thereon are not regulated by the CFTC and
are not subject to the same regulatory controls. For a further discussion of the
risks associated with investments in foreign securities, see "Foreign
Investments" in this Statement of Additional Information.
25
Closing out an open Futures Contract is effected by entering into an offsetting
Futures Contract for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. There can be no assurance,
however, that a Fund will be able to enter into an offsetting transaction with
respect to a particular Futures Contract at a particular time. If a Fund is not
able to enter into an offsetting transaction, it will continue to be required to
maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by a Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a
Futures Contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar
to options on securities or currencies except that options on Futures Contracts
give 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 period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Funds currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
Limitations on Futures Contracts and Options on Futures Contracts and
on Certain Options on Currencies. To the extent that a Fund enters into Futures
Contracts, options on Futures Contracts and options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an
obligation, usually arranged with a commercial bank or other currency dealer, to
purchase or sell a currency against another currency at a future date and price
as agreed upon by the parties. A Fund either may accept or make delivery of the
currency at the maturity of the forward currency contract. A Fund may also, if
its contra party agrees prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. Forward currency
contracts are traded over-the-counter, and not on organized commodities or
securities exchanges. As a result, it may be more difficult to value such
contracts, and it may be difficult to enter into closing transactions.
26
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward currency contracts with respect to a specific
purchase or sale of a security, or with respect to its portfolio positions
generally. When a Fund purchases a security denominated in a foreign currency
for settlement in the near future, it may immediately purchase in the forward
market the currency needed to pay for and settle the purchase. By entering into
a forward currency contract with respect to the specific purchase or sale of a
security denominated in a foreign currency, the Fund can secure an exchange rate
between the trade and settlement dates for that purchase or sale transaction.
This practice is sometimes referred to as "transaction hedging." Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate fluctuations
in the prices of the underlying securities a Fund owns or intends to acquire,
but it does establish a rate of exchange in advance. In addition, while forward
currency contract sales limit the risk of loss due to a decline in the value of
the hedged currencies, they also limit any potential gain that might result
should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of
forward currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency contracts. This process is
described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts
and options (other than options purchased by a Fund) expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless, in addition to complying with all the restrictions noted in the
disclosure above, it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, forward currency contracts or futures
contracts or (2) cash, liquid assets and/or short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered as
provided in (1) above. Each Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities. To the extent that a futures contract, forward currency
contract or option is deemed to be illiquid, the assets used to "cover" the
Fund's obligation will also be treated as illiquid for purposes of determining
the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, the Fund will treat the
market value of the option (i.e., the amount at risk to the Fund) as illiquid,
but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward currency contract, futures contract or option is open,
unless they are replaced with other appropriate assets. If a large portion of a
Fund's assets is used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by
the Funds of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
27
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon or forward currency
contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) 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.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following
investment restrictions, which may be changed only by a vote of such Fund's
outstanding shares, except that only AIM Municipal Bond Fund is subject to
restriction (9). 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 (other than with respect to borrowing) 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.
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(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
28
portfolio securities, regardless of whether the Fund may be considered to be an
underwriter under the 1933 Act.
(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 Money Market 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.
(9) Under normal circumstances, AIM Municipal Bond Fund will invest at
least 80% of the value of its assets (as that term may be defined or interpreted
by the 1940 Act Laws, Interpretations and Exemptions) in investments the income
from which is exempt from federal income tax under regular tax rules.
The investment restrictions set forth above provide each of 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 Funds' 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 non-fundamental investment
restrictions apply to each of the Funds. 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 Money Market 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
29
advisor (an "AIM Advised Fund"), subject to the terms and conditions of any
exemptive orders issued by the SEC. In addition, in complying with the
fundamental restriction regarding issuer diversification, AIM Municipal Bond
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.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Fund may borrow money in an amount not
exceeding 331/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers 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 or when any borrowings from an AIM Advised Fund are
outstanding.
(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. For purposes of AIM Limited Maturity Treasury Fund's fundamental
restriction regarding industry concentration, the United States Government shall
not be considered an 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
an 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.
(6) Notwithstanding the fundamental restriction with regard to engaging
in transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities, the Fund currently may not
invest in any security (including futures contracts or options thereon) that is
secured by physical commodities.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies:
(1) AIM High Yield Fund normally invests at least 80% of its assets in
non-investment grade debt securities, i.e., "junk bonds". For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the 1940 Act
Laws, Interpretations and Exemptions.
(2) AIM Intermediate Government Fund normally invests at least 80% of
its assets in debt securities issued, guaranteed or otherwise backed by the U.S.
government. For purposes of the foregoing sentence, "assets" means net assets,
plus the amount of any borrowings for investment purposes. The Fund will provide
written notice to its shareholders prior to any change to this policy, as
required by the 1940 Act Laws, Interpretations and Exemptions.
(3) AIM Limited Maturity Treasury Fund normally invests at least 80% of
its assets in direct obligations of the U.S. Treasury, including bills, notes,
and bonds. For purposes of the foregoing sentence, "assets" means net assets,
plus the amount of any borrowings for investment purposes. The Fund will provide
written notice to its shareholders prior to any change to this policy, as
required by the 1940 Act Laws, Interpretations and Exemptions.
(4) AIM Short Term Bond Fund normally invests at least 80% of its
assets in a diversified portfolio of investment-grade fixed income securities.
For purposes of the foregoing sentence, "assets" means net assets, plus the
amount of any borrowings for investment purposes. The Fund will provide
30
written notice to its shareholders prior to any change to this policy, as
required by the 1940 Act Laws, Interpretations and Exemptions.
(5) AIM Total Return Bond Fund normally invests at least 80% of its
assets in a diversified portfolio of investment grade fixed income securities
generally represented by the sector categories within the Lehman Brothers
Aggregate Bond Index. For purposes of the foregoing sentence, "assets" means net
assets, plus the amount of any borrowings for investment purposes. The Fund will
provide written notice to its shareholders prior to any change to this policy,
as required by the 1940 Act Laws, Interpretations and Exemptions.
(6) Under normal circumstances, AIM Municipal Bond Fund will invest at
least 80% of the value of its assets (as that term may be defined or interpreted
by the 1940 Act Laws, Interpretations and Exemptions) in investments the income
from which will not constitute an item of tax preference under the alternative
minimum tax rules.
(7) AIM Municipal Bond Fund will not: invest 25% or more of its assets
in (a) securities whose issuers are located in the same state; (b) securities
the interest upon which is paid from revenues of similar type projects; or (c)
industrial development bonds. The policy described in (b) does not apply,
however, if the securities are subject to a guarantee. For securities subject to
a guarantee, the Fund does 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.
The Trust has obtained an opinion of Dechert Price & Rhoads, special
counsel to the Trust, that shares of AIM Limited Maturity Treasury Fund are
eligible for investment by a federal credit union. In order to ensure that
shares of AIM Limited Maturity Treasury Fund meet the requirements for
eligibility for investment by federal credit unions, that Fund has adopted the
following additional non-fundamental policies:
(a) The Fund will enter into repurchase agreements only with:
(i) banks insured by the Federal Deposit Insurance Corporation (FDIC);
(ii) savings and loan associations insured by the FDIC; or (iii)
registered broker-dealers. The Fund will only enter into repurchase
transactions pursuant to a master repurchase agreement in writing with
the Fund's counterparty. Under the terms of a written agreement with
its custodian, the Fund receives on a daily basis written confirmation
of each purchase of a security subject to a repurchase agreement and a
receipt from the Fund's custodian evidencing each transaction. In
addition, securities subject to a repurchase agreement may be recorded
in the Federal Reserve Book-Entry System on behalf of the Fund by its
custodian. The Fund purchases securities subject to a repurchase
agreement only when the purchase price of the security acquired is
equal to or less than its market price at the time of the purchase.
(b) The Fund will only enter into reverse repurchase
agreements and purchase additional securities with the proceeds when
such proceeds are used to purchase other securities that either mature
on a date simultaneous with or prior to the expiration date of the
reverse repurchase agreement, or are subject to an agreement to resell
such securities within that same time period.
(c) The Fund will only enter into securities lending
transactions that comply with the same counterparty, safekeeping,
maturity and borrowing restrictions that the Fund observes when
participating in repurchase and reverse repurchase transactions.
(d) The Fund will enter into when-issued and delayed delivery
transactions only when the time period between trade date and
settlement date does not exceed 120 days, and only when settlement is
on a cash basis. When the delivery of securities purchased in such
31
manner is to occur within 30 days of the trade date, the Fund will
purchase the securities only at their market price as of the trade
date.
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market or other
conditions, or atypical circumstances such as unusually large cash inflows or
redemptions, the Funds may temporarily hold all or a portion of their assets in
cash, cash equivalents or (with the exception of AIM Limited Maturity Treasury
Fund) high-quality debt instruments. Each of the Funds may also invest up to 25%
of its total assets in Affiliated Money Market Funds for these purposes.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the
Trust is vested in the Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust, on behalf of one or more 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(s), 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. All of the Trust's
executive officers hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations
during at least the last five years and certain other information concerning
them are set forth in Appendix B.
The standing committees of the Board of Trustees are the Audit
Committee, the Investments Committee, the Valuation Committee and the Committee
on Directors/Trustees.
The members of the Audit Committee are Frank S. Bayley, Bruce L.
Crockett, Albert R. Dowden (Vice Chair), Edward K. Dunn, Jr. (Chair), Jack M.
Fields, Lewis F. Pennock, Louis S. Sklar, Dr. Prema Mathai-Davis and Ruth H.
Quigley. The Audit Committee is responsible for: (i) the appointment,
compensation and oversight of independent auditors employed by the Fund
(including resolution of disagreements between Fund management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of the
Fund; (iii) monitoring the process and resulting financial statements prepared
by Fund management to promote accuracy of financial reporting and asset
valuation; and (iv) preapproving permissible non-audit services that are
provided to the Fund by its independent auditors. During the fiscal year ended
July 31, 2002, the Audit Committee held five meetings.
The members of the Investments Committee are Messrs. Bayley, Crockett,
Dowden, Dunn, Fields, Pennock and Sklar (Chair), Carl Frischling, Dr.
Mathai-Davis (Vice Chair) and Miss Quigley. 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. During the fiscal year ended July 31,
2002, the Investments Committee held five meetings.
The members of the Valuation Committee are Messrs. Dunn and Pennock
(Chair), and Miss Quigley (Vice Chair). The Valuation Committee is responsible
for: (i) periodically reviewing AIM's Procedures for Valuing Securities
("Procedures"), and making any recommendations to AIM with respect thereto; (ii)
reviewing proposed changes to the Procedures recommended by AIM from time to
time; (iii)
32
periodically reviewing information provided by AIM regarding industry
developments in connection with valuation; (iv) periodically reviewing
information from AIM regarding fair value and liquidity determinations made
pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the Committee
or to the Committee and the full Board simultaneously); and (v) if requested by
AIM, assisting AIM's internal valuation committee and/or the full Board in
resolving particular valuation anomalies. During the fiscal year ended July 31,
2002, the Valuation Committee held one meeting.
The members of the Committee on Directors/Trustees are Messrs. Bayley,
Crockett (Chair), Dowden, Dunn, Fields (Vice Chair), Pennock and Sklar, Dr.
Mathai-Davis and Miss Quigley. The Committee on Directors/Trustees is
responsible for: (i) nominating persons who are not interested persons of the
Fund for election or appointment (a) as additions to the Board, (b) to fill
vacancies which, from time to time, may occur in the Board and (c) for election
by shareholders of the Fund at meetings called for the election of trustees;
(ii) nominating persons who are not interested persons of the Fund for selection
as, members of each committee of the Board, including without limitation, the
Audit Committee, the Committee on Directors/Trustees, the Investments Committee
and the Valuation Committee, and to nominate persons for selection as chair and
vice chair of each such committee; (iii) reviewing from time to time the
compensation payable to the independent trustees and making recommendations to
the Board regarding compensation; (iv) reviewing and evaluating from time to
time the functioning of the Board and the various committees of the Board; (v)
selecting independent legal counsel to the independent trustees and approving
the compensation paid to independent legal counsel; and (vi) approving the
compensation paid to independent counsel and other advisers, if any, to the
Audit Committee of the Fund. During the fiscal year ended July 31, 2002, the
Committee on Directors/Trustees held six meetings.
The Committee on Directors/Trustees 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 Committee on Directors/Trustees or the Board, as applicable, shall
make the final determination of persons to be nominated.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each
trustee (i) in the Funds and (ii) on an aggregate basis, in all registered
investment companies overseen by the trustee within the AIM Funds complex, is
set forth in Appendix B.
Factors Considered in Approving the Investment Advisory Agreement
The advisory agreement with AIM was re-approved for each Fund other
than AIM Short Term Bond Fund by the Trust's Board at a meeting held on May
13-14, 2003. In evaluating the fairness and reasonableness of the advisory
agreement, the Board of Trustees considered a variety of factors for each Fund,
including: the requirements of each Fund for investment supervisory and
administrative services; the quality of AIM's services, including a review of
each Fund's investment performance and AIM's investment personnel; the size of
the fees in relationship to the extent and quality of the investment advisory
services rendered; fees charged to AIM's other clients; fees charged by
competitive investment advisors; the size of the fees in light of services
provided other than investment advisory services; the expenses borne by each
Fund as a percentage of its assets and relationship to contractual limitations;
any fee waivers (or payments of Fund expenses) by AIM; AIM's profitability; the
benefits received by AIM from its relationship to each Fund, including soft
dollar arrangements, and the extent to which each Fund shares in those benefits;
the organizational capabilities and financial condition of AIM and conditions
and trends prevailing in the economy, the securities markets and the mutual fund
industry; and the historical relationship between each Fund and AIM.
In considering the above factors, the Board also took into account the
fact that uninvested cash and cash collateral from securities lending
arrangements (collectively, "cash balances") of each Fund may be invested in
money market funds advised by AIM pursuant to the terms of an exemptive order.
The
33
Board found that each Fund may realize certain benefits upon investing cash
balances in AIM advised money market funds, including a higher net return,
increased liquidity, increased diversification or decreased transaction costs.
The Board also found that each Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board further
determined that the proposed securities lending program and related procedures
with respect to each of the lending Funds is in the best interests of each
lending Fund and its respective shareholders. The Board therefore concluded that
the investment of cash collateral received in connection with the securities
lending program in the money market funds according to the procedures is in the
best interests of each lending Fund and its respective shareholders.
After consideration of these factors, the Board found that: (i) the
services provided to each Fund and its shareholders were adequate; (ii) the
agreements were fair and reasonable under the circumstances; and (iii) the fees
payable under the agreements would have been obtained through arm's length
negotiations. The Board therefore concluded that each Fund's advisory agreement
was in the best interests of such Fund and its shareholders and continued the
agreement for an additional year.
COMPENSATION
Each trustee who is not affiliated with AIM 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.
Information regarding compensation paid or accrued for each trustee of
the Trust who was not affiliated with AIM during the year ended December 31,
2002 is found in Appendix C.
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the
Trust who are not affiliated with AIM. The retirement plan includes a retirement
policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve
until December 31 of the year in which the trustee turns 72. A majority of the
trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The annual retirement benefits are
payable in quarterly installments for a number of years equal to the lesser of
(i) ten or (ii) the number of such trustee's credited years of service. A death
benefit is also available under the plan that provides a surviving spouse with a
quarterly installment of 50% of a deceased trustee's retirement benefits for the
same length of time that the trustee would have received based on his or her
service. A trustee must have attained the age of 65 (55 in the event of death or
disability) to receive any retirement benefit.
Deferred Compensation Agreements
Messrs. Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for
purposes of this paragraph only, the "Deferring Trustees") have each executed a
Deferred Compensation Agreement (collectively, the "Compensation Agreements").
Pursuant to the Compensation Agreements, the Deferring Trustees have the option
to elect to defer receipt of up to 100% of their compensation payable by the
Trust, and
34
such amounts are placed into a deferral account. Currently, the Deferring
Trustees have the option to 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 up to ten (10) years (depending on the
Compensation Agreement) beginning on the date selected under the Compensation
Agreement. The Trust's Board of Trustees, in its sole discretion, also may
accelerate or extend the distribution of such deferral accounts after the
Deferring Trustee's retirement benefits commence under the Plan. The Board, in
its sole discretion, also 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. 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.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase
Class A shares of the Funds without paying an initial sales charge. AIM
Distributors permits such purchases because there is a reduced sales effort
involved in sales to such purchasers, thereby resulting in relatively low
expenses of distribution. For a complete description of the persons who will not
pay an initial sales charge on purchases of Class A shares of the Funds, see
"Purchase, Redemption and Pricing of Shares - Purchase and Redemption of Shares
- - Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Trasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money
Market Fund - Purchases of Class A Shares at Net Asset Value."
CODES OF ETHICS
AIM, the Trust and AIM Distributors have each adopted a Code of Ethics
governing, as applicable, personal trading activities of all directors/trustees,
officers of the Trust, persons who, in connection with their regular functions,
play a role in the recommendation of any purchase or sale of a security by any
of the Funds or obtain information pertaining to such purchase or sale, and
certain other employees. The Codes of Ethics are intended to prohibit conflicts
of interest with the Trust that may arise from personal trading. Personal
trading, including personal trading involving securities that may be purchased
or held by a Fund, is permitted by persons covered under the relevant Codes
subject to certain restrictions; however those persons are generally required to
pre-clear all security transactions with the Compliance Officer or his designee
and to report all transactions on a regular basis.
PROXY VOTING POLICIES
The Board of Trustees of the Trust has delegated responsibility for
decisions regarding proxy voting for securities held by each Fund to the Fund's
investment advisor. The investment advisor will vote such proxies in accordance
with its proxy policies and procedures, which have been reviewed by the Board of
Trustees, and which are found in Appendix D.
Any material changes to the proxy policies and procedures will be
submitted to the Board of Trustees of the Trust for approval. The Board of
Trustees will be supplied with a summary quarterly report of each Fund's proxy
voting record.
35
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by
beneficial or record owners of such Fund and by trustees and officers as a group
is found in Appendix E. A shareholder who owns beneficially 25% or more of the
outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along
with its subsidiaries, manages or advises over 190 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. AIM Management is an indirect,
wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are
an independent global investment management group. Certain of the directors and
officers of AIM are also executive officers of the Trust and their affiliations
are shown under "Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds'
operations and provides investment advisory services to the Funds. AIM obtains
and evaluates economic, statistical and financial information to formulate and
implement investment programs for the Funds.
AIM is also responsible for furnishing to each Fund, at AIM's expense,
the services of persons believed to be competent to perform all supervisory and
administrative services required by each Fund, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of each Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Master Investment Advisory Agreement provides that each Fund will
pay or cause to be paid all expenses of such Fund not assumed by AIM, including,
without limitation: brokerage commissions, taxes, legal, 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
shareholders.
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs of
the Trust and each of its series of shares.
Pursuant to its advisory agreement with the Trust, AIM receives a
monthly fee from each Fund calculated at the following annual rates, based on
the average daily net assets of each Fund during the year:
36
<Table>
<Caption>
FUND NAME NET ASSETS ANNUAL RATE
- --------- ------------------------------ --------------------
AIM High Yield Fund First $200 million 0.625%
Next $300 million 0.55%
Next $500 million 0.50%
Amount over $1 billion 0.45%
------------------------------ --------------------
AIM Income Fund First $200 million 0.50%
AIM Intermediate Government Fund Next $300 million 0.40%
AIM Municipal Bond Fund Next $500 million 0.35%
Amount over $1 billion 0.30%
------------------------------ --------------------
AIM Money Market Fund First $1 billion 0.55%
Amount over $1 billion 0.50%
------------------------------ --------------------
AIM Limited Maturity Treasury Fund First $500 million 0.20%
Amount over $500 million 0.175%
------------------------------ --------------------
AIM Short Term Bond Fund All Assets 0.40%
------------------------------ --------------------
AIM Total Return Bond First $500 million 0.50%
Next $500 million 0.45%
Amount over $1 billion 0.40%
------------------------------ --------------------
</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.
AIM has voluntarily agreed to waive a portion of advisory fees payable
by each Fund. The amount of the waiver will equal 25% of the advisory fee AIM
receives from the Affiliated Money Market Funds as a result of each Fund's
Investment of uninvested cash in an Affiliated Money Market Fund. Termination of
this agreement requires approval by the Board of Trustees. See "Description of
the Funds and Their Investments and Risks - Investment Strategies and Risks -
Other Investments - Other Investment Companies."
AIM has contractually agreed through July 31, 2004, to waive fees
and/or reimburse expenses (excluding interest, taxes, dividends on short sales,
fund merger and reorganization expenses, extraordinary items and increases in
expenses due to expense offset arrangements, if any) for AIM Total Return Bond
Fund's Class A, Class B and Class C shares to the extent necessary to limit the
total operating expenses of Class A shares to 1.25% (e.g., if AIM waives 1.86%
of Class A expenses, AIM will also waive 1.86% of Class B and Class C expenses).
Such contractual fee waivers or reductions are set forth in the Fee Table to the
Fund's Prospectus and may not be terminated or amended to the Funds' detriment
during the period stated in the agreement between AIM and the Fund.
AIM has contractually agreed through July 31, 2004, to waive fees
and/or reimburse expenses (excluding interest, taxes, dividends on short sales,
fund merger and reorganization expenses, extraordinary items and increases in
expenses due to expense offset arrangements, if any) for AIM Short Term Bond
Fund's Class C shares to the extent necessary to limit the total operating
expenses of Class C shares to 1.20%. Such contractual fee waivers or reductions
are set forth in the Fee Table to the Fund's Prospectus and may not be
terminated or amended to the Fund's detriment during the period stated in the
agreements between AIM and the Fund.
37
The management fees payable by each Fund, the amounts waived by AIM and
the net fee paid by each Fund for the last three fiscal years ended July 31, are
found in Appendix F.
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities
lending, AIM will provide the Fund investment advisory services and related
administrative services. The 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 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.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into
a Master Administrative Services Agreement ("Administrative Services Agreement")
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to each Fund which are not required
to be performed by AIM under the advisory agreement. The Administrative Services
Agreement provides that it will remain in effect and continue from year to year
only if such continuance is specifically approved at least annually by the
Trust's Board of Trustees, including the independent trustees, by votes cast in
person at a meeting called for such purpose. Under the Administrative Services
Agreement, AIM is entitled to receive from the Funds 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 Trust's principal financial
officer and her staff, and any expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last
three fiscal years ended July 31, are found in Appendix G.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. A I M Fund Services, Inc. ("AFS"), 11 Greenway Plaza,
Suite 100, Houston, Texas 77046, a registered transfer agent and wholly owned
subsidiary of AIM, acts as transfer and dividend disbursing agent for the Funds.
The Transfer Agency and Service Agreement between the Trust and AFS
provides that AFS will perform certain shareholder services for the Funds. 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.
AFS 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.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), 800 Scudders Mill Road, Plainsboro, New Jersey 08536 has entered
into an agreement with the Trust (and certain other
38
AIM Funds), PFPC Inc. (formerly known as First Data Investor Service Group) and
Financial Data Services, Inc., pursuant to which MLPF&S is paid a per account
fee to perform certain shareholder sub-accounting services for its customers who
beneficially own shares of the Fund(s).
Primerica Shareholder Services, Inc. ("PSS"), 3120 Breckinridge
Boulevard, Duluth, Georgia 30099-0001 has also entered into an agreement with
the Trust (and certain other AIM Funds), and AFS pursuant to which PSS is paid a
per account fee to perform certain shareholder sub-accounting services for its
customers who beneficially own shares of the Funds.
CUSTODIANS. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of all securities and cash of AIM High
Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM Short Term
Bond Fund and AIM Total Return Bond Fund. The Bank of New York, 100 Church
Street, New York, New York 10286, is custodian of all securities and cash of AIM
Limited Maturity Fund, AIM Money Market Fund and AIM Municipal Bond Fund. Chase
Bank of Texas, N.A., 712 Main, Houston, Texas 77002, serves as sub-custodian for
purchases of shares of the Funds. The Bank of New York also serves as
sub-custodian to facilitate cash management.
The custodians are authorized to establish separate accounts in foreign
countries and to cause foreign securities owned by the Funds to be held outside
the United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities depositories in a
country; the custodians are responsible for monitoring eligible foreign
securities depositories.
Under their contracts with the Trust, the custodians maintain the
portfolio securities of the Funds, administer the purchases and sales of
portfolio securities, collect interest and dividends and other distributions
made on the securities held in the portfolios of the Funds and perform other
ministerial duties. These services do not include any supervisory function over
management or provide any protection against any possible depreciation of
assets.
AUDITORS. The Funds' independent public accountants are responsible for
auditing the financial statements of the Funds. The Board of Trustees selected
Ernst & Young LLP, 5 Houston Center, 1401 McKinney, Suite 1200, Houston, Texas
77010-4035, as the independent public accountants to audit the financial
statements of the Funds.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon
by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
AIM makes decisions to buy and sell securities for each Fund, selects
broker-dealers, effects the Funds' investment portfolio 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. While
AIM seeks reasonably competitive commission rates, the Funds may not pay the
lowest commission or spread available. See "Brokerage Selection" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. Portfolio transactions placed in such markets may be
effected at either net prices without commissions, but which include
compensation to the broker-dealer in the form of a mark up or mark down, or on
an
39
agency basis, which involves the payment of negotiated brokerage commissions to
the broker-dealer, including electronic communication networks.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds during the last three
fiscal years ended July 31, are found in Appendix H.
COMMISSIONS
During the last three fiscal years ended July 31, none of the Funds
paid brokerage commissions to brokers affiliated with the Funds, AIM, AIM
Distributors, or any affiliates of such entities.
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 AIM Funds from the SEC are met. In addition, a Fund 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 Boards 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.
BROKERAGE SELECTION
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)(1), AIM must make a
good faith determination that the commissions paid are "reasonable in relation
to the value of the brokerage and research services provided ... viewed in terms
of either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which [it] exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund 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
40
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 electronic communication of trade information and 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 fee paid by the Funds is 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.
AIM may determine target levels of brokerage 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 that sell shares of
the AIM Funds or by other broker- dealers with which such dealers have clearing
arrangements, consistent with obtaining best execution. AIM will not enter into
a binding commitment with brokers to place trades with such brokers involving
brokerage commissions in precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during
the last fiscal year ended July 31, 2002 are found in Appendix I.
REGULAR BROKERS OR DEALERS
Information concerning the Funds' acquisition of securities of their
regular brokers or dealers during the last fiscal year ended July 31, 2002 is
found in Appendix I.
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 one of
the Funds and by another Fund or 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
41
account will also be determined by its cash position. If the purchase or sale of
securities is consistent with the investment policies of the Fund(s) 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 the Fund(s) 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 a Fund's 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 results in transactions which could
have an adverse effect on the price or amount of securities available to a Fund.
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. This procedure would apply to
transactions in both equity and fixed income securities.
ALLOCATION OF INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become
interested in participating in IPOs. Purchases of IPOs by one AIM Fund or
account may also be considered for purchase by one or more other AIM Funds or
accounts. It shall be AIM's practice to specifically combine or otherwise bunch
indications of interest for IPOs for all AIM Funds and accounts participating in
purchase transactions for that IPO, and to allocate such transactions in
accordance with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that
seeks to participate in a particular IPO by reviewing a number of factors,
including suitability of the investment with the AIM Fund's or account's
investment objective, policies and strategies, the liquidity of the AIM Fund or
account if such investment is purchased, and whether the portfolio manager
intends to hold the security as a long-term investment. The allocation of
securities issued in IPOs will be made to eligible AIM Funds and accounts in a
manner designed to be fair and equitable for the eligible AIM Funds and
accounts, and so that there is equal allocation of IPOs over the longer term.
Where multiple funds or accounts are eligible, rotational participation may
occur, based on the extent to which an AIM Fund or account has participated in
previous IPOs as well as the size of the AIM Fund or account. Each eligible AIM
Fund and account will be placed in one of four tiers, depending upon each AIM
Fund's or account's asset level. The AIM Funds and accounts in the tier
containing funds and accounts with the smallest asset levels will participate
first, each receiving a 40 basis point allocation (rounded to the nearest share
round lot that approximates 40 basis points) (the "Allocation"), based on that
AIM Fund's or account's net assets. This process continues until all of the AIM
Funds and accounts in the four tiers receive their Allocations, or until the
shares are all allocated. Should securities remain after this process, eligible
AIM Funds and accounts will receive their Allocations on a straight pro rata
basis. In addition, Incubator Funds, as described in AIM's Incubator and New
Fund Investment Policy, will each be limited to a 40 basis point allocation
only. Such allocations will be allocated to the nearest share round lot that
approximates 40 basis points.
When any AIM Funds and/or accounts with substantially identical
investment objectives and policies participate in IPOs, they will do so in
amounts that are substantially proportionate to each other. In these cases, the
net assets of the largest participating AIM Fund will be used to determine in
which tier, as described in the paragraph above, such group of AIM Funds or
accounts will be placed. If no AIM Fund is participating, then the net assets of
the largest account will be used to determine tier placement. The price per
share of securities purchased in such IPOs transactions will be the same for
each AIM Fund and account.
42
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money
Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash
Fund and AIM Money Market Fund) is grouped into one of three categories to
determine the applicable initial sales charge for its Class A Shares. The sales
charge is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of the Funds'
shares. You may also be charged a transaction or other fee by the financial
institution managing your account.
Class A Shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash
Reserve Shares of AIM Money Market Fund are sold without an initial sales
charge.
CATEGORY I FUNDS
AIM Aggressive Growth Fund AIM Large Cap Growth Fund
AIM Asia Pacific Growth Fund AIM Libra Fund
AIM Basic Value Fund AIM Mid Cap Basic Value Fund
AIM Blue Chip Fund AIM Mid Cap Core Equity Fund
AIM Capital Development Fund AIM Mid Cap Growth Fund
AIM Charter Fund AIM New Technology Fund
AIM Constellation Fund AIM Opportunities I Fund
AIM Dent Demographic Trends Fund AIM Opportunities II Fund
AIM Diversified Dividend Fund AIM Opportunities III Fund
AIM Emerging Growth Fund AIM Premier Equity Fund
AIM European Growth Fund AIM Premier Equity II Fund
AIM European Small Company Fund AIM Select Equity Fund
AIM Global Utilities Fund AIM Small Cap Equity Fund
AIM Global Value Fund AIM Small Cap Growth Fund
AIM International Emerging Growth Fund AIM Weingarten Fund
AIM International Growth Fund
AIM International Core Equity Fund
AIM Large Cap Basic Value Fund
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
------------------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
----------------------- -------------- -------------- --------------
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 Opportunities I Fund will not accept any single purchase in excess
of $250,000.
43
CATEGORY II FUNDS
AIM Balanced Fund AIM Global Trends Fund
AIM Basic Balanced Fund AIM High Income Municipal Fund
AIM Developing Markets Fund AIM High Yield Fund
AIM Global Aggressive Growth Fund AIM Income Fund
AIM Global Energy Fund AIM Intermediate Government Fund
AIM Global Financial Services Fund AIM Municipal Bond Fund
AIM Global Growth Fund AIM Real Estate Fund
AIM Global Health Care Fund AIM Total Return Bond Fund
AIM Global Science and
Technology Fund
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
-------------------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- -------------- -------------- --------------
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 FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
-------------------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- -------------- -------------- --------------
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>
Beginning on October 31, 2002 Class A Shares of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund was closed to new investors.
Current investors must maintain a share balance in order to continue to make
incremental purchases.
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or
more of Class A Shares of Category I, II or III Funds do not pay an initial
sales charge. In addition, investors who currently own Class A shares of
Category I, II, or III Funds and make additional purchases that result in
account balances of $1,000,000 or more do not pay an initial sales charge on the
additional purchases. The
44
additional purchases, as well as initial purchases of $1,000,000 or more, are
referred to as Large Purchases. If an investor makes a Large Purchase of Class A
shares of a Category I or II Fund, however, each share will generally be subject
to a 1.00% contingent deferred sales charge ("CDSC") if the investor redeems
those shares within 18 months after purchase. Large Purchases of Class A shares
of Category III Funds made on or after November 15, 2001 and through October 30,
2002 will be subject to a 0.25% CDSC if the investor redeems those shares within
12 months after purchase.
AIM Distributors may pay a dealer concession and/or advance a service
fee on Large Purchases, as set forth below. Exchanges between the AIM Funds may
affect total compensation paid.
AIM Distributors may make the following payments to dealers of record
for Large Purchases of Class A shares of Category I or II Funds by investors
other than: (i) retirement plans that are maintained pursuant to Sections 401
and 457 of the Internal Revenue Code of 1986, as amended (the Code"), and (ii)
retirement plans that are maintained pursuant to Section 403 of the Code if the
employer or plan sponsor is a tax-exempt organization operated pursuant to
Section 501(c)(3) of the Code:
PERCENT OF PURCHASES
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
If (i) the amount of any single purchase order plus (ii) the net asset
value of all other shares owned by the same customer submitting the purchase
order on the day on which the purchase order is received equals or exceeds
$1,000,000, the purchase will be considered a "jumbo accumulation purchase."
With regard to any individual jumbo accumulation purchase, AIM Distributors may
make payment to the dealer of record based on the cumulative total of jumbo
accumulation purchases made by the same customer over the life of his or her
account(s).
If an investor made a Large Purchase of Class A shares of a Category
III Fund on and after November 15, 2001 and through October 30, 2002 and
exchanges those shares for Class A shares of a Category I or II Fund, AIM
Distributors will pay an additional dealer concession of 0.75% upon exchange.
If an investor makes a Large Purchase of Class A shares of a Category I
or II Fund on or after November 15, 2001 and exchanges those shares for Class A
shares of a Category III Fund, AIM Distributors will not pay any additional
dealer compensation upon the exchange. Beginning on February 17, 2003, Class A
Shares of a Category I or II Fund may not be exchanged for Class A Shares of a
Category III Fund.
If an investor makes a Large Purchase of Class A3 shares of a Category
III Fund on and after October 31, 2002 and exchanges those shares for Class A
shares of a Category I or II Fund, AIM Distributors will pay 1.00% of such
purchases as dealer compensation upon the exchange. The Class A Shares of the
Category I or II Fund received in exchange generally will be subject to a 1.00%
CDSC if the investor redeems such shares within 18 months from the date of
exchange.
If an investor makes a Large Purchase of Class A shares of a Category
III Fund and exchanges those shares for Class A shares of another Category III
Fund, AIM Distributors will not pay any additional dealer concession upon the
exchange. Beginning on February 17, 2003, Class A Shares of a Category III Fund
may not be exchanged for Class A Shares of another Category III Fund.
PURCHASES OF CLASS A SHARES BY CERTAIN RETIREMENT PLANS AT NAV.
Effective November 1, 2002, for purchases of Class A shares of Category I and II
Funds, AIM Distributors may make the
45
following payments to investment dealers or other financial service firms for
sales of such shares at net asset value ("NAV") to certain retirement plans
provided that the applicable dealer of record is able to establish that the
retirement plan's purchase of Class A shares is a new investment (as defined
below):
PERCENT OF PURCHASE
0.50% of the first $20 million
plus 0.25% of amounts in excess of $20 million
This payment schedule will be applicable to purchases of Class A shares
at NAV by the following types of retirement plans: (i) all plans maintained
pursuant to Sections 401 and 457 of the Code, and (ii) plans maintained pursuant
to Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code.
A "new investment" means a purchase paid for with money that does not
represent (i) the proceeds of one or more redemptions of AIM Fund shares, (ii)
an exchange of AIM Fund shares or (iii) the repayment of one or more retirement
plan loans that were funded through the redemption of AIM Fund shares. If AIM
Distributors pays a dealer concession in connection with a plan's purchase of
Class A shares at NAV, such shares may be subject to a CDSC of 1.00% of net
assets for 12 months, commencing on the date the plan first invests in Class A
shares of an AIM Fund. If the applicable dealer of record is unable to establish
that a plan's purchase of Class A shares at NAV is a new investment, AIM
Distributors will not pay a dealer concession in connection with such purchase
and such shares will not be subject to a CDSC.
With regard to any individual jumbo accumulation purchase, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of jumbo accumulation purchases made by the same plan over the life of the
plan's account(s).
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown
in the tables above, purchases of certain amounts of AIM Fund shares may reduce
the initial sales charges. These reductions are available to purchasers that
meet the qualifications listed below. We will refer to purchasers that meet
these qualifications as "Qualified Purchasers."
INDIVIDUALS
o an individual (including his or her spouse or domestic
partner, and children);
o any trust established exclusively for the benefit of an
individual ; and
o a retirement plan established exclusively for the benefit of
an individual, specifically including, but not limited to, a
Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k),
Keogh plan, or a tax-sheltered 403(b)(7) custodial account;
and
o a qualified tuition plan account, maintained pursuant to
Section 529 of the Code, or a Coverdell Education Savings
Account, maintained pursuant to Section 530 of the Code (in
either case, the account must be established by an individual
or have an individual named as the beneficiary thereof).
EMPLOYER-SPONSORED RETIREMENT PLANS
o a retirement plan maintained pursuant to Sections 401, 403
(only if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the
Code), 408 (includes SEP, SARSEP and SIMPLE IRA plans) or 457
of the Code, if:
46
a. the employer or plan sponsor submits all contributions for all
participating employees in a single contribution transmittal
(the AIM Funds will not accept separate contributions
submitted with respect to individual participants);
b. each transmittal is accompanied by a single check or wire
transfer; and
c. if the AIM Funds are expected to carry separate accounts in
the names of each of the plan participants, (i) the employer
or plan sponsor notifies AIM Distributors in writing that the
separate accounts of all plan participants should be linked,
and (ii) all new participant accounts are established by
submitting an appropriate Account Application on behalf of
each new participant with the contribution transmittal.
TRUSTEES AND FIDUCIARIES
o a trustee or fiduciary purchasing for a single trust, estate
or fiduciary account.
OTHER GROUPS
o any organized group of persons, whether incorporated or not,
purchasing AIM Fund shares through a single account provided
that:
a. the organization has been in existence for at least
six months; and
b. the organization has some purpose other than the
purchase at a discount of redeemable securities of a
registered investment company.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following
sections discuss different ways that a Qualified Purchaser can qualify for a
reduction in the initial sales charges for purchases of Class A shares of the
AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by (i)
indicating on the Account Application that he, she or it intends to provide a
Letter of Intent ("LOI"); and (ii) subsequently fulfilling the conditions of
that LOI.
The LOI confirms the total investment in shares of the AIM Funds that
the Qualified Purchaser intends to make within the next 13 months. By marking
the LOI section on the account application and by signing the account
application, the Qualified Purchaser indicates that he, she or it understands
and agrees to the terms of the LOI and is bound by the provisions described
below:
Calculating the Initial Sales Charge
o 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 (to determine
what the applicable public offering price is, look at the
sales charge table in the section on "Initial Sales Charges"
above).
o 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.
o The offering price may be further reduced as described below
under "Rights of Accumulation" if the Transfer Agent is
advised of all other accounts at the time of the investment.
47
o Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI.
Calculating the Number of Shares to be Purchased
o 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.
o Purchases made more than 90 days before signing an LOI will be applied
toward the completion of the LOI based on the value of the shares
purchased that is calculated at the public offering price on the
effective date of the LOI.
o If a purchaser meets the original obligation at any time during the
13-month period, he or she may revise the intended investment amount
upward by submitting a written and signed request. This revision will
not change the original expiration date.
o The Transfer Agent will process necessary adjustments upon the
expiration or completion date of the LOI.
Fulfilling the Intended Investment
o 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 purchaser will have to
pay the increased amount of sales charge.
o To assure compliance with the provisions of the 1940 Act, the Transfer
Agent will escrow in the form of shares an appropriate dollar amount
(computed to the nearest full share) out of the initial purchase (or
subsequent purchases if necessary). 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.
o 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 sales charge on the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration
date, he or she 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.
Canceling the LOI
o If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he or she must give written notice to AIM
Distributors.
o 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, the LOI will be automatically canceled. 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.
48
Other Persons Eligible for the LOI Privilege
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.
LOIs and Contingent Deferred Sales Charges
If an investor entered into an LOI to purchase $1,000,000 or more of
Class A shares of a Category III Fund on and after November 15, 2001 and through
October 30, 2002, such shares will be subject to a 12-month, 0.25% CDSC.
Purchases of Class A shares of a Category III Fund made pursuant to an LOI to
purchase $1,000,000 or more of shares entered into prior to November 15, 2001 or
after October 30, 2002 will not be subject to this CDSC. All LOIs to purchase
$1,000,000 or more of Class A Shares of Category I and II Funds are subject to
an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales
charges based upon his, her or its existing investment in shares of any of the
AIM Funds at the time of the proposed purchase. 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 owned by such
purchaser, calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money being invested, even if only a
portion of that amount exceeds the breakpoint for the reduced sales charge. For
example, if a purchaser already owns qualifying shares of any AIM Fund with a
value of $20,000 and wishes to invest an additional $20,000 in a fund with a
maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25%
will apply to the full $20,000 purchase and not just to the $15,000 in excess of
the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular
purchase, the purchaser or his dealer must furnish the Transfer Agent 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.
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.
If an investor's new purchase of Class A shares of a Category I or II
Fund is at net asset value, the newly purchased shares will be subject to a CDSC
if the investor redeems them prior to the end of the 18 month holding period (12
months for Category III Fund shares). For new purchases of Class A shares of
Category III Funds at net asset value made on and after November 15, 2001 and
through October 30, 2002, the newly purchased shares will be subject to a CDSC
if the investor redeems them prior to the end of the 12 month holding period.
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As
discussed above, 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 to the reduced sales charge based on
the definition of a Qualified Purchaser listed above. No person or entity may
distribute shares of the AIM Funds without payment of the applicable sales
charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3
Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund,
AIM Cash Reserve Shares of AIM Money Market Fund, and Class B and Class C shares
of AIM Floating Rate Fund and Investor Class shares will
49
not be taken into account in determining whether a purchase qualifies for a
reduction in initial sales charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors
permits certain categories of persons to purchase Class A shares of AIM Funds
without paying an initial sales charge. These are typically categories of
persons whose transactions involve little expense, such as:
o Persons who have a relationship with the funds or with AIM and its
affiliates, and are therefore familiar with the funds, and who place
unsolicited orders directly with AIM Distributors; or
o Programs for purchase that involve little expense because of the size
of the transaction and shareholder records required.
AIM Distributors believes that it is appropriate and in the Funds' best
interests that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase shares through
AIM Distributors without payment of a sales charge.
Accordingly, 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,--Registered Trademark--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 DST Systems, Inc. or Personix, a division
of Fiserv Solutions, Inc.;
o Sales representatives and employees (and members of their immediate
family) of selling group members of financial institutions that have
arrangements with such selling group members;
o Purchases through approved fee-based programs;
o Employer-sponsored retirement plans that are Qualified Purchasers, as
defined above, provided that:
a. a plan's initial investment is at least $1 million;
b. the employer or plan sponsor signs a $1 million LOI;
c. there are at least 100 employees eligible to participate in
the plan; or
d. all plan transactions are executed through a single omnibus
account per AIM Fund and the financial institution or
service organization has entered into the appropriate
agreement with the distributor; further provided that
e. retirement plans maintained pursuant to Section 403(b) of
the Code are not eligible to purchase shares at NAV based
on the aggregate investment made by the plan or the number
of eligible employees unless the employer or plan sponsor
is a tax-exempt organization operated pursuant to Section
501(c)(3) of the Code; and
f. purchases of AIM Opportunities I Fund by all retirement
plans are subject to initial sales charges;
50
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 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 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;
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;
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;
o Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code;
o Initial purchases made by Qualified Purchasers, as defined above,
within one (1) year after the registered representative who services
their account(s) has become affiliated with a selling group member with
which AIM Distributors has entered into a written agreement; and
o Participants in select brokerage programs for retirement plans and
rollover IRAs who purchase shares through an electronic brokerage
platform offered by entities with which AIM Distributors has entered
into a written agreement.
As used above, immediate family includes an individual and his or her
spouse or domestic partner, children, parents and parents of spouse or domestic
partner.
In addition, an investor may acquire shares of any of the AIM Funds at
net asset value in connection with:
o the reinvestment of dividends and distributions from a Fund;
o exchanges of shares of certain Funds;
o use of the reinstatement privilege; or
o a merger, consolidation or acquisition of assets of a Fund.
PAYMENTS TO DEALERS. 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
51
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 1933 Act.
In addition to, or instead of, amounts paid to dealers as a sales
commission, 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. 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 or of average daily
net assets of the AIM Fund attributable to that particular dealer. 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. Any such bonus or incentive programs will not change the price
paid by investors for the purchase of the applicable AIM Fund's shares or the
amount that any particular AIM Fund will receive as proceeds from such sales.
Dealers may not use sales of the AIM Funds' shares to qualify for any incentives
to the extent that such incentives may be prohibited by the laws of any state.
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within six years after purchase. See the Prospectus for additional
information regarding contingent deferred sales charges. 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 will equal 4.00% of the purchase
price and will consist of a sales commission equal to 3.75% plus an advance of
the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within the first year after purchase (no CDSC applies to Class C shares
of AIM Short Term Bond Fund unless you exchange shares of another AIM Fund that
are subject to a CDSC into AIM Short Term Bond Fund). See the Prospectus for
additional information regarding this CDSC. AIM Distributors may pay sales
commissions to dealers and institutions who sell Class C shares of the AIM Funds
(except for Class C shares of AIM Short Term Bond Fund) at the time of such
sales. Payments will equal 1.00% of the purchase price and will consist of a
sales commission of 0.75% plus an advance of the first year service fee of
0.25%. 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.
AIM Distributors may pay dealers and institutions who sell Class C
shares of AIM Short Term Bond Fund an annual fee of 0.50% of average daily net
assets. These payments will consist of an asset-based fee of 0.25% and a service
fee of 0.25% and will commence immediately.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an
initial sales charge. If AIM Distributors pays a concession to the dealer of
record, however, the Class R shares are subject to a 0.75% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the retirement plan's initial purchase. For purchases of Class R shares
of Category I or II Funds, AIM Distributors may make the following payments to
dealers of record provided that the applicable dealer of record is able to
establish that the purchase of Class R shares is a new investment or a rollover
from a retirement plan in which an AIM Fund was offered as an investment option:
52
Percent of Cumulative Purchases
<Table>
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
</Table>
With regard to any individual purchase of Class R shares, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of purchases made by the same plan over the life of the plan's account(s).
Purchases of Investor Class Shares
Investor Class shares are sold at net asset value, and are not subject
to an initial sales charge. or to a CDSC. AIM Distributors may pay dealers and
institutions an annual service fe of 0.25% of average daily net assets and such
payments will commence immediately.
Exchanges
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 fax, telegraph or use overnight courier services to expedite exchanges by
mail, which will be effective on the business day received by AFS as long as
such request is received prior to the close of the customary trading session of
the New York Stock Exchange ("NYSE"). AFS 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.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. In addition to the 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 at (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 an arrangement is
subject to timely receipt by AFS, the Funds' transfer agent, of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by a Fund or by AIM Distributors (other
53
than any applicable contingent deferred sales charge) when shares are redeemed
or repurchased, dealers may charge a fair service fee for handling the
transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of a Fund not reasonably practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS in the designated account(s),
present or future, with full power of substitution in the premises. AFS 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 AFS 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. AFS 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.
SYSTEMATIC REDEMPTION PLAN. A Systematic Redemption Plan permits a
shareholder of an AIM Fund to withdraw on a regular basis at least $50 per
withdrawal. Under a Systematic Redemption Plan, all shares are to be held by AFS
and all dividends and distributions are reinvested in shares of the applicable
AIM Fund by AFS. To provide funds for payments made under the Systematic
Redemption Plan, AFS redeems sufficient full and fractional shares at their net
asset value in effect at the time of each such redemption.
Payments under a Systematic Redemption 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, Class C or Class R shares of the Funds), it is
disadvantageous to effect such purchases while a Systematic Redemption Plan is
in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Redemption Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A CDSC may be imposed upon the redemption of Large Purchases of Class A
shares of Category I and II Funds or upon the redemption of Class B shares or
Class C shares (no CDSC applies to Class C shares of AIM Short Term Bond Fund
unless you exchange shares of another AIM Fund that are subject to a CDSC into
AIM Short Term Bond Fund) and, in certain circumstances, upon the redemption of
Class R shares. On and after November 15, 2001 and through October 30, 2002, a
CDSC also may be imposed upon the redemption of Large Purchases of Class A
Shares of Category III Funds. See the Prospectus for additional information
regarding CDSCs.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF
CLASS A SHARES. An investor who has made a Large Purchase of Class A shares of a
Category I, II, or III Fund will not be subject to a CDSC upon the redemption of
those shares in the following situations:
54
o Redemptions of shares of Category I or II Funds held more than 18
months;
o Redemptions of shares of Category III Funds purchased prior to November
15, 2001 or after October 30, 2002;
o Redemptions of shares of Category III Funds purchased on or after
November 15, 2001 and through October 30, 2002 and held for more than
12 months;
o Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class A shares of an AIM Fund for at
least 12 months, or (ii) the redemption is not a complete redemption of
shares held by the plan;
o Redemptions from private foundations or endowment funds;
o Redemptions 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;
o Redemptions of shares of Category I, II or III Funds or AIM Cash
Reserve Shares of AIM Money Market Fund acquired by exchange from Class
A shares of a Category I or II Fund, unless the shares acquired by
exchange (on or after November 15, 2001 and through October 30, 2002
with respect to Category III Funds) are redeemed within 18 months of
the original purchase of the exchanges of Category I or II Fund shares;
o Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased prior
to November 15, 2001;
o Redemptions of shares of Category I or II Funds acquired by exchange
from Class A shares of a Category III Fund purchased on and after
November 15, 2001 and through October 30, 2002, unless the shares
acquired by exchange are redeemed within 18 months of the original
purchase of the exchanged Category III Fund shares;
o Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased on and
after November 15, 2001 and through October 30, 2002, unless the shares
acquired by exchange are redeemed within 12 months of the original
purchase of the exchanged Category III Fund shares;
o Redemptions of shares of Category I or II Funds acquired by exchange on
and after November 15, 2001 from AIM Cash Reserve Shares of AIM Money
Market Fund if the AIM Cash Reserve Shares were acquired by exchange
from a Category I or II Fund, unless the Category I or II Fund shares
acquired by exchange are redeemed within 18 months of the original
purchase of the exchanged Category I or II Funds shares;
o Redemptions of Category I or II Funds by retirement plan participants
resulting from a total redemption of the plan assets that occurs more
than one year from the date of the plan's initial purchase; and
o Redemptions of shares of Category I or II Funds held by an Investor
Class shareholder.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES.
Investors who purchased former GT Global funds Class B shares before June 1,
1998 are subject to the following waivers from the CDSC otherwise due upon
redemption:
55
o Total or partial redemptions resulting from a distribution following
retirement in the case of a tax-qualified employer-sponsored
retirement;
o 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;
o 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;
o Redemptions made in connection with participant-directed exchanges
between options in an employer-sponsored benefit plan;
o Redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan;
o 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;
o 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
o 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 redemptions of Class B or Class C
shares, as applicable:
o Additional purchases of Class C shares of AIM International Core Equity
Fund (formerly known as AIM International Value Fund) and AIM 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;
56
(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 Code) of the participant or beneficiary;
o Amounts from a Systematic Redemption 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; and
o Investment account(s) of AIM.
CDSCs will not apply to the following redemptions of Class C shares:
o A total or partial redemption of shares where the investor's dealer of
record notified the distributor prior to the time of investment that
the dealer would waive the upfront payment otherwise payable to him;
o A total or partial redemption which is necessary to fund a distribution
requested by a participant in a retirement plan maintained pursuant to
Section 401, 403, or 457 of the Code;
o Redemptions of Class C shares of an AIM Fund other than AIM Short Term
Bond Fund if you received such Class C shares by exchanging Class C
shares of AIM Short Term Bond Fund; and
o Redemptions of Class C shares of AIM Short Term Bond Fund unless you
received such Class C shares by exchanging Class C shares of another
AIM Fund and the original purchase was subject to a CDSC.
CDSCs will not apply to the following redemptions of Class R shares:
o Class R shares where the retirement plan's dealer of record notifies
the distributor prior to the time of investment that the dealer waives
the upfront payment otherwise payable to him; and
o Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class R shares of an AIM Fund for at
least 12 months, or (ii) the redemption is not a complete redemption of
all Class R shares held by the plan.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received
in good order. To be in good order, an investor must supply AFS with all
required information an documentation, including signature guarantees when
required. In addition, if a purchase of shares is made by check, the check must
be received in good order. This means that the check must be properly completed
and signed, and legible to AFS in its sole discretion.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or
other financial intermediary to ensure that all orders are transmitted on a
timely basis to AFS. Any loss resulting from the failure of the dealer or
financial intermediary to submit an order within the prescribed time frame will
be borne by that dealer or financial intermediary. 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.
57
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 $250,000 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 AFS' current Signature Guarantee Standards and
Procedures, such as certain domestic banks, credit unions, securities dealers,
or securities exchanges. AFS 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 TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS 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. AFS 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 AFS 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. AFS 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.
INTERNET TRANSACTIONS. An investor may effect transactions in his
account through the internet by establishing a Personal Identification Number
(PIN). By establishing a PIN the investor acknowledges and agrees that neither
AFS nor AIM Distributors will be liable for any loss, expense or cost arising
out of any internet transaction effected by them in accordance with any
instructions submitted by a user who transmits the PIN as authentication of his
or her identity. 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 the ability to effect internet transactions may be terminated
at any time by the AIM Funds.
ABANDONED PROPERTY. It is the responsibility of the investor to ensure
that AFS maintains a correct address for his account(s). An incorrect address
may cause an investor's account statements and other mailings to be returned to
AFS. Upon receiving returned mail, AFS will attempt to locate the investor or
rightful owner of the account. If unsuccessful, AFS will retain a shareholder
locator service with a national information database to conduct periodic
searches for the investor. If the search firm is
58
unable to locate the investor, the search firm will determine whether the
investor's account has legally been abandoned. AFS is legally obligated to
escheat (or transfer) abandoned property to the appropriate state's unclaimed
property administrator in accordance with statutory requirements. The investor's
last known address of record determines which state has jurisdiction.
OFFERING PRICE
The following formula may be used to determine the public offering
price per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price ) = Offering
Price.
For example, at the close of business on July 31, 2002, AIM High Yield
Fund - Class A shares had a net asset value per share of $3.70. The offering
price, assuming an initial sales charge of 4.75%, therefore was $3.88.
Calculation of Net Asset Value
For AIM Money Market Fund
The net asset value per share of the Fund is determined daily as of
12:00 noon and the close 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 the Fund is determined as of the close of the NYSE on such day.
Net asset value per share is determined by dividing the value of the Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the number of
shares outstanding of that class and rounding the resulting per share net asset
value to the nearest one cent. Determination of the net asset value per share is
made in accordance with generally accepted accounting principles.
The Fund uses the amortized cost method to determine its net asset
value. 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 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.
The Board of Trustees has established procedures designed to stabilize
the Fund's net asset value per share at $1.00, to the extent reasonably
possible. Such procedures include review of portfolio holdings by the trustees
at such intervals as they may deem appropriate. The reviews are used 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 material deviation
exists, they intend to take such corrective action as they deem necessary and
appropriate. Such actions may include selling portfolio securities prior to
maturity in order to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends, redeeming shares in kind, or
establishing a net asset value per share by using available market quotations
are used to establish net asset value, the net asset
59
value could possibly be more or less than $1.00 per share. AIM Money Market Fund
intends to comply with any amendments made to Rule 2a-7 which may require
corresponding changes in the Fund's procedures which are designed to stabilize
the Fund's price per share at $1.00.
For AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM
Limited Maturity Treasury Fund, AIM Municipal Bond Fund, AIM Short Term Bond
Fund, AIM Total Return Bond Fund
Each Fund determines its net asset value per share once daily as of the
close 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, each Fund determines
its net asset value per share as of the close of the NYSE on such day. For
purposes of determining net asset value per share, the Fund will generally use
futures and options contract closing prices which are available fifteen (15)
minutes after the close of the customary trading session of the NYSE. The Funds
determine net asset value per share by dividing the value of a Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of a Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
Each security (excluding convertible bonds) held by a Fund is valued at
its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the closing
bid price on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued on the basis of prices furnished by independent pricing services or
market makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") or absent a NOCP, at the
closing bid price on that day; option contracts are valued at the mean between
the closing bid and asked prices on the exchange where the contracts are
principally traded; futures contracts are valued at final settlement price
quotations from the primary exchange on which they are traded. Debt securities
(including convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case of
debt obligations, the mean between the last bid and ask prices. 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.
Short-term investments are valued at amortized cost when the security has 60
days or less to maturity. AIM Municipal Bond Fund values all variable rate
securities 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.
Foreign securities are converted into U.S. dollars using exchange rates
as of the close of the NYSE. Generally, trading in foreign securities, corporate
bonds, U.S. Government securities and money market instruments is substantially
completed each day at various times prior to the close of the customary trading
session of the NYSE. The values of such securities used in computing the net
asset value of each Fund's shares are determined as of the close of the
respective markets. Occasionally, events affecting the values of such securities
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 a development/event has actually
caused that closing price to no longer reflect actual value, the closing prices,
as of the close of the applicable market, may be adjusted to reflect the fair
value of the affected securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
60
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the net asset value per share of a Fund may be significantly affected on
days when an investor cannot exchange or redeem shares of the Fund.
REDEMPTION IN KIND
AIM intends to redeem all shares of the Funds in cash. It is possible
that future conditions may make it undesirable for a Fund to pay for redeemed
shares in cash. In such cases, the Fund may make payment in securities or other
property. If a Fund has made an election under Rule 18f-1 under the 1940 Act,
the Fund is obligated to redeem for cash all shares presented to such Fund for
redemption by any one shareholder in an amount up to the lesser of $250,000 or
1% of that Fund's net assets in any 90-day period. Securities delivered in
payment of redemptions are valued at the same value assigned to them in
computing the applicable Fund's net asset value per share. Shareholders
receiving such securities are likely to incur brokerage costs on their
subsequent sales of such securities.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or
Form W-9 (certifying exempt status) accompanying the registration information
will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold 28% 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;
2. the IRS notifies the Fund that the investor furnished an
incorrect TIN;
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);
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.
Interest and dividend payments are subject to backup 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
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. AIM or AFS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning
withholding.
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.
61
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
generally remains in effect for a period starting on the date the Form is signed
and ending on the last day of the third succeeding calendar year. Such
shareholders may, however, be subject to federal income tax withholding at a 30%
rate on ordinary income dividends and other distributions. Under applicable
treaty law, residents of treaty countries may qualify for a reduced rate of
withholding or a withholding exemption.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of each Fund to declare daily and pay monthly
net investment income dividends and declare and pay annually any capital gain
distributions. It is each Fund's intention to distribute substantially all of
its net investment income and realized net capital gains. In determining the
amount of capital gains, if any, available for distribution, capital gains will
be offset against available net capital loss, if any, carried forward from
previous fiscal periods. All dividends and distributions will be automatically
reinvested in additional shares of the same class of each Fund unless the
shareholder has requested in writing to receive such dividends and distributions
in cash or that they be invested in shares of another AIM Fund, subject to the
terms and conditions set forth in the Prospectus under the caption "Special
Plans - Automatic Dividend Investment." Such dividends and distributions will be
reinvested at the net asset value per share determined on the ex-dividend date.
If a shareholder's account does not have any shares in it on a dividend or
capital gain distribution payment date, the dividend or distribution will be
paid in cash whether or not the shareholder has elected to have such dividends
or distributions reinvested.
Dividends are declared to shareholders of record immediately prior to
the determination of the net asset value of each Fund. For each Fund, except AIM
Money Market Fund, dividends begin accruing on the first business day on which a
purchase order for shares of the Fund is effective (settle date), and accrue
through the day prior to which a redemption order is effective (settle date).
Thus, if a purchase order is effective on Friday, dividends will begin accruing
on Friday (unless Friday is not a business day of the Fund). For AIM Money
Market Fund, dividends begin accruing one day after a purchase order for shares
is effective and accrue through the day a redemption order is effective. Thus,
if a purchase order is effective on Thursday, dividends will begin accruing on
Friday (unless Friday is not a business day of the Fund).
Distributions paid by a fund, other than daily dividends, have 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.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A or Class A3 shares because of higher distribution fees paid by
Class B and Class C shares. Dividends on Class R shares may be lower than those
for Class A shares, depending on whether the Class R shares pay higher
distribution fees than the Class A shares. Other class-specific expenses may
also affect dividends on shares of those classes. Expenses attributable to a
particular class ("Class Expenses") include distribution plan expenses, which
must be allocated to the class for which they are incurred. Other expenses may
be allocated as Class Expenses, consistent with applicable legal principles
under the 1940 Act and the Code.
Should the Trust incur or anticipate any unusual expense, loss or
depreciation, which would adversely affect the net asset value per share of the
AIM Money Market Fund or the net income per share of a class of the Fund for a
particular period, the Board of Trustees would at that time consider whether to
62
adhere to the present dividend policy described above or to revise it in light
of then prevailing circumstances. For example, if the net asset value per share
of the AIM Money Market Fund was reduced, or was anticipated to be reduced,
below $1.00, the Board of Trustees might suspend further dividend payments on
shares of the Fund until the net asset value returns to $1.00. Thus, such
expense, loss or depreciation might result in a shareholder receiving no
dividends for the period during which it held shares of the Fund and/or its
receiving upon redemption a price per share lower than that which it paid.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected
to be taxed under Subchapter M of the Code as a regulated investment company and
intends to maintain its qualifications as such in each of its taxable years. As
a regulated investment company, each 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 (i) at least 90% of its investment
company taxable income (i.e., net investment income, net foreign currency
ordinary gain or loss and the excess of net short-term capital gain over net
long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt
interest income under Code Section 103(a) over its deductions disallowed under
Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a 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 gain 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, securities or foreign currencies (to the extent
such currency gain is 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 from its business of investing in such stock, securities or
currencies (the "Income Requirement"). Under certain circumstances, a Fund may
be required to sell portfolio holdings in order to meet this requirement.
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company (the "Asset Diversification Test"). Under this test, at the
close of each quarter of each 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 of two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it had been incurred in the succeeding year.
63
For purposes of the Asset Diversification Test, the IRS has ruled that
the issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying
securities, the IRS has ruled that the Asset Diversification Test will be
applied solely to such securities and not to the value of the option itself.
With respect to options on securities indexes, futures contracts on securities
indexes and options on such futures contracts, the IRS has informally ruled that
the issuers of such options and futures contracts are the separate entities
whose securities are listed on the index, in proportion to the weighing of
securities in the computation of the index. It is unclear under present law who
should be treated as the issuer of forward foreign currency exchange contracts,
of options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or the foreign government backing the particular currency. Due to
this uncertainty and because the Funds may not rely on informal rulings of the
IRS, the Funds may find it necessary to seek a ruling from the IRS as to the
application of the Asset Diversification Test to certain of the foregoing types
of financial instruments or to limit its holdings of some or all such
instruments in order to stay within the limits of such test.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
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 such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders and will be included in
the qualified dividend income of noncorporate shareholders. See "Fund
Distributions" below..
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In
general, gain or loss recognized by a Fund on the disposition of an asset will
be a capital gain or loss. However, gain recognized on the disposition of a debt
obligation purchased by a Fund at a market discount (generally, at a price less
than its principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation unless the Fund made an election to accrue market
discount into income. If a Fund purchases a debt obligation that was originally
issued at a discount, the Fund is generally required to include in gross income
each year the portion of the original issue discount which accrues during such
year. In addition, under the rules of Code Section 988, gain or loss recognized
on the disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes in
foreign currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract or of foreign currency itself, will
generally be treated as ordinary income or loss.
Certain hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under Section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will generally be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts that a
Fund holds are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as
64
of such date. Any gain or loss recognized as a consequence of the year-end
deemed disposition of Section 1256 contracts is combined with any other gain or
loss that was previously recognized upon the termination of Section 1256
contracts during that taxable year. The net amount of such gain or loss for the
entire taxable year (including gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is deemed to be 60% long-term and 40%
short-term gain or loss. However, in the case of Section 1256 contracts that are
forward foreign currency exchange contracts, the net gain or loss is separately
determined and (as discussed above) generally treated as ordinary income 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 the Fund.
Other hedging transactions in which the Funds may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by the Funds. In
addition, losses realized by the Funds on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to the
Funds of hedging transactions are not entirely clear. The hedging transactions
may increase the amount of short-term capital gain realized by the Funds (and,
if they are conversion transactions, the amount of ordinary income) which is
taxed as ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section
1256 contracts, constructive sales, straddle and conversion transactions may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected investment or straddle
positions, the taxable income of a Fund may exceed its book income. Accordingly,
the amount which must be distributed to shareholders and which will be taxed to
shareholders as ordinary income, qualified dividend income, or long-term capital
gain may also differ from the book income of the Fund and may be increased or
decreased as compared to a fund that did not engage in such transactions.
AIM Limited Maturity Treasury Fund may enter into notional principal
contracts, including interest rate swaps, caps, floors and collars. Under
Treasury regulations, in general, the net income or deduction from a notional
principal contract for a taxable year is included in or deducted from gross
income for that taxable year. The net income or deduction from a notional
principal contract for a taxable year equals the total of all of the periodic
payments (generally, payments that are payable or receivable at fixed periodic
intervals of one year or less during the entire term of the contract) that are
recognized from that contract for the taxable year and all of the non-periodic
payments (including premiums for caps, floors and collars), even if paid in
periodic installments, that are recognized from that contract for the taxable
year. A periodic payment is recognized ratably over the period to which it
relates. In general, a non-periodic payment must be recognized over the term of
the notional principal contract in a manner that reflects the economic substance
of the contract. A non-periodic payment that relates to an interest rate swap,
cap, floor or collar shall be recognized over the term of the contract by
allocating it in accordance with the values of a series of cash-settled forward
or option contracts that reflect the specified index and notional principal
amount upon which the notional principal contract is based (or, in the case of a
swap or of a cap or floor that hedges a debt instrument, under alternative
methods contained in the regulations and, in the case of other notional
principal contracts, under alternative methods that the IRS may provide in a
revenue procedure).
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 ordinary taxable income for the
calendar year and 98% of capital gain net income (excess of capital gains over
capital losses) for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having
65
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund generally 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.
Moreover, investors should note that a Fund may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability. In addition, under certain circumstances, a Fund may
elect to pay a minimal amount of excise tax.
PFIC INVESTMENTS. The Funds are permitted to invest in foreign equity
securities and thus may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income.
The application of the PFIC rules may affect, among other things, the
character of gain, the amount of gain or loss and the timing of the recognition
and character of income with respect to PFIC stock, as well as subject the Funds
themselves to tax on certain income from PFIC stock. For these reasons the
amount that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. AIM Income Fund, AIM Short Term Bond Fund and AIM
Total Return Bond Fund may each enter into swap agreements. The rules governing
the tax aspects of swap agreements are in a developing stage and are not
entirely clear in certain respects. Accordingly, while such Funds intend to
account for such transactions in a manner deemed to be appropriate, the IRS
might not accept such treatment. If it did not, the status of the Trust as a
regulated investment company might be affected. The Trust intends to monitor
developments in this area. Certain requirements that must be met under the Code
in order for the Trust to qualify as a regulated investment company may limit
the extent to which these Funds will be able to engage in swap agreements.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially
all of its investment company taxable income 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 qualify for the 70%
dividends received deduction for corporations and as qualified dividend income
for individuals and other noncorporate taxpayers to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain (net long-term capital gain over net short-term capital loss) 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 dividend, it will
be taxable to shareholders as long-term capital gain (currently taxable at a
maximum rate of 15% for noncorporate shareholders) regardless of the length of
time the shareholder has held his shares or whether such gain was recognized by
the Fund prior to the date on which the shareholder acquired his shares.
However, certain capital gain dividends distributed to noncorporate shareholders
for the Fund's fiscal year ending July 31, 2003 may be taxable at a maximum rate
of 20%. Conversely, if a Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss carry
forwards) at the 35% corporate tax 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
66
on its tax return as long-term capital gain, will receive a refundable tax
credit for its pro rata 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.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
Ordinary income dividends paid by a Fund to individuals and other
noncorporate taxpayers will be treated as qualified dividend income that is
subject to tax as a maximum rate of 15% to the extent of the amount of
qualifying dividends received by the Fund from domestic corporations and from
foreign corporations that are either incorporated in a possession of the United
States, eligible for benefits under certain income tax treaties with the United
States that include an exchange of information program, or have stock of the
same class with respect to which the dividends are paid that is readily tradable
on an established securities market within the United States. However, dividends
received by the Fund from foreign personal holding companies, foreign investment
companies or PFICs are not qualifying dividends. If the qualifying dividend
income received by a Fund is equal to 95% (or a greater percentage) of the
Fund's gross income (exclusive net capital gain) in any taxable year, all of the
ordinary income dividends paid by the Fund will be qualifying dividend income.
Alternative minimum tax ("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.
However, the AMT on capital gain dividends and qualified dividend income paid by
a Fund to a noncorporate shareholder may not exceed a maximum rate of 15%. The
corporate dividends received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the Fund into
account (without a dividends received deduction) in determining their adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMTI net
operating loss deduction)) that is includable in AMTI. However, certain small
corporations are wholly exempt from the AMT.
Distributions by a Fund that do not constitute earnings and profits
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.
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 Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
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 the 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
in accordance with the guidance that has been provided by the IRS.
67
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time may reflect
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
AIM MUNICIPAL BOND FUND. With respect to interest income that is exempt
from federal income tax, the Fund intends to comply with Section 852(b)(5) of
the Code, which enables exempt-interest dividends paid by the Fund from exempt
interest to be treated as tax-exempt income by shareholders. Interest income
that the Fund receives from municipal securities is generally tax-exempt for
purposes of the regular income tax and the alternative minimum tax, subject to
the exceptions described below.
Exempt-interest dividends derived from certain private activity bonds
issued after August 7, 1986 will generally constitute an item of tax preference
for taxpayers that are subject to alternative minimum tax. In addition,
exempt-interest dividends derived from all other municipal securities must be
taken into account by corporations subject to alternative minimum tax in
determining their adjusted current earnings adjustment. Consistent with its
stated investment objective, AIM Municipal Bond Fund intends to limit its
investments in private activity bonds subject to the alternative minimum tax to
no more than 20% of its total assets in any given year.
Original issue discount on tax-exempt bonds shall be accrued by the
Fund as tax-exempt interest (except for a portion thereof in the case of certain
stripped tax-exempt bonds), and included in the tax basis of the security for
capital gain and loss computation purposes. Any gain or loss from the sale or
other disposition of a tax-exempt security is generally treated as either
long-term or short-term capital gain or loss, depending upon its holding period,
and is fully taxable. However, gain recognized from the sale or other
disposition of a tax-exempt security purchased after April 30, 1993, will be
treated as ordinary income to the extent of the accrued market discount on such
security.
Interest on indebtedness incurred by shareholders will not be
deductible for federal income tax purposes to the extent the proceeds of the
borrowing was used to purchase or carry Fund shares. The purchase of Fund shares
may be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of Fund shares. Further,
certain persons who regularly use facilities financed by municipal securities in
their trade or business (or persons related thereto) may be "substantial users"
of such facilities and should consult their tax advisors before purchasing Fund
shares.
Income that is exempt from federal income tax or alternative minimum
tax is not necessarily exempt from tax under state and local laws. Shareholders
should consult their tax advisors as to the treatment of exempt-interest
dividends under state and local laws.
The 1986 Act also applied limitations on the issuance of bonds whose
proceeds are used by organizations exempt from tax under Code Section 501(c)(3),
as well as general limitations on the amount of Qualified Private Activity Bonds
governmental units may issue.
The 1986 Act limitations on tax-exempt bonds apply generally to bonds
issued after August 16, 1986. The private activity bond rules are generally
applicable to bonds issued on or after September 1, 1986, with the alternative
minimum tax rules applicable generally to bonds issued on or after August 7,
1986. Municipal Bond intends to limit its investments in Qualified Private
Activity Bonds and taxable securities to no more than 20% of its total assets in
any given year, consistent with its stated investment objective.
Original issue discount on tax-exempt bonds is accrued as tax-exempt
interest (except for a portion thereof in the case of certain stripped
tax-exempt bonds), and is included in the tax basis of the security for capital
gain and loss computation purposes. Any gain or loss from the sale or other
disposition of a tax-exempt security is generally treated as either long-term or
short-term capital gain or
68
loss, depending upon its holding period, and is fully taxable. However, gain
recognized from the sale or other disposition of a tax-exempt security purchased
after April 30, 1993, will be treated as ordinary income to the extent of the
accrued market discount on such security.
Interest on indebtedness incurred by shareholders (including financial
institutions) will not be deductible for FIT purposes to the extent that the
money was used to purchase or carry tax-exempt securities. The purchase of Fund
shares may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of Fund shares.
Further, persons who are "substantial users" (or persons related thereto) of
facilities financed by private activity bonds should consult their own tax
advisor before purchasing Fund shares.
The exemption of interest income for FIT purposes does not necessarily
result in exemption under state and local laws. Shareholders should consult
their tax advisors as to the treatment of such income under state and local
laws.
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 deferred under the wash sale rules if the shareholder purchases other shares
of the Fund within 30 days before or after the sale or redemption. In general,
any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Currently, any long-term capital gain recognized by a non-corporate
shareholder will be subject to a maximum tax rate of 15%. However, any capital
loss arising from the sale or redemption of shares held for six months or less
will be treated as a long-term capital loss to the extent of the amount of
capital gain dividends received on such shares. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or 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.
BACKUP WITHHOLDING. The Funds may be required to withhold 28% of
distributions and/or redemption payments. For more information refer to
"Purchase, Redemption and Pricing of Shares - Backup Withholding".
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 a Fund is not effectively
connected with a U.S. trade or business carried on by a foreign shareholder,
distributions (other than distributions of long-term capital gain) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the redemption of
shares of a Fund, capital gain dividends and amounts retained by a Fund that are
designated as undistributed net capital gain.
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 dividends and any gains realized upon the sale or redemption 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.
69
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 28% on distributions
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.
Foreign shareholders may be subject to U.S. withholding tax at a rate
of 30% on the income resulting from the Fund's election to treat any foreign
income tax paid by it as paid by its shareholders, but may not be able to claim
a credit or deduction with respect to the withholding tax for the foreign tax
treated as having been paid by them.
Foreign persons who file a United States tax return to obtain a U.S.
tax refund and who are not eligible to obtain a social security number must
apply to the IRS for an individual taxpayer identification number, using IRS
Form W-7. For a copy of the IRS Form W-7 and accompanying instructions, please
contact your tax advisor or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from
sources within foreign countries may be subject to foreign income tax withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle the Funds to a reduced rate of, or exemption from, tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of a Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of a Fund's total assets at the close of
each taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income tax paid by the Fund that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign tax in computing their taxable income, or to use it (subject to various
Code limitations) as a foreign tax credit against Federal income tax (but not
both). No deduction for foreign tax may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Unless certain requirements are met, a credit for foreign tax is
subject to the limitation that it may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit) attributable to
the shareholder's foreign source taxable income. In determining the source and
character of distributions received from a Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. Each Fund's gain from the sale of stock and
securities and certain currency fluctuation gain and loss will generally be
treated as derived from U.S. sources. In addition, the limitation on the foreign
tax credit is applied separately to foreign source "passive" income, such as
dividend income, and the portion of foreign source income consisting of
qualified dividend income is reduced by approximately 57% to account for the tax
rate differential. Individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign tax included on Form 1099 and
whose foreign source income is all "qualified passive income" may elect each
year to be exempt from the foreign tax credit limitation and will be able to
claim a foreign tax credit without filing Form 1116 with its corresponding
requirement to report income and tax by country. Moreover, no foreign tax credit
will be allowable to any shareholder who has not held his shares of the
70
Fund for at least 16 days during the 30-day period beginning 15 days before the
day such shares become ex-dividend with respect to any Fund distribution to
which foreign income taxes are attributed (taking into account certain holding
period reduction requirements of the Code). Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income tax paid by a Fund.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing
general discussion of U.S. federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on June 10, 2003. 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 contemplated herein.
Rules of state and local taxation of ordinary income, qualified
dividend income and capital gain dividends may differ from the rules for U.S.
federal income taxation described above. Distributions may also be subject to
additional state, local and foreign taxes depending on each shareholder's
particular situation. Non-U.S. shareholders may be subject to U.S. tax rules
that differ significantly from those summarized above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under
the 1940 Act with respect to each Fund's Class A shares (other than AIM Money
Market Fund and AIM Short Term Bond Fund), Class A3 shares of AIM Limited
Maturity Treasury Fund, Class B shares (other than AIM Short Term Bond Fund),
Class C shares, Class R (other than AIM Short Term Bond Fund) shares and
Investor Class shares, if applicable, and AIM Cash Reserve Shares of AIM Money
Market Fund (collectively the "Plans"). Each Fund, pursuant to the Plans, pays
AIM Distributors compensation at the annual rate, shown immediately below, of
the Fund's average daily net assets of the applicable class.
<Table>
<Caption>
INVESTOR
--------
FUND CLASS A* CLASS A3 CLASS B CLASS C CLASS R CLASS
---- -------- -------- ------- ------- ------- -----
AIM High Yield Fund 0.25% N/A 1.00% 1.00% N/A 0.25%
AIM Income Fund 0.25 N/A 1.00 1.00 0.50% 0.25
AIM Intermediate Government Fund 0.25 N/A 1.00 1.00 0.50 0.25
AIM Limited Maturity Treasury Fund 0.15 0.35% N/A N/A N/A N/A
AIM Money Market Fund 0.25 N/A 1.00 1.00 0.50 0.25
AIM Municipal Bond Fund 0.25 N/A 1.00 1.00 N/A 0.25
AIM Short Term Bond Fund N/A N/A N/A 1.00 N/A N/A
AIM Total Return Bond Fund 0.35 N/A 1.00 1.00 N/A N/A
</Table>
* AIM Cash Reserve shares of AIM Money Market Fund
All of the Plans compensate AIM Distributors for the purpose of
financing any activity which is primarily intended to result in the sale of
shares of the Funds. Such activities include, but are not limited to, the
following: printing of prospectuses and statements of additional information and
reports for other than existing shareholders; overhead; preparation and
distribution of advertising material and sales literature; expenses of
organizing and conducting sales seminars; supplemental payments to dealers and
other institutions such as asset-based sales charges or as payments of service
fees under shareholder service arrangements; and costs of administering each
Plan.
Amounts payable by a Fund under the Plans need not be directly related
to the expenses actually incurred by AIM Distributors on behalf of each Fund.
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
71
Plans. Thus, even if AIM Distributors' actual expenses exceed the fee payable to
AIM Distributors 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.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A, Class A3, Class C, Class R or Investor Class shares.
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 Fund's
detriment during the period stated in the agreement between AIM Distributors and
the Fund.
AIM Distributors has contractually agreed through July 31, 2004, to
waive up to 0.10% of average net assets of AIM Total Return Bond Fund's Class A
shares Rule 12b-1 distribution plan payments. This contractual fee waiver is set
forth in the Fee Table to the Fund's Prospectus and may not be terminated or
amended to the Fund's detriment during the period stated in the agreement
between AIM Distributors and the Fund.
AIM Distributors has contractually agreed through July 31, 2004, to
waive 0.40% of average net assets of AIM Short Term Bond Fund's Class C shares
Rule 12b-1 distribution plan payments. This contractual fee waiver is set forth
in the Fee Table to the Fund's Prospectus and may not be terminated or amended
to the Fund's detriment during the period stated in the agreement between AIM
Distributors and the Fund.
The Funds may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class A3, Class B, Class C, Class R and Investor Class
shares (0.15% of the average daily net assets of the Class A shares of AIM
Limited Maturity Treasury Fund), as applicable, attributable to the customers of
selected dealers and financial institutions to such dealers and financial
institutions, including AIM Distributors, acting as principal, who furnish
continuing personal shareholder services to their customers who purchase and own
the applicable class of shares of the Fund. Under the terms of a shareholder
service agreement, such personal shareholder services include responding to
customer inquiries and providing customers with information about their
investments. Any amounts not paid as a service fee under each Plan would
constitute an asset-based sales charge.
AIM Distributors may pay dealers and institutions who sell Class R
shares an annual fee of 0.50% of average daily net assets. These payments will
consist of an asset-based fee of 0.25% and a service fee of 0.25% and will
commence either on the thirteenth month after the first purchase, on accounts on
which a dealer concession was paid, or immediately, on accounts on which a
dealer concession was not paid. If AIM Distributors pays a dealer concession, it
will retain all payments received by it relating to Class R shares for the first
year after they are purchased. AIM Distributors will make quarterly payments to
dealers and institutions based on the average net asset value of Class R shares
which are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record.
Under a Shareholder Service Agreement, a Fund agrees 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 will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rate specified in
each agreement based on the average daily net asset value of the Funds' shares
purchased or acquired through exchange. Fees 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 such Fund's shares are held.
Selected dealers and other institutions entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another. 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.
72
AIM Distributors does not act as principal, but rather as agent for the Funds,
in making dealer incentive and shareholder servicing payments to dealers and
other financial institutions under the Plans. These payments are an obligation
of the Funds and not of AIM Distributors.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD").
See Appendix J for a list of the amounts paid by each class of shares
of each Fund to AIM Distributors pursuant to the Plans for the fiscal year ended
July 31, 2002 and Appendix K for an estimate by category of the allocation of
actual fees paid by each class of shares of each Fund pursuant to its respective
distribution plan for the fiscal year ended July 31, 2002.
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 (the "Rule 12b-1
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 the Funds and
its respective shareholders.
The anticipated benefits that may result from the Plans with respect to
each Fund and/or the classes of each Fund and its shareholders include but are
not limited to the following: (1) rapid account access; (2) relatively
predictable flow of cash; and (3) a well-developed, dependable network of
shareholder service agents to help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans
continue from year to year as long as such continuance is specifically approved,
in person, at least annually by the Board of Trustees, including a majority of
the Rule 12b-1 Trustees. A Plan may be terminated as to any Fund or class by the
vote of a majority of the Rule 12b-1 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,
the Plans may be amended by the trustees, including a majority of the Rule 12b-1
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 Independent Trustees is committed to the discretion of the
Independent Trustees.
The Class B Plan obligates 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 or its predecessors, unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
the Class B Plan expressly authorizes AIM Distributors to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended,
relating to the Funds (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which
AIM Distributors acts as the distributor of shares of the Funds. 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. See "Management
of the Trust."
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds on a continuous basis directly and
through other broker-dealers with whom
73
AIM Distributors has entered into selected dealer agreements. AIM Distributors
has not undertaken to sell any specified number of shares of any classes of the
Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares of the
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. In the future, if multiple distributors serve
a 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 the Fund's
Class B shares sold by or attributable to the distribution efforts of that
distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds (except for AIM Short Term Bond Fund)
at the time of such sales. Payments with respect to Class C shares (except for
AIM Short Term Bond Fund) 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 (except for
AIM Short Term Bond Fund) for the first year after they are purchased. The
portion of the payments to AIM Distributors under the Class A, Class C and Class
R 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 the sales commissions to dealers plus financing costs, if any. After
the first full year, AIM Distributors will make quarterly payments 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 payments will consist of an asset-based
sales charge of 0.75% and a service fee of 0.25%.
AIM Distributors may pay dealers and institutions who sell Class C
shares of AIM Short Term Bond Fund an annual fee of 0.50% of average daily net
assets. These payments will consist of an asset-based fee of 0.25% and a service
fee of 0.25% and will commence immediately.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on 60 days' written notice without
penalty. The Distribution Agreements will terminate automatically 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 or its predecessors; 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 the Distribution Agreement for Class B shares would not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
Total sales charges (front end and contingent deferred sales charges)
paid in connection with the sale of shares of each class of each Fund, if
applicable, for the last three fiscal years ended July 31, are found in Appendix
L.
74
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other 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.
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as
follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (assuming the applicable
maximum sales load is deducted at the beginning of the
one, five, or ten year periods);
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the one, five, or ten year
periods (or fractional portion of such period).
The average annual total returns for each Fund, with respect to its
Class A, Class A3, Class B, Class C and Class R, Investor Class and AIM Cash
Reserve shares, if applicable, for the one, five and ten year periods (or since
inception if less than ten years) ended January 31, 2003 are found in Appendix
M.
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.
Each Fund's total return is calculated in accordance with a
standardized formula for computation of annualized total return. Standardized
total return for: (1) Class A shares reflects the deduction of a Fund's maximum
front-end sales charge at the time of purchase; (2) Class A3 shares does not
reflect a deduction of any sales charges since that class is sold and redeemed
at net asset value; (3) Class B and Class C shares reflects the deduction of the
maximum applicable CDSC on a redemption of shares held for the period; (4) Class
R shares does not reflect a deduction of any sales charge since that class is
generally sold and redeemed at net asset value; and (5) Investor Class shares
does not reflect a deduction of any sales charge since that class is sold and
redeemed at net asset value. Standardized total return for AIM Cash Reserve
Shares does not reflect a deduction of any sales charge, since that class is
sold and redeemed at net asset value.
A Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. Because average annual returns tend to even out
variations in the Fund's return, investors should recognize that such returns
are not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
75
Alternative Total Return Quotations
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000;
U = average annual total return assuming payment of only
a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
P(1+V)=ERV
Where P = a hypothetical initial payment of $1,000;
V = cumulative total return assuming payment of all of,
a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The cumulative total returns for each Fund, with respect to its Class
A, Class A3, Class B, Class C and Class R, Investor Class and AIM Cash Reserve
shares, if applicable, shares, for the one, five and ten year periods (or since
inception if less than ten years) ended January 31, 2003 are found in Appendix
M.
Calculation of Certain Performance Data
Funds offering Class A3 or Class R shares may use a restated or a
blended performance calculation to derive certain performance data shown in this
Statement of Additional Information and in each Fund's advertisements and other
sales material. If the Fund's Class A3 or Class R shares were not offered to the
public during the performance period covered, the performance data shown will be
the restated historical performance of the Fund's Class A shares at net asset
value, adjusted to reflect the higher Rule 12b-1 fees applicable to the Class A3
and Class R shares. If the Fund's Class A3 or Class R shares were offered to the
public only during a portion of the performance period covered, the performance
data shown will be the blended returns of the historical performance of the
Fund's Class A3 or Class R shares since their inception and the restated
historical performance of the Fund's Class A shares (for periods prior to
inception of the Class A3 or Class R shares). If the Fund's Class A3 or Class R
shares were offered to the public during the entire performance period covered,
the performance data shown will be the historical performance of the Fund's
Class A3 or Class R shares.
AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund,
AIM Money Market Fund and AIM Municipal Bond Fund may also use a restated or a
blended performance calculation to derive certain performance data shown for
their Investor Class shares in this Statement of Additional Information and in
the Funds' advertisements and other sales material. If the Funds' Investor Class
shares were not offered to the public during the performance period covered, the
performance data shown will be the restated historical performance of the Funds'
Class A shares at net asset value and reflecting the Rule 12b-1 fees applicable
to the Class A shares. If the Funds' Investor Class shares were offered to the
public only during a portion of the performance period covered, the performance
data shown will be the blended returns of the historical performance of the
Funds' Investor Class shares since their inception and the restated historical
performance of the Funds' Class A shares (for periods prior to
76
inception of the Investor Class shares) at net asset value and reflecting the
Rule 12b-1 fees applicable to the Class A shares. If the Funds' Investor Class
shares were offered to the public during the entire performance period covered,
the performance data shown will be the historical performance of the Funds'
Investor Class shares.
A restated or blended performance calculation may be used to derive (i)
the Funds', except for AIM Money Market Fund, standardized average annual total
returns over a stated period and (ii) the Funds', except for AIM Money Market
Fund, non-standardized cumulative total returns over a stated period.
A restated or blended performance calculation may be used to derive (i)
AIM Money Market Fund's non-standardized average annual total returns over a
stated period, and (ii) AIM Money Market Fund's non-standardized cumulative
total returns over a stated period.
Average Annual Total Return (After Taxes on Distributions) Quotations
A Fund's average annual total return (after taxes on distributions)
shows its overall change in value, including changes in share price and assuming
all the Fund's dividends and capital gain distributions are reinvested. It
reflects the deduction of federal income taxes on distributions, but not on
redemption proceeds. Average annual total returns (after taxes on distributions)
are calculated by determining the after-tax 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. Because average annual total returns (after taxes on distributions) tend
to even out variations in the Fund's return, investors should recognize that
such returns are not the same as actual year-by-year results. To illustrate the
components of overall performance, the Fund may separate its average annual
total returns (after taxes on distributions) into income results and capital
gains or losses.
The standard formula for calculating average annual total return (after
taxes on distributions) is:
n
P(1+T) =ATV
D
where P = a hypothetical initial payment of $1,000 ;
T = average annual total return (after taxes on
distributions);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made at
D the beginning of the one, five, or ten year periods (or
since inception, if applicable) at the end of the one,
five, or ten year periods (or since inception, if
applicable), after taxes on fund distributions but not
after taxes on redemption.
Standardized average annual total return (after taxes on distributions)
for: (1) Class A shares reflects the deduction of a Fund's maximum front-end
sales charge at the time of purchase; (2) Class A3 shares does not reflect a
deduction of any sales charge since that class is sold and redeemed at net asset
value; (3) Class B and Class C shares reflects the deduction of the maximum
applicable CDSC on a redemption of shares held for the period; and (4) Investor
Class shares does not reflect a deduction of any sales charge since that class
is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes on a
Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
77
The average annual total returns (after taxes on distributions) for
each Fund, with respect to its Class A, Class A3, Class B, Class C and Investor
Class shares, for the one, five, and ten year periods (or since inception if
less than ten years) ended January 31, 2003 are found in Appendix M.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) Quotation
A Fund's average annual total return (after taxes on distributions and
sale of Fund shares) shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. It reflects the deduction of federal income taxes on both
distributions and proceeds. Average annual total returns (after taxes on
distributions and redemption) are calculated by determining the after-tax 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. Because average annual total returns (after taxes on
distributions and redemption) tend to even out variations in the Fund's return,
investors should recognize that such returns are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its average annual total returns (after taxes on distributions
and redemption) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after
taxes on distributions and redemption) is:
n
P(1+T) =ATV
DR
where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions and redemption);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made at
DR the beginning of the one, five, or ten year periods (or
since inception, if applicable) at the end of the one,
five, or ten year periods (or since inception, if
applicable), after taxes on fund distributions and
redemption.
Standardized average annual total return (after taxes on distributions
and redemption) for: (1) Class A shares reflects the deduction of a Fund's
maximum front-end sales charge at the time of purchase; (2) Class A3 shares does
not reflect a deduction of any sales charge since that class is generally sold
and redeemed at net asset value; (3) Class B and Class C shares reflects the
deduction of the maximum applicable CDSC on a redemption of shares held for the
period; and (4) Investor Class shares does not reflect a deduction of any sales
charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes due
on the Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The ending values for each period assume a complete liquidation of all
shares. The ending values for each period are determined by subtracting capital
gains taxes resulting from the sale of Fund shares and adding the tax benefit
from capital losses resulting from the sale of Fund shares. The capital gain or
loss upon sale of Fund shares is calculated by subtracting the tax basis from
the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are
calculated using the highest federal
78
individual capital gains tax rate for gains of the appropriate character (e.g.,
ordinary income or long-term) in effect on the date of the sale of Fund shares
and in accordance with federal tax law applicable on that date. The calculations
assume that a shareholder may deduct all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are
tracked separately from subsequent purchases through reinvested distributions.
The basis for a reinvested distribution is the distribution net of taxes paid on
the distribution. Tax basis is adjusted for any distributions representing
returns of capital and for any other tax basis adjustments that would apply to
an individual taxpayer.
The amount and character (i.e., short-term or long-term) of capital
gain or loss upon sale of Fund shares is determined separately for shares
acquired through the $1,000 initial investment and each subsequent purchase
through reinvested distributions. The tax character is determined by the length
of the measurement period in the case of the initial $1,000 investment and the
length of the period between reinvestment and the end of the measurement period
in the case of reinvested distributions.
The average annual total returns (after taxes on distributions and
redemption) for each fund, with respect to its Class A, Class A3, Class B, Class
C and Investor Class shares, for the one, five, and ten year periods (or since
inception if less than ten years) ended January 31, 2003 are found in Appendix
M.
Yield Quotation
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. Yield is computed in accordance with standardized
formulas described below 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.
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 may quote its distribution rate, which uses the most recent
dividend paid annualized as a percentage of the Fund's offering price.
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.
The standard formula for calculating yield for each Fund is as follows:
6
YIELD = 2[((a-b)/(c x d)+1) -1]
Where a = dividends and interest earned during a stated 30-day period.
For purposes of this calculation, dividends are accrued
rather than recorded on the ex-dividend date. Interest
earned under this formula must generally be calculated based
on the yield to maturity of each obligation (or, if more
appropriate, based on yield to call date).
b = expenses accrued during period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
79
The standard formula for calculating annualized 7-day yield for AIM
Money Market Fund is as follows:
Y = (V1 -- V ) x 365
0
---------- ---
V 7
0
Where Y = annualized yield.
V = the value of a hypothetical pre-existing account
0 in the AIM Money Market Fund having a balance of
one share at the beginning of a stated seven-day
period.
V = the value of such an account at the end of the
1 stated period.
The standard formula for calculating effective annualized yield for the
AIM Money Market Fund is as follows:
365/7
EY = (Y + 1) - 1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
The yield for each Fund, the yield and corresponding tax-equivalent
yield for AIM Municipal Bond Fund, and the annualized and effective annualized
yield for the AIM Cash Reserve Shares, Class B, Class C, Class R and Investor
Class shares of AIM Money Market Fund are found in Appendix M. In addition, the
distribution rates for each Fund (other than AIM Money Market Fund) are found in
Appendix M.
Performance Information
All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of a Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), 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.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of any 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.
Total return and yield figures for the Funds are neither fixed nor
guaranteed. The Funds may provide performance information in reports, sales
literature and advertisements. The Funds may also, from time to time, quote
information about the Funds published or aired by publications or other media
entities which contain articles or segments relating to investment results or
other data about one or more of the Funds. The following is a list of such
publications or media entities:
<Table>
Advertising Age Forbes Nation's Business
Barron's Fortune New York Times
Best's Review Hartford Courant Pension World
Broker World Inc. Pensions & Investments
Business Week Institutional Investor Personal Investor
Changing Times Insurance Forum Philadelphia Inquirer
Christian Science Monitor Insurance Week USA Today
</Table>
80
<Table>
Consumer Reports Investor's Business Daily U.S. News & World Report
Economist Journal of the American Wall Street Journal
FACS of the Week Society of CLU & ChFC Washington Post
Financial Planning Kiplinger Letter CNN
Financial Product News Money CNBC
Financial Services Week Mutual Fund Forecaster PBS
Financial World
</Table>
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
<Table>
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper, Inc.
</Table>
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
Consumer Price Index
Lehman Brothers Aggregate Bond Index
Lehman Brothers High Yield Index
Lehman Brothers Intermediate Government Bond Index
Lehman Brothers 1-2 year Government Bond Index
Lehman Brothers 1-3 year Government/Credit Index
Lehman Brothers Municipal Bond Index
Lipper BBB Rated Fund Index
Lipper General Municipal Debt Fund Index
Lipper High Yield Bond Fund Index
Lipper Intermediate U.S. Government Fund Index
Lipper Money Market Fund Index
Lipper Short U.S. Treasury Fund Index
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of
general economic conditions and interest rates. Advertising for such Funds may
also include references to the use of those Funds as part of an individual's
overall retirement investment program. From time to time, sales literature
and/or advertisements for any of the Funds may disclose: (i) the largest
holdings in the Funds' portfolios; (ii) certain selling group members; and/or
(iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, discussions regarding investment styles, such as the growth, value
or GARP (growth at a reasonable price) styles of investing, variable annuities,
dollar-cost averaging, stocks, bonds, money markets, certificates of deposit,
retirement, retirement plans, asset allocation, tax-free investing, college
planning and inflation.
81
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt
ratings of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings areas follows:
Aaa: Bonds and preferred stock 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-edged." 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 and preferred stock which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. These are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk in Aa rated bonds appear
somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock 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 and preferred stock 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 and preferred stock 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 and preferred stock 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 and preferred stock 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 and preferred stock 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 and preferred stock 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.
A-1
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to
honor senior financial obligations and contracts. Such obligations generally
have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment
grade , to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior
ability for repayment of senior short-term obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings 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.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay senior short-term debt 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, may 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 (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require 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.
Note: In addition, in certain countries the prime rating may be
modified by the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal Ratings are opinions of the investment quality of issuers and
issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors
relating to municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is evaluated
individually and for its effect on the other factors in the context of the
municipality's ability to repay its debt.
Aaa: Issuers or issues rated Aaa demonstrate the strongest
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
A-2
Aa: Issuers or issues rated Aa demonstrate very strong creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
A: Issuers or issues rated A present above-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Baa: Issuers or issues rated Baa represent average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Ba: Issuers or issues rated Ba demonstrate below-average
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness relative
to other US municipal or tax-exempt issuers or issues.
Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Ca: Issuers or issues rated Ca demonstrate extremely weak
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa to Caa. The modifier 1 indicates that the
issue 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 issue ranks
in the lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for
short-term obligations that are considered investment grade. These ratings are
designated as Moody's Investment Grade (MIG) and are divided into three levels -
MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative
quality are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a
two-component rating is assigned. The first element represents Moody's
evaluation of the degree of risk associated with scheduled principal and
interest payments. The second element represents Moody's evaluation of the
degree of risk associated with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating
expirations will be a function of each issue's specific structural or credit
features.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
A-3
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments
in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations: likelihood of payment - capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal 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 a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments 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 exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant
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
may be outweighed by large uncertainties or major exposures to adverse
conditions.
NR: Not Rated.
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.
A-4
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+).
S&P COMMERCIAL PAPER RATINGS
An 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.
These 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 rated 'B' 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 rated 'D' 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 Standard & Poor's believes
such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access
risks unique to notes. Notes due 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 it will be treated as a note); and source of
payment (the more dependant the issue is on the market for its refinancing, the
more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is 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.
A-5
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a
securities issue to meet financial commitments, such as interest, preferred
dividends, or repayment of principal, on a timely basis. These credit ratings
apply to a variety of entities and issues, including but not limited to
sovereigns, governments, structured financings, and corporations; debt,
preferred/preference stock, bank loans, and counterparties; as well as the
financial strength of insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood
of getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- - 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
Entities or issues 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 credit and research 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
of taxability of payments of any security.
The ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch Ratings believes
to be reliable. Fitch Ratings does not audit or verify the truth or accuracy of
such information. Ratings may be changed or withdrawn as a result of changes in,
or the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the
program concerned; it should not be assumed that these ratings apply to every
issue made under the program. In particular, in the case of non-standard issues,
i.e., those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk.
In particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong capacity for timely payment of financial
commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor has a very strong capacity for timely payment of financial commitments
which is not significantly vulnerable to foreseeable events.
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.
A-6
BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to impair this capacity.
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.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of
information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is
a reasonable possibility of 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," if ratings may be raised,
lowered or maintained. RatingWatch is typically resolved over a relatively short
period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk
developing, particularly as the result of adverse economic changes over time.
However, business and financial alternatives may be available to allow financial
commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present
but a limited margin of safety remains. While bonds in this class are currently
meeting financial commitments, the capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments
is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
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 are valued on the basis of their prospects
for achieving partial or full recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local
currency ratings. A Short-term rating has a time horizon of less than 12 months
for most obligations, or up to three years for U.S. public finance securities,
and thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
A-7
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 in
the case of the higher 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 result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
A-8
APPENDIX B
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds
complex. Column two below includes length of time served with any predecessor
entities.
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR OTHER
POSITION(s) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(s) DURING PAST 5 DIRECTORSHIP(s)
TRUST SINCE YEARS HELD BY TRUSTEE
- --------------------------- -------- ----------------------------------------- -----------------
INTERESTED PERSONS
- ------------------
Robert H. Graham(1)--1946 1988 Director and Chairman, A I M Management None
Trustee, Chairman and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman of AMVESCAP PLC-
AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief
Executive Officer, A I M Management
Group Inc.; Director, Chairman and
President, A I M Advisors, Inc.
(registered investment advisor);
Director and Chairman, A I M Capital
Management, Inc. (registered investment
advisor), A I M Distributors, Inc.
(registered broker dealer), A I M Fund
Services, Inc. (registered transfer
agent), and Fund Management Company
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -
Managed Products
- --------------------------- -------- ----------------------------------------- -----------------
Mark H. Williamson(2)--1951 2003 Director, President and Chief Executive Director and
Trustee and Executive Officer, A I M Management Group Inc. Chairman,
Vice President (financial services holding company); INVESCO Bond
Director, Chairman and President, A I M Funds, Inc.,
Advisors, Inc. (registered investment INVESCO
advisor); Director, A I M Capital Combination
Management, Inc. (registered investment Stock & Bond
advisor) and A I M Distributors, Inc. Funds, Inc.,
(registered broker dealer), Director INVESCO
and Chairman, A I M Fund Services, Inc. Counselor
(registered transfer agent), and Fund Series Funds,
Management Company Inc., INVESCO
(registered broker dealer); and Chief International
Executive Officer, AMVESCAP PLC - AIM Funds, Inc.,
Division (parent of AIM and a global INVESCO Manage
investment management firm) Series Funds, r
Inc., INVESCO
Formerly: Director, Chairman, Money Market
President and Chief Executive Officer, Funds, Inc.,
INVESCO Funds Group, Inc.; and INVESCO INVESCO Sector
Distributors, Inc.; Chief Executive Funds, Inc.,
Officer, AMVESCAP PLC - Managed INVESCO Stock
Products; Chairman and Chief Executive Funds, Inc.,
Officer of NationsBanc Advisors, Inc.;
and
- --------------------------- -------- ----------------------------------------- -----------------
</Table>
- ---------
1 Mr. Graham is considered an interested person of the Trust because he
is a director of AMVESCAP PLC, parent of the advisor to the Trust.
2 Mr. Williamson is considered an interested person of the Trust because
he is an officer and a director of the advisor to, and a director of
the principal underwriter of, the Trust. Mr. Williamson became
Executive Vice President of the Trust on March 4, 2003.
B-1
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR OTHER
POSITION(s) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(s) DURING PAST 5 DIRECTORSHIP(s)
TRUST SINCE YEARS HELD BY TRUSTEE
- --------------------------- -------- ----------------------------------------- -----------------
Chairman of NationsBanc Investments, Inc. INVESCO
Treasurer's
Series Funds,
Inc. and
INVESCO
Variable
Investment
Funds, Inc.
INDEPENDENT TRUSTEES
- --------------------------- -------- ----------------------------------------- -----------------
Frank S. Bayley--1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds,
Trustee Inc.
(registered
investment
company)
- --------------------------- -------- ----------------------------------------- -----------------
Bruce L. Crockett--1944 1992 Chairman, Crockett Technology ACE
Trustee Associates (technology consulting Limited
company) (insurance
company);
and
Captaris,
Inc.
unified
(messaging
provider)
- --------------------------- -------- ----------------------------------------- -----------------
Albert R. Dowden -- 1941 2000 Director, Magellan Insurance Company; Cortland Trust,
Trustee Member of Advisory Board of Rotary Power Inc.
International (designer, manufacturer, and (registered
seller of rotary power engines) and investment
Director, The Boss Group (private equity company)
group) and Annuity & Life Re (Holdings),
Ltd. (re-insurance company)
Formerly: Director, President and
Chief Executive Officer, Volvo Group
North America, Inc.; Senior Vice
President, AB Volvo; and director of
various affiliated Volvo companies
- --------------------------- -------- ----------------------------------------- -----------------
Edward K. Dunn, Jr.--1935 1998 Formerly: Chairman, Mercantile None
Trustee Mortgage Corp.; President and Chief
Operating Officer, Mercantile-Safe
Deposit & Trust Co.; and President,
Mercantile Bankshares Corp.
- --------------------------- -------- ----------------------------------------- -----------------
Jack M. Fields--1952 1997 Chief Executive Officer, Twenty First Administaff
Trustee Century Group, Inc. (government affairs
company) and Texana Timber LP
- --------------------------- -------- ----------------------------------------- -----------------
Carl Frischling--1937 1990 Partner, law firm of Kramer Levin Cortland Trust,
Trustee Naftalis and Frankel LLP Inc.
(registered
investment
company)
- --------------------------- -------- ----------------------------------------- -----------------
</Table>
B-2
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR OTHER
POSITION(s) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(s) DURING PAST 5 DIRECTORSHIP(s)
TRUST SINCE YEARS HELD BY TRUSTEE
- --------------------------- -------- ----------------------------------------- -----------------
Prema Mathai-Davis--1950 1998 Formerly, Chief Executive Officer, YWCA None
Trustee of the USA
- --------------------------- -------- ----------------------------------------- -----------------
Lewis F. Pennock--1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- --------------------------- -------- ----------------------------------------- -----------------
Ruth H. Quigley--1935 2001 Retired None
Trustee
- --------------------------- -------- ----------------------------------------- -----------------
Louis S. Sklar--1939 1990 Executive Vice President, Hines (real None
Trustee estate development company)
- --------------------------- -------- ----------------------------------------- -----------------
OTHER OFFICERS
- --------------------------- -------- ----------------------------------------- -----------------
Kevin M. Carome(3)-1956 2003 Director, Senior Vice President, N/A
Senior Vice President Secretary and General Counsel, A I M
Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; and Vice President, A I
M Capital Management, Inc., A I M
Distributors, Inc. and A I M Fund
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC
- --------------------------- -------- ----------------------------------------- -----------------
Gary T. Crum(4)--1947 1991 Director, Chairman and Director of N/A
Senior Vice President Investments, A I M Capital 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
Formerly: Chief Executive Officer and
President, A I M Capital Management,
Inc.
- --------------------------- -------- ----------------------------------------- -----------------
Stuart W. Coco--1955 2002 Managing Director and Chief Research N/A
Vice President Officer - Fixed Income, A I M Capital
Management, Inc.; and Vice President, A
I M Advisors, Inc.
- --------------------------- -------- ----------------------------------------- -----------------
</Table>
- ---------
3 Mr. Carome became Senior Vice President of the Company on May 13, 2003.
4 Information is current as of January 10, 2003.
B-3
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR OTHER
POSITION(s) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(s) DURING PAST 5 DIRECTORSHIP(s)
TRUST SINCE YEARS HELD BY TRUSTEE
- --------------------------- -------- ----------------------------------------- -----------------
Melville B. Cox--1943 1992 Vice President and Chief Compliance N/A
Vice President Officer, A I M Advisors, Inc. and A I M
Capital Management, Inc.; and Vice
President, A I M Fund Services, Inc.
- --------------------------- -------- ----------------------------------------- -----------------
Edgar M. Larsen(4)-1940 2002 Vice President, A I M Advisors, Inc.; N/A
Vice President and President, Chief Executive Officer
and Chief Investment Officer, A I M
Capital Management, Inc.
- --------------------------- -------- ----------------------------------------- -----------------
Karen Dunn Kelley--1960 1992 Managing Director and Chief Cash N/A
Vice President Management Officer, A I M Capital
Management, Inc.; Director and
President, Fund Management Company; and
Vice President, A I M Advisors, Inc.
- --------------------------- -------- ----------------------------------------- -----------------
Dana R. Sutton--1959 1988 Vice President and Fund Treasurer, A I N/A
Vice President and M Advisors, Inc.
Treasurer
- --------------------------- -------- ----------------------------------------- -----------------
Nancy L. Martin(5)-1957 2003 Vice President, A I M Advisors, Inc.; N/A
Secretary and Vice President and General Counsel,
A I M Capital Management, Inc.
- --------------------------- -------- ----------------------------------------- -----------------
</Table>
- ---------
4 Information is current as of January 10, 2003.
5 Ms. Martin became Secretary of the Trust on April 1, 2003.
B-4
<Table>
<Caption>
TRUSTEE OWNERSHIP OF FUND SHARES AS OF JANUARY 1, 2003
- -----------------------------------------------------------------------------------------------
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY SECURITIES TRUSTEE IN THE AIM FAMILY OF
NAME OF TRUSTEE PER FUND FUNDS(R)
- ---------------------- ----------------------------------------- ------------------------------
Robert H. Graham High Yield $10,001 - $50,000 Over $100,000
Limited Maturity Treasury Over $100,000
Money Market Over $100,000
Municipal Bond Over $100,000
- ---------------------- ----------------------------------------- ------------------------------
Mark H. Williamson - 0 - $10,001 - $50,000
- ---------------------- ----------------------------------------- ------------------------------
Frank S. Bayley - 0 - $10,001 - $50,000
- ---------------------- ----------------------------------------- ------------------------------
Bruce L. Crockett High Yield $1 - $10,000 $1 - $10,000
- ---------------------- ----------------------------------------- ------------------------------
Albert R. Dowden - 0 - $50,001 - $100,000
- ---------------------- ----------------------------------------- ------------------------------
Edward K. Dunn, Jr. High Yield $1 - $10,000
Money Market Over $100,000 Over $100,000(6)
- ---------------------- ----------------------------------------- ------------------------------
Jack M. Fields - 0 - Over $100,000(6)
- ---------------------- ----------------------------------------- ------------------------------
Carl Frischling High Yield II $10,001 - $50,000 Over $100,000(6)
- ---------------------- ----------------------------------------- ------------------------------
Prema Mathai-Davis - 0 - Over $100,000(6)
- ---------------------- ----------------------------------------- ------------------------------
Lewis F. Pennock High Yield $1 - $10,000 $50,001 - $100,000
Money Market $1 - $10,000
- ---------------------- ----------------------------------------- ------------------------------
Ruth H. Quigley - 0 - $1 -$10,000
- ---------------------- ----------------------------------------- ------------------------------
Louis S. Sklar - 0 - Over $100,000(6)
- --------------------- ----------------------------------------- ------------------------------
</Table>
- ---------
6 Includes the total amount of compensation deferred by the trustee at
his or her election pursuant to a deferred compensation plan. Such
deferred compensation is placed in a deferral account and deemed to be
invested in one or more of the AIM Funds.
B-5
APPENDIX C
TRUSTEES COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust who was not affiliated with AIM during the year
ended December 31, 2002:
<Table>
<Caption>
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL
COMPENSATION ACCRUED BENEFITS COMPENSATION
FROM THE BY ALL UPON FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) RETIREMENT(3) FUNDS(4)
- ----------------------------------- ------------ ------------ ------------- ------------
Frank S. Bayley $ 7,711 $142,800 $ 90,000 $150,000
- ----------------------------------- -------- -------- -------- --------
Bruce L. Crockett 8,943 50,132 90,000 149,000
- ----------------------------------- -------- -------- -------- --------
Albert R. Dowden 8,943 57,955 90,000 150,000
- ----------------------------------- -------- -------- -------- --------
Edward K. Dunn, Jr 8,943 94,149 90,000 149,000
- ----------------------------------- -------- -------- -------- --------
Jack M. Fields 8,913 29,153 90,000 153,000
- ----------------------------------- -------- -------- -------- --------
Carl Frischling(5) 8,913 74,511 90,000 150,000
- ----------------------------------- -------- -------- -------- --------
Prema Mathai-Davis 8,943 33,931 90,000 150,000
- ----------------------------------- -------- -------- -------- --------
Lewis F. Pennock 9,205 54,802 90,000 154,000
- ----------------------------------- -------- -------- -------- --------
Ruth H. Quigley 7,741 142,502 90,000 153,000
- ----------------------------------- -------- -------- -------- --------
Louis S. Sklar 9,205 78,500 90,000 153,000
=================================== ======== ======== ======== ========
</Table>
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended July 31, 2002, including earnings, was
$47,728.
(2) During the fiscal year ended July 31, 2002, the total amount of
expenses allocated to the Trust in respect of such retirement benefits
was $8,680.
(3) Amounts shown assume each trustee serves until his or her normal
retirement date.
(4) All trustees currently serve as directors or trustees of seventeen
registered investment companies advised by AIM.
(5) During the fiscal year ended July 31, 2002, the Trust paid $40,617 in
legal fees to Kramer Levin Naftalis & Frankel LLP for services rendered
by such firm as counsel to the independent trustees of the Trust. Mr.
Frischling is a partner of such firm.
C-1
APPENDIX D
PROXY VOTING POLICIES
The Proxy Voting Policies applicable to each Fund follow:
PROXY POLICIES AND PROCEDURES
REVIEWED BY THE AIM FUNDS BOARD OF DIRECTORS/TRUSTEES JUNE 10-11, 2003
A. Proxy Policies
Each of A I M Advisors, Inc., A I M Capital Management, Inc., AIM
Private Asset Management, Inc. and AIM Alternative Asset Management
Company (each an "AIM Advisor" and collectively "AIM") has the
fiduciary obligation to, at all times, make the economic best interest
of advisory clients the sole consideration when voting proxies of
companies held in client accounts. As a general rule, each AIM Advisor
shall vote against any actions that would reduce the rights or options
of shareholders, reduce shareholder influence over the board of
directors and management, reduce the alignment of interests between
management and shareholders, or reduce the value of shareholders'
investments. At the same time, AIM believes in supporting the
management of companies in which it invests, and will accord proper
weight to the positions of a company's board of directors, and the AIM
portfolio managers who chose to invest in the companies. Therefore, on
most issues, our votes have been cast in accordance with the
recommendations of the company's board of directors, and we do not
currently expect that trend to change. Although AIM's proxy voting
policies are stated below, AIM's proxy committee considers all relevant
facts and circumstances, and retains the right to vote proxies as
deemed appropriate.
I. Boards Of Directors
A board that has at least a majority of independent directors
is integral to good corporate governance. Key board
committees, including audit, compensation and nominating
committees, should be completely independent.
There are some actions by directors that should result in
votes being withheld. These instances include directors who:
o Are not independent directors and sit on the board's
audit, compensation or nominating committee;
o Attend less than 75 percent of the board and
committee meetings without a valid excuse;
o Implement or renew a dead-hand or modified dead-hand
poison pill;
o Enacted egregious corporate governance policies or
failed to replace management as appropriate;
o Have failed to act on takeover offers where the
majority of the shareholders have tendered their
shares; or
o Ignore a shareholder proposal that is approved by a
majority of the shares outstanding.
Votes in a contested election of directors must be evaluated
on a case-by-case basis, considering the following factors:
o Long-term financial performance of the target company
relative to its industry;
o Management's track record;
o Portfolio manager's assessment;
o Qualifications of director nominees (both slates);
D-1
o Evaluation of what each side is offering shareholders
as well as the likelihood that the proposed
objectives and goals can be met; and
o Background to the proxy contest.
II. Independent Auditors
A company should limit its relationship with its auditors to
the audit engagement, and certain closely related activities
that do not, in the aggregate, raise an appearance of impaired
independence. We will support the reappointment of the
company's auditors unless:
o It is not clear that the auditors will be able to
fulfill their function;
o There is reason to believe the independent auditors
have rendered an opinion that is neither accurate nor
indicative of the company's financial position; or
o The auditors have a significant professional or
personal relationship with the issuer that
compromises the auditors' independence.
III. Compensation Programs
Appropriately designed equity-based compensation plans,
approved by shareholders, can be an effective way to align the
interests of long-term shareholders and the interests of
management, employees and directors. Plans should not
substantially dilute shareholders' ownership interests in the
company, provide participants with excessive awards or have
objectionable structural features. We will consider all
incentives, awards and compensation, and compare them to a
company-specific adjusted allowable dilution cap and a
weighted average estimate of shareholder wealth transfer and
voting power dilution.
o We will generally vote against equity-based plans
where the total dilution (including all equity-based
plans) is excessive.
o We will support the use of employee stock purchase
plans to increase company stock ownership by
employees, provided that shares purchased under the
plan are acquired for no less than 85% of their
market value.
o We will vote against plans that have any of the
following structural features: ability to re-price
underwater options without shareholder approval,
ability to issue options with an exercise price below
the stock's current market price, ability to issue
reload options, or automatic share replenishment
("evergreen") feature.
o We will vote for proposals to reprice options if
there is a value-for-value (rather than a
share-for-share) exchange.
o We will generally support the board's discretion to
determine and grant appropriate cash compensation and
severance packages.
IV. Corporate Matters
We will review management proposals relating to changes to
capital structure, reincorporation, restructuring and mergers
and acquisitions on a case by case basis, considering the
impact of the changes on corporate governance and shareholder
rights, anticipated financial and operating benefits,
portfolio manager views, level of dilution, and a company's
industry and performance in terms of shareholder returns.
o We will vote for merger and acquisition proposals
that the proxy committee and relevant portfolio
managers believe, based on their review of the
materials, will result in financial and operating
benefits, have a fair offer price, have favorable
prospects
D-2
for the combined companies, and will not have a
negative impact on corporate governance or
shareholder rights.
o We will vote against proposals to increase the number
of authorized shares of any class of stock that has
superior voting rights to another class of stock.
o We will vote for proposals to increase common share
authorization for a stock split, provided that the
increase in authorized shares would not result in
excessive dilution given a company's industry and
performance in terms of shareholder returns.
o We will vote for proposals to institute open-market
share repurchase plans in which all shareholders
participate on an equal basis.
V. Shareholder Proposals
Shareholder proposals can be extremely complex, and the impact
on share value can rarely be anticipated with any high degree
of confidence. The proxy committee reviews shareholder
proposals on a case-by-case basis, giving careful
consideration to such factors as: the proposal's impact on the
company's short-term and long-term share value, its effect on
the company's reputation, the economic effect of the proposal,
industry and regional norms applicable to the company, the
company's overall corporate governance provisions, and the
reasonableness of the request.
o We will generally abstain from shareholder social and
environmental proposals.
o We will generally support the board's discretion
regarding shareholder proposals that involve ordinary
business practices.
o We will generally vote for shareholder proposals that
are designed to protect shareholder rights if the
company's corporate governance standards indicate
that such additional protections are warranted.
o We will generally vote for proposals to lower
barriers to shareholder action.
o We will generally vote for proposals to subject
shareholder rights plans to a shareholder vote. In
evaluating these plans, we give favorable
consideration to the presence of "TIDE" provisions
(short-term sunset provisions, qualified
bid/permitted offer provisions, and/or mandatory
review by a committee of independent directors at
least every three years).
VI. Other
o We will vote against any proposal where the proxy
materials lack sufficient information upon which to
base an informed decision.
o We will vote against any proposals to authorize the
proxy to conduct any other business that is not
described in the proxy statement.
o We will vote any matters not specifically covered by
these proxy policies and procedures in the economic
best interest of advisory clients.
AIM's proxy policies, and the procedures noted below, may be
amended from time to time.
D-3
B. Proxy Committee Procedures
The proxy committee currently consists of representatives from the
Legal and Compliance Department, the Investments Department and the
Finance Department.
The committee members review detailed reports analyzing the proxy
issues and have access to proxy statements and annual reports. The
committee then discusses the issues and determines the vote. The
committee shall give appropriate and significant weight to portfolio
managers' views regarding a proposal's impact on shareholders. A proxy
committee meeting requires a quorum of three committee members, voting
in person or by proxy.
AIM's proxy committee shall consider its fiduciary responsibility to
all clients when addressing proxy issues and vote accordingly. The
proxy committee may enlist the services of reputable outside
professionals and/or proxy evaluation services, such as Institutional
Shareholder Services or any of its subsidiaries ("ISS"), to assist with
the analysis of voting issues and/or to carry out the actual voting
process. To the extent the services of ISS or another provider are
used, the proxy committee shall periodically review the policies of
that provider.
In addition to the foregoing, the following shall be strictly adhered
to unless contrary action receives the prior approval of Funds' Board
of Directors/Trustees:
1. Other than by voting proxies and participating in Creditors'
committees, AIM shall not engage in conduct that involves an attempt
to change or influence the control of a company.
2. AIM will not publicly announce its voting intentions and the reasons
therefore.
3. AIM shall not participate in a proxy solicitation or otherwise seek
proxy-voting authority from any other public company shareholder.
4. All communications regarding proxy issues between the proxy committee
and companies or their agents, or with fellow shareholders shall be
for the sole purpose of expressing and discussing AIM's concerns for
its advisory clients' interests and not for an attempt to influence or
control management.
C. Business/Disaster Recovery
If the proxy committee is unable to meet due to a temporary business
interruption, such as a power outage, a sub-committee of the proxy
committee may vote proxies in accordance with the policies stated
herein. If the sub-committee of the proxy committee is not able to vote
proxies, ISS shall vote proxies by default in accordance with ISS'
proxy policies and procedures, which may vary slightly from AIM's.
D. Restrictions Affecting Voting
If a country's laws allow a company in that country to block the sale
of the company's shares by a shareholder in advance of a shareholder
meeting, AIM will not vote in shareholder meetings held in that
country. Administrative or other procedures, such as securities
lending, may also cause AIM to refrain from voting. Although AIM
considers proxy voting to be an important shareholder right, the proxy
committee will not impede a portfolio manager's ability to trade in a
stock in order to vote at a shareholder meeting.
E. Conflicts of Interest
The proxy committee reviews each proxy to assess the extent to which
there may be a material conflict between AIM's interests and those of
advisory clients. A potential conflict of interest situation may
include where AIM or an affiliate manages assets for, administers an
employee benefit plan for, provides other financial products or
services to, or otherwise has a material business relationship
D-4
with, a company whose management is soliciting proxies, and failure to
vote proxies in favor of management of the company may harm AIM's
relationship with the company. In order to avoid even the appearance of
impropriety, the proxy committee will not take AIM's relationship with
the company into account, and will vote the company's proxies in the
best interest of the advisory clients, in accordance with these proxy
policies and procedures.
To the extent that a committee member has any conflict of interest with
respect to a company or an issue presented, that committee member
should inform the proxy committee of such conflict and abstain from
voting on that company or issue.
D-5
APPENDIX E
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the
record and beneficial holders of 5% or more of the outstanding shares of each
class of the Trust's equity securities and the percentage of the outstanding
shares held by such holders are set forth below. Unless otherwise indicated
below, the Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a Fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of June 24, 2003.
AIM HIGH YIELD FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C INVESTOR CLASS
SHARES SHARES SHARES SHARES*
- --------------------------------- ----------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- --------------------------------- -------------- ---------------- --------------- ----------------
Citigroup Global Markets House
Acct.
00109801250 5.62% 7.12% 5.62% N/A
Attn: Cindy Tempesta, 7th Floor
333 West 34th St.
New York, NY 10001-2402
- --------------------------------- -------------- ---------------- --------------- ----------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers - 7.67% 9.03% N/A
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd
Floor
Jacksonville, FL 32246
- --------------------------------- -------------- ---------------- --------------- ----------------
</Table>
* Investor Class shares have not commenced operations.
E-1
AIM INCOME FUND
<Table>
<Caption>
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES**
- -------------------------------- ------------ ------------ ------------ ------------- ------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- -------------------------------- ------------ ------------ ------------ ------------- ------------
Dennis C. McCluskey M.D. &
Associates Inc. 401K & PSP
Dennis C. McCluskey TTEE
Omnibus Account -- -- -- 6.56% N/A
754 S. Cleveland Ave., Ste. 300
Mogadore, OH 44260-2205
- -------------------------------- ------------ ------------ ------------ ------------- ------------
D & L Manufacturing Inc. 401K
PSP
Lee Eslicker TTEE -- -- -- 12.64% N/A
Omnibus Account
P. O. Box 52427
Tulsa, OK 74152-0427
- ------------------------------- ------------ ------------ ------------ ------------- ------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers -- 5.29% 8.53% --
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd
Floor
Jacksonville, FL 32246
- -------------------------------- ------------ ------------ ------------ ------------- ------------
Reliance Trust Company
Custodian
FBO Continental Products Inc. -- -- -- 48.74% N/A
401K Plan
P. O. Box 48529
Atlanta, GA 30362-1529
- -------------------------------- ------------ ------------ ------------ ------------- ------------
Citigroup Global Markets House
Attn: Cindy Tempesta 7th A 5.63% -- -- -- N/A
333 West 34th Street
New York, NY 10001-2402
- -------------------------------- ------------ ------------ ------------ ------------- ------------
</Table>
** Investor Class shares have not commenced operations.
E-2
AIM INTERMEDIATE GOVERNMENT FUND
<Table>
<Caption>
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES *
- -------------------------------- ------------ ------------ ------------ ------------- ------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- -------------------------------- ------------ ------------ ------------ ------------- ------------
AMVESCAP National Trust Co.
FBO Equator Technologies, Inc. -- -- -- 6.81% N/A
401 (k) Retirement Plan
P. O. Box 105779
Atlanta, GA 30348-5779
- -------------------------------- ------------ ------------ ------------ ------------- ------------
INVESCO Trust Company TTEE
FBO Big Horn Basin
Orthopedic Clinic PC -- -- -- 27.28% N/A
401K Profit Sharing Plan
P. O. Box 105779
Atlanta, GA 30348-5779
- -------------------------------- ------------ ------------ ------------ ------------- ------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 11.23% 11.18% 16.50% -- N/A
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd
Floor
Jacksonville, FL 32246
- -------------------------------- ------------ ------------ ------------ ------------- ------------
Reliance Trust Company FBO
Northern Printing Network 401K -- -- -- 12.59% N/A
P. O. Box 48529
Atlanta, GA 30362-1529
- -------------------------------- ------------ ------------ ------------ ------------- ------------
Reliance Trust Co.
FBO LIPSON, NEILSON, COLE,
SELTZER & GARN N/A N/A N/A 6.22% N/A
P.O. Box 48529
Atlanta, GA 30362-1529
- -------------------------------- ------------ ------------ ------------ ------------- ------------
</Table>
* Investor Class shares have not commenced operations.
E-3
AIM LIMITED MATURITY TREASURY FUND
<Table>
<Caption>
CLASS A CLASS A3 INSTITUTIONAL
SHARES SHARES CLASS SHARES
- -------------------------------------- ----------------- -------------------- --------------------
PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- -------------------------------------- ----------------- -------------------- --------------------
ANTC Cust. Rollover IRA FBO
Thomas M. Watlington, III -- 10.09% N/A
1630 Ridout Rd.
Annapolis, MD 21401-5537
- -------------------------------------- ----------------- -------------------- --------------------
ESOR & Co.
Attn: Trust Operations - Lynn Knight -- -- 14.30%
P.O. Box 19006
Green Bay, WI 54307-9006
- -------------------------------------- ----------------- -------------------- --------------------
ANT C CUST ROLLOVER IRA
FBO Thomas M. Watlington -- -- 10.68%
1630 Ridout Road
Annapolis, MD 21401-5537
- -------------------------------------- ----------------- -------------------- --------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration 9.69% -- --
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
- -------------------------------------- ----------------- -------------------- --------------------
MUIR & Co.
c/o Frost National Bank Texas -- -- 68.92%
P.O. Box 2479
San Antonio, TX 78298
- --------------------------------------------------------------------------------------------------
</Table>
E-4
AIM MONEY MARKET FUND
<Table>
<Caption>
CASH INVESTOR
RESERVE CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES*
- ------------------------------- ------------ ------------- ------------- ------------ ------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------------------- ------------ ------------- ------------- ------------ ------------
AMVESCAP National Trust Co.
FBO Equator Technologies,
Inc. 401 (K) Retirement Plan -- -- -- 10.52% N/A
P. O. Box 105779
Atlanta, GA 30348-5779
- ------------------------------- ------------ ------------- ------------- ------------ ------------
AMVESCAP National Trust Co.
FBO
West Boylston Insurance
Agency Inc. 401 (K) Plan -- -- -- 19.23% N/A
P. O. Box 105779
Atlanta, GA 30348-5779
- ------------------------------- ------------ ------------- ------------- ------------ ------------
Citigroup Global Markets
House Acct. -- 5.87% -- -- N/A
Attn: Cindy Tempesta
333 West 34th St., 7th Floor
New York, NY 10001-2402
- ------------------------------- ------------ ------------- ------------- ------------ ------------
Reliance Trust Company
Custodian
FBO Stadtmauer Bailkin LLP -- -- -- 11.82% N/A
401K Plan
P. O. Box 48529
Atlanta, GA 30362-1529
- ------------------------------- ------------ ------------- ------------- ------------ ------------
Ataghi Partners Safe Harbor
401k
Ali Taghizadeh or Houshang -- -- -- 8.06% N/A
5116 Westheimer
Houston, TX 77056-5506
- ------------------------------- ------------ ------------- ------------- ------------ ------------
</Table>
* Investor Class shares have not commenced operations.
E-5
AIM MUNICIPAL BOND FUND
<Table>
<Caption>
INVESTOR
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS SHARES*
- --------------------------------- --------------- ---------------- --------------- ---------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- --------------------------------- --------------- ---------------- --------------- ---------------
Robert A. Merkel & Margaret M.
Merkel
TTEES Robert A. Merkel &
Margaret M. Merkel Trust Dtd. -- -- 6.24%
05/27/94
5118 S. 288th Pl.
Auburn, WA 98001
- --------------------------------- --------------- ---------------- --------------- ---------------
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers -- 8.44% 12.86%
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd
Floor
Jacksonville, FL 32246
- --------------------------------- --------------- ---------------- --------------- ---------------
Citigroup Global Markets House
Account
Attn: Cindy Tempesta -- 6.73% 6.78%
333 West 34th St., 7th Floor
New York, NY 10001-2402
- --------------------------------- --------------- ---------------- --------------- ---------------
</Table>
* Investor Class shares have not commenced operations.
AIM TOTAL RETURN BOND FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- --------------------------------------- ------------------ ------------------- -------------------
PERCENTAGE OWNED PERCENTAGE OWNED PERCENTAGE OWNED
NAME AND ADDRESS OF OF OF OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- --------------------------------------- ------------------ ------------------- -------------------
Citigroup Global Markets House Acct.
00109801250
Attn: Cindy Tempesta, 7th Floor -- -- 5.30%
333 West 34th St.
New York, NY 10001-2402
- --------------------------------------- ------------------ ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration -- 5.19% 8.12%
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
- --------------------------------------- ------------------ ------------------- -------------------
</Table>
E-6
MANAGEMENT OWNERSHIP
As of June 24, 2003, the trustees and officers as a group owned less
than 1% of the outstanding shares of each class of each Fund, except that the
trustees and officers as a group owned 1.22% of AIM Cash Reserve Shares and
4.13% of Class A shares of AIM Municipal Bond Fund.
E-7
APPENDIX F
MANAGEMENT FEES
For the last three fiscal years ended July 31, the management fees payable by
each Fund, the amounts waived by AIM and the net fee paid by each Fund were as
follows:
<Table>
<Caption>
FUND NAME 2002 2001
- --------------------------- ---------------------------------------- -----------------------------------------
NET NET
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
- --------------------------- ----------- ----------- ---------- ----------- ------------ ----------
AIM High $6,811,857 $ (6,338) $6,805,519 $9,230,307 $ (835) $ 9,229
Yield Fund
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
AIM Income Fund 2,544,570 (1,176) 2,543,394 2,549,509 (109) 2,549,400
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
AIM Intermediate 3,328,024 (28,397) 3,299,627 2,247,495 1,187) 2,246,308
Government Fund
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
AIM Limited 1,200,432 N/A 1,200,432 712,990 N/A 712,990
Maturity Treasury
Fund
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
AIM Money Market 9,087,854 N/A 9,087,854 7,202,907 N/A 7,202,907
Fund
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
AIM Municipal Bond 2,040,421 N/A 2,040,421 1,729,991 N/A 1,729,991
Fund
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
AIM Short Term N/A N/A N/A N/A N/A N/A
Bond Fund(2)
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
AIM Total Return 26,520 (46,520) $ -0- N/A N/A N/A
Bond Fund(3)
- --------------------------- ---------- ---------- ---------- ---------- ------------ ----------
<Caption>
FUND NAME 2000(1)
- --------------------------- -----------------------------------------
MANAGEMENT NET
MANAGEMENT FEE MANAGEMENT
FEE PAYABLE WAIVERS FEE PAID
- --------------------------- ----------- ------------ ----------
AIM High $7,537,550 N/A $7,537,550
Yield Fund
- --------------------------- ---------- ------------ ----------
AIM Income Fund 1,512,830 N/A 1,512,830
- --------------------------- ---------- ------------ ----------
AIM Intermediate 1,513,654 NA 1,513,654
Government Fund
- --------------------------- ---------- ------------ ----------
AIM Limited 70,741 NA 705,741
Maturity Treasury
Fund
- --------------------------- ---------- ------------ ----------
AIM Money Market 4,041,617 N/A 4,041,617
Fund
- --------------------------- ---------- ------------ ----------
AIM Municipal Bond 953,308 NA 953,308
Fund
- --------------------------- ---------- ------------ ----------
AIM Short Term N/A N/A N/A
Bond Fund(2)
- --------------------------- ---------- ------------ ----------
AIM Total Return N/A N/A N/A
Bond Fund(3)
- --------------------------- ---------- ------------ ----------
</Table>
- ----------
1 AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund,
AIM Money Market Fund and AIM Municipal Bond Fund were in a different
registrant prior to June 1, 2000; therefore, the reporting period for
these funds was from January 1, 2000 through July 31, 2000.
2 Commenced operations on August 30, 2002.
3 Commenced operations on December 31, 2001.
F-1
APPENDIX G
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services
for the last three fiscal years ended July 31:
<Table>
<Caption>
FUND NAME 2002 2001 2000(1)
- -------------------------------- -------- -------- --------
AIM High Yield Fund $205,198 $168,568 $107,029
- -------------------------------- -------- -------- --------
AIM Income Fund 131,802 123,589 72,169
- -------------------------------- -------- -------- --------
AIM Intermediate
Government Fund 158,838 120,488 63,465
- -------------------------------- -------- -------- --------
AIM Limited Maturity
Treasury Fund 122,783 81,565 80,566
- -------------------------------- -------- -------- --------
AIM Money Market Fund 251,839 150,215 83,475
- -------------------------------- -------- -------- --------
AIM Municipal Bond Fund 112,021 96,500 53,056
- -------------------------------- -------- -------- --------
AIM Short Term Bond Fund(2) N/A N/A N/A
- -------------------------------- -------- -------- --------
AIM Total Return Bond
Fund(3) 29,178 N/A N/A
- -------------------------------- -------- -------- --------
</Table>
1 AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund,
AIM Money Market Fund and AIM Municipal Bond Fund were in a different
registrant prior to June 1, 2000; therefore, the reporting for these
funds was from January 1, 2000 through July 31, 2000.
2 Commenced operations on August 30, 2002.
3 Commenced operations on December 31, 2001.
G-1
APPENDIX H
BROKERAGE COMMISSIONS
Brokerage commissions(1) paid by each of the Funds listed below during the last
three fiscal years ended July 31 were as follows:
<Table>
<Caption>
FUND 2002 2001 2000(2)
---- ------------- ------------- -------------
AIM High Yield Fund(3) $ 72,345 $ 3,642 $ 2,882
AIM Income Fund(3) 1,549 10,514 8,000
AIM Intermediate Government Fund -0- -0- -0-
AIM Limited Maturity Treasury Fund -0- -0- -0-
AIM Money Market Fund -0- -0- -0-
AIM Municipal Bond Fund -0- -0- -0-
AIM Short Term Bond Fund(5) N/A N/A N/A
AIM Total Return Bond Fund(6) -0- N/A N/A
</Table>
1 Disclosure regarding brokerage commissions paid on agency trades and
designated as such on the trade confirm.
2 AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund,
AIM Money Market Fund and AIM Municipal Bond Fund were in a different
registrant prior to June 1, 2000; therefore, the reporting period for
these funds was from January 1, 2000 through July 31, 2000.
3 The variation in brokerage commission paid to AIM High Yield Fund and
AIM Income Fund for the fiscal year ended July 31, 2002, as compared to
the two prior fiscal years, was due to an increase in equity trading
activity in the funds on which commissions were paid.
5 Commenced operations on August 30, 2002.
6 Commenced operations on December 31, 2001.
H-1
APPENDIX I
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE
OF SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended July 31, 2002, none of the Funds,
except AIM High Yield Fund, paid directed brokerage commissions. AIM High Yield
Fund allocated the following amount of transactions to broker-dealers that
provided AIM with certain research statistics and other information:
<Table>
<Caption>
Related
Fund Transactions Brokerage Commissions
---- ------------ ---------------------
AIM High Yield Fund $541,954 $22,378
</Table>
During the last fiscal year ended July 31, 2002, none of AIM High Yield
Fund, AIM Intermediate Government Fund, AIM Limited Maturity Treasury Fund, AIM
Municipal Bond Fund or AIM Short Term Bond Fund purchased securities of their
"regular" brokers or dealers.
During the last fiscal year ended July 31, 2002, the Funds held
securities issued by the following companies, which are "regular" brokers or
dealers of one or more of the Funds identified below:
<Table>
<Caption>
Fund Security Market Value
---- -------- ------------
AIM Income Fund
Lehman Brothers Holdings Inc. Medium Term Discount Notes $ 1,189,116
Salomon Smith Barney Holdings Inc. Unsecured Notes 3,496,481
Fidelity Investments Bonds 4,287,038
AIM Money Market Fund
Credit Suisse First Boston Floating Rate Notes $ 33,000,000
Goldman Sachs Group, Inc. Promissory Notes 75,000,000
Merrill Lynch Mortgage Capital, Inc. Master Notes 70,000,000
Morgan Stanley Dean Witter & Co. Master Notes 80,000,000
AIM Total Return Bond Fund
Fidelity Investments Bonds $ 215,700
Lehman Brothers Holdings Inc. Notes 62,501
</Table>
I-1
APPENDIX J
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
A list of amounts paid by each class of shares to AIM Distributors
pursuant to the Plans for the fiscal year ended January 31, 2003 were as
follows:
<Table>
<Caption>
CLASS A(1) CLASS B CLASS C CLASS R
FUND SHARES SHARES SHARES SHARES
- --------------------------------------- ---------- ---------- ---------- -------
AIM High Yield Fund $1,478,678 $6,539,461 $ 683,287 N/A
AIM Income Fund(2) 797,679 2,361,879 431,875 $ 8
AIM Intermediate Government Fund(2) 913,667 3,744,307 823,922 14
AIM Limited Maturity Treasury Fund(3) 921,799 N/A N/A N/A
AIM Money Market Fund(2) 2,735,865 5,230,124 1,002,104 9
AIM Municipal Bond Fund 853,515 947,150 239,843 N/A
AIM Short Term Bond Fund(4) N/A N/A N/A N/A
AIM Total Return Bond Fund(5) 5,039 23,688 9,195 N/A
</Table>
1 For AIM Cash Reserve Shares of AIM Money Market Fund.
2 Information on Class R shares in the table is for the period June 3,
2002 (the date Class R shares commenced operations) to July 31, 2002.
3 Information on Class A3 shares is not reflected in the table above
since Class A3 shares commenced operations on October 31, 2002.
4 Commenced operations on August 30, 2002.
5 Commenced operations on December 31, 2001.
J-1
APPENDIX K
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class
A Shares (for AIM Money Market Fund, AIM Cash Reserve Shares) of the Funds
during the fiscal year ended July 31, 2002 follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ---------- ---------- ------------ ------------
AIM High Yield Fund $ 0 $ 0 $ 0 $-0- $1,478,678
AIM Income Fund 0 0 0 -0- 797,679
AIM Intermediate Government Fund 0 0 0 -0- 913,667
AIM Limited Maturity Treasury Fund 0 0 0 -0- 921,799
AIM Money Market Fund 0 0 0 -0- 2,735,865
AIM Municipal Bond Fund 0 0 0 -0- 853,515
AIM Total Return Bond Fund(1) N/A N/A N/A N/A 5,039
</Table>
An estimate by category of the allocation of actual fees paid by Class
B Shares of the Funds during the fiscal year ended July 31, 2002 follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ---------- ---------- ------------ ------------
AIM High Yield Fund $ 57,514 $ 6,101 $ 19,814 $4,904,596 $1,551,436
AIM Income Fund 31,746 3,278 11,208 1,771,409 544,238
AIM Intermediate Government Fund 64,586 6,990 22,082 2,808,230 842,419
AIM Limited Maturity Treasury Fund N/A N/A N/A N/A N/A
AIM Money Market Fund 65,709 6,840 22,110 3,922,594 1,212,871
AIM Municipal Bond Fund 15,354 1,672 4,664 710,362 215,118
AIM Total Return Bond Fund(1) 2,604 572 -0- 17,766 2,746
</Table>
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds during the fiscal year ended July 31, 2002 follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ---------- -------- ------------ ------------
AIM High Yield Fund $ 16,362 $ 1,703 $ 6,022 $121,292 $537,908
AIM Income Fund 14,169 1,520 4,828 112,240 299,118
AIM Intermediate Government Fund 29,820 3,200 10,160 223,525 557,217
AIM Limited Maturity Treasury Fund N/A N/A N/A N/A N/A
AIM Money Market Fund 41,874 4,477 14,697 318,808 622,248
AIM Municipal Bond Fund 10,738 1,062 3,371 80,913 143,759
AIM Short Term Bond Fund(2) N/A N/A N/A N/A N/A
AIM Total Return Bond Fund(1) 1,700 373 -0- 6,219 903
</Table>
1 Commenced operations on December 31, 2001.
2 Commenced operations on August 30, 2002.
Class R shares of AIM Income Fund, AIM Intermediate Government Fund and
AIM Money Market Fund commenced operations on June 3, 2002. The fees paid by
Class R shares of the Funds for the above noted categories during the fiscal
year ended July 31, 2002 were $8.00, $14.00 and $9.00, respectively. Class A3
shares of AIM Limited Maturity Treasury Fund commenced operations on October 31,
2002.
K-1
APPENDIX L
TOTAL SALES CHARGES
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares (for AIM Money Market Fund, AIM Cash Reserve
Shares) of each Fund and the amount retained by AIM Distributors for the last
three fiscal years ended July 31:
<Table>
<Caption>
2002 2001 2000(1)
------------------------ ------------------------ ------------------------
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES CHARGES CHARGES RETAINED CHARGES RETAINED
---------- ---------- ---------- ---------- ---------- ----------
AIM High Yield Fund $ 900,144 $ 163,249 $2,210,223 $ 388,238 $1,492,443 $ 265,022
AIM Income Fund 719,480 130,523 1,331,391 241,096 777,478 133,679
AIM Intermediate
Government Fund 1,659,371 300,212 1,265,501 215,039 582,038 103,411
AIM Limited Maturity
Treasury Fund 1,032,517 262,205 417,964 100,352 219,047 57,087
AIM Money Market Fund N/A N/A N/A N/A N/A N/A
AIM Municipal Bond Fund 370,282 67,279 524,615 94,615 167,101 33,406
AIM Total Return Bond Fund(2) 76,644 13,297 N/A N/A N/A N/A
</Table>
1 AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund,
AIM Money Market Fund, AIM Municipal Bond Fund were in a different
registrant prior to June 1, 2000; therefore the reporting period for
these funds was from January 1, 2000 through July 31, 2000.
2 Commenced operations on December 31, 2001.
The following chart reflects the contingent deferred sales charges paid
by Class A (for AIM Money Market Fund, AIM Cash Reserve Shares), Class B, Class
C and Class R shareholders and retained by AIM Distributors for the last three
fiscal years ended July 31:
<Table>
<Caption>
2002 2001* 2000(1)
---------- ---------- ----------
AIM High Yield Fund $ 287,974 $ 105,346 $ 136,582
AIM Income Fund(4) 73,150 52,982 23,462
AIM Intermediate Government Fund(4) 283,571 209,395 44,911
AIM Limited Maturity Treasury Fund 82,921 N/A N/A
AIM Money Market Fund(4) 5,957,473 2,800,220 740,774
AIM Municipal Bond Fund 97,058 25,351 31,486
AIM Short Term Bond Fund(2) N/A N/A N/A
AIM Total Return Bond Fund(3) 14 N/A N/A
</Table>
1 AIM High Yield Fund, AIM Income Fund, AIM Intermediate Government Fund,
AIM Money Market Fund, AIM Municipal Bond Fund were in a different
registrant prior to June 1, 2000; therefore the reporting period for
these funds was from January 1, 2000 through July 31, 2000.
2 Commenced operations on August 30, 2002.
3 Commenced operations on December 31, 2001.
4 Information on Class R shares in the table above is for the period June
3, 2002 (the date Class R shares commenced operations) to July 31,
2002.
L-1
APPENDIX M
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales loads) for each Fund, with
respect to its Class A shares for the one, five and ten year periods (or since
inception if less than ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
----------------------------------------------------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------- -------- -------- -------- --------- ---------
AIM High Yield Fund -12.41% -9.31% 0.70% N/A 07/11/78
AIM Income Fund -2.28 0.17 4.75 N/A 05/03/68
AIM Intermediate Government Fund 3.74 4.93 5.48 N/A 04/28/87
AIM Limited Maturity Treasury Fund 3.54 5.20 5.12 N/A 12/15/87
AIM Municipal Bond Fund 1.30 3.38 4.80 N/A 03/28/77
AIM Total Return Bond Fund 2.68 N/A N/A 3.33% 12/31/01
</Table>
The average annual total return for AIM Cash Reserve Shares of AIM
Money Market Fund for the one year period ended January 31, 2003, was 0.85%; for
the five year period ended January 31, 2003, was 3.60%; and since inception
(October 16, 1993), was 3.92%.
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class B
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
--------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -12.80% -9.34% N/A -0.44% 09/01/93
AIM Income Fund -2.89 0.08 N/A 3.34 09/07/93
AIM Intermediate Government Fund 3.08 4.85 N/A 5.04 09/07/93
AIM Money Market Fund -4.85 2.46 N/A 3.24 10/16/93
AIM Municipal Bond Fund 0.45 3.27 N/A 4.07 09/01/93
AIM Total Return Bond Fund 1.97 N/A N/A 3.62 12/31/01
</Table>
M-1
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class C
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
---------------------------------------------------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ----------
AIM High Yield Fund -9.53% -9.12% N/A -7.31% 08/04/97
AIM Income Fund 0.96 0.37 N/A 1.53 08/04/97
AIM Intermediate Government Fund 7.00 5.15 N/A 5.58 08/04/97
AIM Money Market Fund -0.84 2.83 N/A 2.93 08/04/97
AIM Municipal Bond Fund 4.59 3.62 N/A 3.86 08/04/97
AIM Short Term Bond Fund N/A N/A N/A N/A 08/30/02
AIM Total Return Bond Fund 5.97 N/A N/A 7.29 12/31/01
</Table>
The average annual total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for each Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
------------------------------------------------------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- ------------------------------------ -------- -------- -------- --------- ---------
AIM Income Fund 2.26% 0.89% 5.00% N/A 05/03/68
AIM Intermediate Government Fund 8.61 5.68 5.72 N/A 04/28/87
AIM Money Market Fund 0.59 3.34 N/A 3.06% 10/16/93
</Table>
* The returns shown for these periods are the blended returns of the
historical performance of the Fund's Class R shares since June 3, 2002
and the restated historical performance of the Fund's Class A shares
(for periods prior to June 3, 2002) at the net asset value, adjusted to
reflect the higher Rule 12b-1 fees applicable to Class R shares.
** The inception date shown in the table is that of AIM Income Fund's and
AIM Intermediate Government Fund's Class A shares and AIM Money Market
Fund's Cash Reserve Shares. The inception date of the Fund's Class R
shares is June 3, 2002.
The average annual total returns for AIM Limited Maturity Treasury
Fund, with respect to its Class A3 shares, for the one, five and ten year period
ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
-----------------------------------------------------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- -------------------------------------- -------- -------- -------- --------- ---------
AIM Limited Maturity Treasury Fund 4.33% 5.20% 5.01% N/A 12/15/87
</Table>
* The returns shown for these periods are the blended returns of the
historical performance of the Fund's Class A3 shares since October 31,
2002 and the restated historical performance of the Funds' Class A
shares (for periods prior to October 31, 2002) at the net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3
shares.
** The inception date shown in the table is that of AIM Limited Maturity
Treasury Fund's Class A shares. The inception date of the Fund's Class
A3 shares is October 31, 2002.
M-2
The average annual total returns for each Fund, with respect to its Investor
Class shares, for the one, five and ten year periods (or since inception if less
than ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
---------------------------------------------------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -8.00% -8.43% 1.20% N/A 07/11/78
AIM Income Fund 2.53 1.15 5.26 N/A 05/03/68
AIM Intermediate Government Fund 8.88 5.95 5.99 N/A 04/28/87
AIM Money Market Fund 0.85 3.60 N/A 3.92% 10/16/93
AIM Municipal Bond Fund 6.38 4.39 N/A N/A 03/28/77
</Table>
* The returns shown for these periods are the restated historical
performance of the Fund's Class A shares at the net asset value, and
reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Class A shares of AIM High
Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM
Municipal Bond Fund and that of AIM Cash Reserve Shares of AIM Money
Market Fund.
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales load) for each Fund with
respect to its Class A shares for the one, five and ten year periods (or since
inception, if less than ten years), ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
----------------------------------------------------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------- -------- -------- -------- --------- ---------
AIM High Yield Fund -12.41% -38.66% 7.27% N/A 07/11/78
AIM Income Fund -2.28 0.85 59.02 N/A 05/03/68
AIM Intermediate Government Fund 3.74 27.21 70.41 N/A 04/28/87
AIM Limited Maturity Treasury Fund 3.54 28.83 64.78 N/A 12/15/87
AIM Municipal Bond Fund 1.30 18.07 59.76 N/A 03/28/77
AIM Total Return Bond Fund 2.68 N/A N/A 3.62% 12/31/01
</Table>
The cumulative total returns for AIM Cash Reserves Shares of AIM Money
Market Fund for the one-year period ended January 31, 2003 was 0.85%; and for
the five-year period ended January 31, 2003 was 19.32%; and since inception was
42.93%.
M-3
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each of the named Funds' Class B shares for the one,
five and ten year periods (or since inception, if less than ten years), ended
January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
--------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -12.80% -38.76% N/A -4.08% 09/01/93
AIM Income Fund -2.89 0.38 N/A 36.19 09/07/93
AIM Intermediate Government Fund 3.08 26.73 N/A 58.76 09/07/93
AIM Money Market Fund -4.85 12.94 N/A 34.46 10/16/93
AIM Municipal Bond Fund 0.45 17.48 N/A 45.65 09/01/93
AIM Total Return Bond Fund 1.97 N/A N/A 3.93 12/31/01
</Table>
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each of the named Funds' Class C shares for the one,
five and ten year periods (or since inception, if less than ten years), ended
January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
--------------------------------------------------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -9.53% -38.00% N/A -34.08% 08/04/97
AIM Income Fund 0.96 1.89 N/A 8.69 08/04/97
AIM Intermediate Government Fund 7.00 28.56 N/A 34.74 08/04/97
AIM Money Market Fund -0.84 14.96 N/A 17.17 08/04/97
AIM Municipal Bond Fund 4.59 19.44 N/A 23.12 08/04/97
AIM Short Term Bond Fund N/A N/A N/A 1.46 08/30/02
AIM Total Return Bond Fund 5.97 N/A N/A 7.93 12/31/01
</Table>
The cumulative total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for each Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
------------------------------------------------------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- ------------------------------------ -------- -------- -------- --------- ---------
AIM Income Fund 2.26% 4.53% 62.86% N/A 05/03/68
AIM Intermediate Government Fund 8.61 31.84 74.48 N/A 04/28/87
AIM Money Market Fund 0.59 17.83 N/A 39.64% 10/16/93
</Table>
* The returns shown for these periods are the blended returns of the
historical performance of the Fund's Class R shares since June 3, 2002
and the restated historical performance of the Fund's Class A shares
(for periods prior to June 3, 2002) at net asset value, adjusted to
reflect the higher Rule 12b-1 fees applicable to Class R shares.
** The inception date shown in the table is that of the AIM Income Fund's
and AIM Intermediate Government Fund's Class A shares and AIM Money
Market Fund's Cash Reserve Shares. The inception date of the Fund's
Class R shares is June 3, 2002.
The cumulative annual total returns for AIM Limited Maturity Treasury
Fund, with respect to its Class A3 shares, for the one, five and ten year
periods ended January 31, 2003 are as follows:
M-4
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
--------------------------------------------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------- ------ ------- -------- --------- ---------
AIM Limited Maturity Treasury Fund 4.33% 28.82% 63.12% N/A 12/15/87
</Table>
* The returns shown for these periods are the blended returns of the
historical performance of the Fund's Class A3 shares since October 31,
2002 and the restated historical performance of the Fund's Class A
shares (for periods prior to October 31, 2002) at the net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3
shares.
** The inception date shown in the table is that of AIM Limited Maturity
Treasury Fund's Class A shares. The inception date of the Fund's Class
A3 shares is October 31, 2002.
The cumulative annual total returns for each Fund, with respect to its
Investor Class shares, for the one, five and ten year periods (or since
inception if less than ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
----------------------------------------------------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -8.00% -35.61% 12.64% N/A 07/11/78
AIM Income Fund 2.53 5.86 67.00 N/A 05/03/68
AIM Intermediate Government Fund 8.88 33.50 78.87 N/A 04/28/87
AIM Money Market Fund 0.85 19.32 N/A 42.93% 10/16/93
AIM Municipal Bond Fund 6.38 23.98 67.66 N/A 03/28/77
</Table>
* The returns shown for these periods are the restated historical
performance of the Fund's Class A shares at the net asset value, and
reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Class A shares of AIM High
Yield Fund, AIM Income Fund, AIM Intermediate Government Fund, AIM
Municipal Bond Fund and that of AIM Cash Reserve Shares of AIM Money
Market Fund.
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTION)
The average annual total returns (after taxes on distributions and
including sales load) for each Fund, with respect to its Class A shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
---------------------------------------------------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------- -------- -------- -------- --------- ---------
AIM High Yield Fund -16.09% -13.17% -3.35% N/A 07/11/78
AIM Income Fund -4.58 -2.43 1.86 N/A 05/03/68
AIM Intermediate Government Fund 1.95 2.53 2.85 N/A 04/28/87
AIM Limited Maturity Treasury Fund 2.16 5.33 3.14 N/A 12/15/87
AIM Municipal Bond Fund 1.30 3.37 4.74 N/A 03/28/77
AIM Total Return Bond Fund 1.08 N/A N/A 1.76% 12/31/01
</Table>
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class B shares, for the one, five and ten year periods (or
since inception if less than ten years) ended January 31, 2003 are as follows:
M-5
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
--------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -16.38% -12.97% N/A -4.20% 09/01/93
AIM Income Fund -5.00 -2.24 N/A 0.78 09/07/93
AIM Intermediate Government Fund 1.51 2.74 N/A 2.72 09/07/93
AIM Municipal Bond Fund 0.45 3.26 N/A 4.01 09/01/93
AIM Total Return Bond Fund 0.61 N/A N/A 2.28 12/31/01
</Table>
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class C shares, for the one, five and ten year periods (or
since inception if less than ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
--------------------------------------------------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -13.11% -12.71% N/A -10.91% 08/04/97
AIM Income Fund -1.15 -1.92 N/A -0.81 08/04/97
AIM Intermediate Government Fund 5.42 3.06 N/A 3.46 08/04/97
AIM Municipal Bond Fund 4.59 3.61 N/A 3.85 08/04/97
AIM Short Term Bond Fund N/A N/A N/A N/A 08/30/02
AIM Total Return Bond Fund 4.61 N/A N/A 5.95 12/31/01
</Table>
The average annual total returns (after taxes on distributions) for AIM
Limited Maturity Treasury Fund, with respect to its Class A3 shares, for the
one, five and ten year periods ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
------------------------------------------------------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- -------------------------------------- -------- -------- -------- --------- ---------
AIM Limited Maturity Treasury Fund 2.96% 3.34% 3.04% 3.93% 12/15/87
</Table>
* The returns shown for these periods are the blended returns of the
historical performance of the Fund's Class A3 shares since October 31,
2002 and the restated historical performance of the Fund's Class A
shares (for periods prior to October 31, 2002) at the net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3
shares.
** The inception date shown in the table is that of AIM Limited Maturity
Treasury Fund's Class A shares. The inception date of the Fund's Class
A3 shares is October 31, 2002.
The average annual total returns (after taxes on distributions) for
each Fund, with respect to its Investor Class shares, for the one, five and ten
year periods (or since inception if less than ten years) ended January 31, 2003
are as follows:
M-6
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
--------------------------------------------------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -11.87% -12.32% -2.88% N/A 07/11/78
AIM Income Fund 0.12 -1.48 2.36 N/A 05/03/68
AIM Intermediate Government Fund 7.00 3.52 3.35 N/A 04/28/87
AIM Municipal Bond Fund 6.38 4.38 5.24 N/A 03/28/77
</Table>
* The returns shown for these periods are the restated historical
performance of the Fund's Class A shares at the net asset value, and
reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Class A shares of AIM High
Yield Fund, AIM Income Fund, AIM Intermediate Government Fund and AIM
Municipal Bond Fund.
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
The average annual total returns (after taxes on distributions and
redemption and including sales loads) for each Fund, with respect to its Class A
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
---------------------------------------------------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -------------------------------------- -------- -------- -------- --------- ---------
AIM High Yield Fund -7.65% -8.47% -1.01% N/A 07/11/78
AIM Income Fund -1.45 -1.14 2.36 N/A 05/03/68
AIM Intermediate Government Fund 2.26 2.70 3.00 N/A 04/28/87
AIM Limited Maturity Treasury Fund 2.16 3.23 3.10 N/A 12/15/87
AIM Municipal Bond Fund 2.58 3.64 4.82 N/A 03/28/77
AIM Total Return Bond Fund 1.61 N/A N/A 1.89% 12/31/01
</Table>
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class B shares, for the one, five and ten
year periods (or since inception if less than ten years) ended January 31, 2003
are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
--------------------------------------------------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -7.88% -8.39% N/A -1.74% 09/01/93
AIM Income Fund -1.82 -1.06 N/A 1.89 09/07/93
AIM Intermediate Government Fund 1.86 2.80 N/A 2.82 09/07/93
AIM Municipal Bond Fund 1.84 3.44 N/A 4.10 09/01/93
AIM Total Return Bond Fund 1.18 N/A N/A 2.23 12/31/01
</Table>
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class C shares, for the one, five and ten
year periods (or since inception if less than ten years) ended January 31, 2003
are as follows:
M-7
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003
--------------------------------------------------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -5.87% -8.22% N/A -6.85% 08/04/97
AIM Income Fund 0.55 -0.81 N/A 0.09 08/04/97
AIM Intermediate Government Fund 4.26 3.05 N/A 3.39 08/04/97
AIM Municipal Bond Fund 4.39 3.72 N/A 3.92 08/04/97
AIM Short Term Bond Fund N/A N/A N/A N/A 08/30/02
AIM Total Return Bond Fund 3.64 N/A N/A 5.17 12/31/01
</Table>
The average annual total returns (after taxes on distributions and
redemption) for AIM Limited Maturity Treasury Fund, with respect to its Class A3
shares, for the one, five and ten year periods ended January 31, 2003 are as
follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
------------------------------------------------------------
SINCE INCEPTION
CLASS A3 SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- -------------------------------------- -------- -------- -------- --------- ---------
AIM Limited Maturity Treasury Fund 2.65% 3.23% 3.01% 3.89% 12/15/87
</Table>
* The returns shown for these periods are the blended returns of the
historical performance of the Fund's Class A3 shares since October 31,
2002 and the restated historical performance of the Fund's Class A
shares (for periods prior to October 31, 2002) at the net asset value,
adjusted to reflect the higher Rule 12b-1 fees applicable to Class A3
shares.
** The inception date shown in the table is that of AIM Limited Maturity
Treasury Fund's Class A shares. The inception date of the Fund's Class
A3 shares is October 31, 2002.
The average annual total returns (after taxes on distributions and
redemption) for each Fund, with respect to its Investor Class shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
January 31, 2003 are as follows:
<Table>
<Caption>
PERIODS ENDED JANUARY 31, 2003*
---------------------------------------------------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- ------------------------------------ -------- -------- -------- --------- ---------
AIM High Yield Fund -4.94% -7.85% -0.63% N/A 07/11/78
AIM Income Fund 1.50 -0.37 2.79 N/A 05/03/68
AIM Intermediate Government Fund 5.41 3.52 3.43 N/A 04/28/87
AIM Municipal Bond Fund 5.78 4.49 5.27 N/A 03/28/77
</Table>
* The returns shown for these periods are the restated historical
performance of the Fund's Class A shares at the net asset value, and
reflect the higher Rule 12b-1 fees applicable to Class A shares.
** The inception date shown is that of the Class A shares of AIM High
Yield Fund, AIM Income Fund, AIM Intermediate Government Fund and AIM
Municipal Bond Fund.
M-8
YIELDS
The 30-day yields for each of the named Funds are as follows:
<Table>
<Caption>
30 DAYS ENDED JANUARY 31, 2003
--------------------------------------------
CLASS A1 CLASS B CLASS C CLASS R INVESTOR
CLASS
-------- ------- ------- ------- --------
AIM High Yield Fund 8.63% 8.29% 8.29% N/A N/A
AIM Income Fund 4.56 4.03 4.03 4.48% N/A
AIM Intermediate Government Fund 3.37 2.79 2.79 3.27 N/A
AIM Limited Maturity Treasury Fund 0.87 N/A N/A N/A 1.10%
AIM Municipal Bond Fund 3.53 2.96 2.96 N/A N/A
AIM Short Term Bond Fund N/A N/A 1.59 N/A N/A
AIM Total Return Bond Fund 3.39 2.82 2.82 N/A N/A
</Table>
1 For Class A3 shares of AIM Limited Maturity Treasury Fund.
The tax equivalent yield, assuming a tax rate of 38.6% for Class A
shares, Class B shares and Class C shares of AIM Municipal Bond Fund are as
follows:
<Table>
<Caption>
TAX-EQUIVALENT YIELD JANUARY 31, 2003
------------------------------------------
CLASS A CLASS B CLASS C INVESTOR CLASS
------- ------- ------- --------------
AIM Municipal Bond Fund 5.75% 4.82% 4.82% N/A
</Table>
The 7-day annualized yield for AIM Cash Reserve Shares, Class B shares,
Class C shares and Class R shares of AIM Money Market Fund are as follows:
<Table>
<Caption>
7 DAYS ENDED JANUARY 31, 2003
--------------------------------------------
CASH CLASS B CLASS C CLASS R INVESTOR
RESERVE CLASS
------- ------- ------- ------- --------
AIM Money Market Fund 0.55% 0.05% 0.05% 0.29% N/A
</Table>
DISTRIBUTION RATES
The distribution rates at offering price for each of the named Funds are
as follows:
<Table>
<Caption>
30 DAYS ENDED JANUARY 31, 2003
---------------------------------------------
30-DAY: CLASS A1 CLASS B CLASS C CLASS R INVESTOR
CLASS
- ----------------------------------------------- -------- ------- ------- ------- --------
AIM High Yield Fund 9.87% 9.68% 9.70% N/A N/A
AIM Income Fund 5.59 5.12 5.12 5.59% N/A
AIM Intermediate Government Fund 3.63 3.10 3.11 3.55 N/A
AIM Limited Maturity Treasury Fund N/A N/A N/A N/A N/A
AIM Municipal Bond Fund 4.45 3.92 3.93 N/A N/A
AIM Short Term Bond Fund N/A N/A 2.87 N/A N/A
AIM Total Return Bond Fund 3.84 3.28 3.28 N/A N/A
</Table>
1 For Class A3 shares of AIM Limited Maturity Treasury Fund.
M-9
<Table>
<Caption>
12 MONTHS ENDED JANUARY 31, 2003
--------------------------------
12-MONTH: CLASS A1 CLASS B CLASS C
- ----------------------------------- ---------- ------- ---------
AIM High Yield Fund 11.10% 10.82% 10.85%
AIM Income Fund 6.13 5.68 5.69
AIM Intermediate Government Fund 4.23 3.73 3.75
AIM Limited Maturity Treasury Fund 2.49 N/A N/A
AIM Municipal Bond Fund 4.45 3.92 3.93
AIM Short Term Bond Fund(2) N/A N/A N/A
AIM Total Return Bond Fund 3.65 3.09 3.09
</Table>
1 For Class A3 shares of AIM Limited Maturity Treasury Fund.
2 Commenced operations on August 30, 2002.
Yield and distribution rate information on Investor Class shares is not
reflected in the tables above since Investor Class shares have not yet commenced
operations.
Information on Class A3 shares and Class R shares is not reflected in
the 12-month distribution rate table above since they commenced operations on
October 31, 2002 and June 3, 2002, respectively.
M-10
FINANCIAL STATEMENTS
Pursuant to Rule 3-03(d) of Regulation S-X unaudited financials for the
period ended January 31, 2003, for Registrant's portfolios have been included in
addition to the portfolios' audited financials for the period ended July 31,
2002. Such financials reflect all adjustments which are of a normal recurring
nature and which are, in the opinion of management, necessary to a fair
statement of the results for the periods presented.
FS
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM High Yield Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM High
Yield Fund (a portfolio of AIM Investment Securities Funds), including the
schedule of investments, as of July 31, 2002, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for each of the two years in the 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. The financial
highlights for each of the periods presented through July 31, 2000 were audited
by other auditors whose report dated September 1, 2000, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, 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 Yield Fund as of July 31, 2002, the results of its operations for the year
then ended, and the changes in its net assets and financial highlights for each
of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 10, 2002
FS-1
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BONDS & NOTES-95.32%
AEROSPACE & DEFENSE-1.10%
Dunlop Standard Aerospace Holdings PLC
(United Kingdom), Sr. Unsec. Sub. Yankee
Notes, 11.88%, 05/15/09 $ 8,135,000 $ 8,501,075
- -------------------------------------------------------------------------
Sequa Corp.-Class A, Sr. Unsec. Notes, 9.00%,
08/01/09 1,770,000 1,770,000
=========================================================================
10,271,075
=========================================================================
AIRLINES-1.02%
Air Canada (Canada), Sr. Unsec. Yankee Notes,
10.25%, 03/15/11 5,445,000 3,566,475
- -------------------------------------------------------------------------
Northwest Airlines Inc., Sr. Unsec. Gtd.
Notes, 8.88%, 06/01/06 7,780,000 6,029,500
=========================================================================
9,595,975
=========================================================================
ALUMINUM-0.33%
Jorgensen (Earle M.) Co., Sr. Sec. Notes,
9.75%, 06/01/12(a) 3,115,000 3,068,275
=========================================================================
APPAREL RETAIL-2.00%
Big 5 Corp.-Series B, Sr. Unsec. Notes,
10.88%, 11/15/07 8,945,000 9,481,700
- -------------------------------------------------------------------------
Gap, Inc. (The), Unsec. Notes, 9.90%,
12/15/05 5,325,000 5,245,125
- -------------------------------------------------------------------------
Mothers Work, Inc., Sr. Notes, 11.25%,
08/01/10 4,010,000 3,991,999
=========================================================================
18,718,824
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.94%
Perry Ellis International, Inc., Sr. Sec.
Notes, 9.50%, 03/15/09 (Acquired 03/15/02;
Cost $1,765,203)(b) 1,810,000 1,837,150
- -------------------------------------------------------------------------
Russell Corp., Sr. Notes, 9.25%, 05/01/10(a) 2,640,000 2,719,200
- -------------------------------------------------------------------------
Samsonite Corp., Sr. Unsec. Sub. Notes,
10.75%, 06/15/08 150,000 125,250
- -------------------------------------------------------------------------
William Carter Co. (The), Sr. Unsec. Gtd.
Sub. Notes, 10.88%, 08/15/11 3,805,000 4,109,400
=========================================================================
8,791,000
=========================================================================
AUTO PARTS & EQUIPMENT-1.33%
Advance Stores Co., Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 10.25%, 04/15/08 8,880,000 9,368,400
- -------------------------------------------------------------------------
Dura Operating Corp.-Series B, Sr. Unsec.
Gtd. Notes, 8.63%, 04/15/12 425,000 429,250
- -------------------------------------------------------------------------
Intermet Corp., Sr. Notes, 9.75%, 06/15/09(a) 2,670,000 2,670,000
- -------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(c)(d) 23,770,000 2,377
=========================================================================
12,470,027
=========================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
<Caption>
BANKS-0.40%
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12 $ 3,845,000 $ 3,748,875
=========================================================================
BROADCASTING & CABLE TV-13.07%
Acme Communications, Inc.-Series B, Sr.
Unsec. Unsub. Gtd. Notes, 10.88%, 09/30/04 12,355,000 12,231,450
- -------------------------------------------------------------------------
Adelphia Communications Corp.,
Series B, Sr. Unsec. Notes, 9.88%,
03/01/07(d) 4,220,000 1,371,500
- -------------------------------------------------------------------------
Sr. Unsec. Notes, 10.88%, 10/01/10(d) 9,595,000 3,118,375
- -------------------------------------------------------------------------
Alliance Atlantis Communications Inc.
(Canada), Sr. Unsec. Sub. Yankee Notes,
13.00%, 12/15/09 6,960,000 7,482,000
- -------------------------------------------------------------------------
Charter Communications Holdings, LLC/
Charter Communications Holdings
Capital Corp.,
Sr. Unsec. Disc. Notes, 9.92%, 04/01/11(e) 25,190,000 10,957,650
- -------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 11.13%, 01/15/11 3,975,000 2,643,375
- -------------------------------------------------------------------------
Clear Channel Communications, Inc., Sr.
Unsec. Notes, 7.65%, 09/15/10 3,590,000 3,379,411
- -------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Deb., 11.20%, 11/15/07 9,395,000 8,314,575
- -------------------------------------------------------------------------
Corus Entertainment Inc. (Canada), Sr. Unsec.
Sub. Yankee Notes, 8.75%, 03/01/12 2,135,000 2,124,325
- -------------------------------------------------------------------------
CSC Holdings Inc.-Series B, Sr. Unsec. Notes,
7.63%, 04/01/11 4,200,000 3,297,000
- -------------------------------------------------------------------------
Echostar Broadband Corp., Sr. Unsec. Notes,
10.38%, 10/01/07 4,605,000 4,420,800
- -------------------------------------------------------------------------
Fox Family Worldwide, Inc., Sr. Unsec. Notes,
10.25%, 11/01/07 1,959,044 2,071,689
- -------------------------------------------------------------------------
Insight Midwest, L.P., Sr. Unsec. Notes,
10.50%, 11/01/10 6,435,000 5,373,225
- -------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Unsub. Disc.
Notes, 11.88%, 10/15/07(e) 18,240,000 5,426,400
- -------------------------------------------------------------------------
LIN Holdings Corp., Sr. Unsec. Disc. Notes,
10.00%, 03/01/08(e) 6,135,000 5,797,575
- -------------------------------------------------------------------------
Mediacomm LLC, Sr. Unsec. Notes, 9.50%,
01/15/13 8,140,000 5,657,300
- -------------------------------------------------------------------------
ONO Finance PLC (United Kingdom), Sr. Unsec.
Gtd. Euro Notes, 13.00%, 05/01/09 17,740,000 3,326,250
- -------------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr.
Notes, 9.63%, 10/15/05 7,700,000 3,580,500
- -------------------------------------------------------------------------
Sr. Unsec. Notes, 12.50%, 08/01/07 14,500,000 7,177,500
- -------------------------------------------------------------------------
Radio One, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 8.88%, 07/01/11 6,595,000 6,644,462
- -------------------------------------------------------------------------
</Table>
FS-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-(CONTINUED)
Salem Communications Holding Corp.-Series B,
Sr. Unsec. Gtd. Sub. Notes, 9.00%, 07/01/11 $ 5,070,000 $ 5,146,050
- -------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., Sr. Unsec.
Gtd. Sub. Notes, 8.75%, 12/15/11 4,410,000 4,432,050
- -------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec.
Gtd. Sub. Notes, 9.63%, 11/01/09 3,409,000 3,340,820
- -------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee
Notes,
11.25%, 02/01/10(c) 12,385,000 1,114,650
- -------------------------------------------------------------------------
11.50%, 02/01/10(c) 8,200,000 738,000
- -------------------------------------------------------------------------
Young Broadcasting Inc.,
Series B, Sr. Unsec. Gtd. Sub. Notes,
9.00%, 01/15/06 785,000 722,200
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 8.50%, 12/15/08 2,630,000 2,643,150
=========================================================================
122,532,282
=========================================================================
BUILDING PRODUCTS-2.43%
Associated Materials Inc., Sr. Unsec. Sub.
Notes, 9.75%, 04/15/12(a) 1,780,000 1,824,500
- -------------------------------------------------------------------------
Atrium Cos., Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 05/01/09 2,660,000 2,673,300
- -------------------------------------------------------------------------
Brand Services, Inc., Sr. Unsec. Notes,
10.25%, 02/15/08 9,930,000 9,582,450
- -------------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 8,720,000 8,720,000
=========================================================================
22,800,250
=========================================================================
CASINOS & GAMBLING-4.76%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub.
Notes, 10.75%, 02/15/09 7,925,000 8,519,375
- -------------------------------------------------------------------------
Boyd Gaming Corp.,
Sr. Unsec. Gtd. Notes, 9.25%, 08/01/09 5,000,000 5,275,000
- -------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.75%, 04/15/12 4,450,000 4,527,875
- -------------------------------------------------------------------------
Herbst Gaming, Inc.-Series B, Sr. Sec. Notes,
10.75%, 09/01/08 4,450,000 4,628,044
- -------------------------------------------------------------------------
Hollywood Casino Corp./Shreveport Capital
Corp., Sr. Unsec. Gtd. First Mortgage
Notes, 13.00%, 08/01/06 6,075,000 6,591,375
- -------------------------------------------------------------------------
Hollywood Casino Corp.-Class A, Sr. Sec. Gtd.
Notes, 11.25%, 05/01/07 4,630,000 5,000,400
- -------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Notes, 8.00%, 04/01/12 1,370,000 1,370,000
- -------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Notes, 7.50%, 09/01/09 5,235,000 5,117,212
- -------------------------------------------------------------------------
Venetian Casino Resort LLC, 2nd Mortgage
Notes, 11.00%, 06/15/10(a) 3,565,000 3,582,825
=========================================================================
44,612,106
=========================================================================
COMMODITY CHEMICALS-0.62%
ISP Chemo Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 07/01/11 3,590,000 3,482,300
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
<Caption>
COMMODITY CHEMICALS-(CONTINUED)
Methanex Corp. (Canada), Sr. Unsec. Yankee
Notes, 8.75%, 08/15/12 $ 2,225,000 $ 2,306,613
=========================================================================
5,788,913
=========================================================================
COMPUTER STORAGE & PERIPHERALS-0.05%
Seagate Technology LLC, Sr. Notes, 8.00%,
05/15/09(a) 480,000 464,400
=========================================================================
CONSTRUCTION & ENGINEERING-1.04%
Schuff International Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 06/01/08 11,125,000 9,734,375
=========================================================================
CONSTRUCTION MATERIALS-0.73%
Dayton Superior Corp., Sr. Unsec. Gtd. Sub.
Notes, 13.00%, 06/15/09 7,120,000 6,835,200
=========================================================================
CONSTRUCTION, FARM MACHINERY & HEAVY
TRUCKS-0.46%
Terex Corp., Sr. Unsec. Gtd. Sub. Notes,
9.25%, 07/15/11 4,260,000 4,281,300
=========================================================================
DISTILLERS & VINTNERS-0.27%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12 2,430,000 2,515,050
=========================================================================
DISTRIBUTORS-0.09%
AmeriGas Partners, L.P., Sr. Unsec. Notes,
8.88%, 05/20/11 810,000 830,250
=========================================================================
DIVERSIFIED CHEMICALS-1.58%
Equistar Chemicals LP/Equistar Funding Corp.,
Sr. Unsec. Gtd. Notes, 10.13%, 09/01/08 4,630,000 4,259,600
- -------------------------------------------------------------------------
Huntsman International LLC, Sr. Notes, 9.88%,
03/01/09(a) 5,455,000 5,509,550
- -------------------------------------------------------------------------
Millennium America, Inc.,
Sr. Notes, 9.25%, 06/15/08(a) 2,215,000 2,281,450
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 9.25%, 06/15/08 2,720,000 2,801,600
=========================================================================
14,852,200
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.81%
Tekni-Plex, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 12.75%, 06/15/10 7,585,000 7,622,925
=========================================================================
DIVERSIFIED FINANCIAL SERVICES-0.56%
LBI Media Inc., Sr. Sub. Notes, 10.13%,
07/15/12(a) 5,340,000 5,259,900
=========================================================================
DIVERSIFIED METALS & MINING-0.04%
Centaur Mining and Exploration Ltd.
(Australia), Sr. Gtd. Yankee Notes, 11.00%,
12/01/07(c) 28,800,000 360,000
=========================================================================
DRUG RETAIL-0.44%
Rite Aid Corp., Sr. Unsec. Unsub. Notes,
7.13%, 01/15/07 6,175,000 4,106,375
=========================================================================
</Table>
FS-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-2.08%
AES Corp. (The),
Sr. Unsec. Notes, 8.75%, 06/15/08 $ 6,330,000 $ 2,500,350
- -------------------------------------------------------------------------
Sr. Unsec. Notes, 9.50%, 06/01/09 1,505,000 624,559
- -------------------------------------------------------------------------
Unsec. Putable Unsub. ROARS Notes, 7.38%,
06/15/03 1,615,000 896,325
- -------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Yankee Notes, 8.50%,
05/01/08 9,235,000 4,756,025
- -------------------------------------------------------------------------
Calpine Corp., Sr. Unsec. Notes, 8.63%,
08/15/10 4,010,000 1,904,750
- -------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 6,280,000 4,301,800
- -------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Notes,
13.50%, 07/15/08 11,150,000 4,515,750
=========================================================================
19,499,559
=========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.34%
Flextronics International Ltd. (Singapore),
Sr. Unsec. Sub. Yankee Notes, 9.88%,
07/01/10 5,530,000 5,585,300
- -------------------------------------------------------------------------
Knowles Electronics Inc., Sr. Unsec. Gtd.
Sub. Notes, 13.13%, 10/15/09 9,860,000 6,951,300
=========================================================================
12,536,600
=========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.83%
Fisher Scientific International Inc., Sr.
Unsec. Sub. Notes, 8.13%, 05/01/12 3,835,000 3,815,825
- -------------------------------------------------------------------------
Solectron Corp., Sr. Unsec. Notes, 9.63%,
02/15/09 4,410,000 3,946,950
=========================================================================
7,762,775
=========================================================================
EMPLOYMENT SERVICES-0.62%
MSX International, Inc., Sr. Unsec. Gtd. Sub.
Notes, 11.38%, 01/15/08 8,890,000 5,822,950
=========================================================================
ENVIRONMENTAL SERVICES-0.68%
Allied Waste North America Inc.-Series B,
Sr. Gtd. Sub. Notes, 8.50%, 12/01/08 3,465,000 3,135,825
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 10.00%,
08/01/09 3,600,000 3,258,000
=========================================================================
6,393,825
=========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.40%
IMC Global Inc.-Series B, Sr. Unsec. Gtd.
Notes, 11.25%, 06/01/11 3,520,000 3,748,800
=========================================================================
FOOD DISTRIBUTORS-0.82%
Fleming Cos., Inc.-Series D, Sr. Unsec. Gtd.
Sub. Notes, 10.63%, 07/31/07 6,240,000 5,990,400
- -------------------------------------------------------------------------
Roundy's Inc., Sr. Sub. Notes, 8.88%,
06/15/12(a) 1,665,000 1,665,000
=========================================================================
7,655,400
=========================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
<Caption>
FOOD RETAIL-0.36%
Pathmark Stores, Inc., Sr. Unsec. Gtd. Sub.
Notes, 8.75%, 02/01/12 $ 3,420,000 $ 3,385,800
=========================================================================
FOREST PRODUCTS-0.81%
Louisiana-Pacific Corp., Sr. Unsec. Sub.
Notes, 10.88%, 11/15/08 2,450,000 2,584,750
- -------------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Yankee Notes, 9.88%, 05/15/08 5,180,000 4,998,700
=========================================================================
7,583,450
=========================================================================
GAS UTILITIES-0.84%
El Paso Energy Partners, L.P.,
Series B, Sr. Unsec. Gtd. Sub. Notes,
8.50%, 06/01/11 2,505,000 2,367,225
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 8.50%,
06/01/11(a) 5,875,000 5,551,875
=========================================================================
7,919,100
=========================================================================
GENERAL MERCHANDISE STORES-0.91%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 9,600,000 8,496,000
=========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-0.29%
Vanguard Health Systems, Inc., Sr. Unsec.
Gtd. Sub. Notes, 9.75%, 08/01/11 2,635,000 2,700,875
=========================================================================
HEALTH CARE EQUIPMENT-1.29%
CONMED Corp., Sr. Unsec. Gtd. Sub. Notes,
9.00%, 03/15/08 2,140,000 2,150,700
- -------------------------------------------------------------------------
Radiologix, Inc.-Series B, Sr. Unsec. Gtd.
Notes, 10.50%, 12/15/08 6,190,000 6,313,800
- -------------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09 3,420,000 3,625,200
=========================================================================
12,089,700
=========================================================================
HEALTH CARE FACILITIES-2.42%
Hanger Orthopedic Group, Inc.,
Sr. Sub. Notes, 11.25%, 06/15/09 4,750,000 4,773,750
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 10.38%,
02/15/09 840,000 869,400
- -------------------------------------------------------------------------
InSight Health Services Corp.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 9.88%, 11/01/11 2,215,000 2,226,075
- -------------------------------------------------------------------------
Magellan Health Services, Inc., Sr. Notes,
9.38%, 11/15/07(a) 2,620,000 2,109,100
- -------------------------------------------------------------------------
Select Medical Corp., Sr. Unsec. Sub. Notes,
9.50%, 06/15/09 5,310,000 5,442,750
- -------------------------------------------------------------------------
Triad Hospitals, Inc.-Series B, Sr. Unsec.
Gtd. Notes, 8.75%, 05/01/09 2,665,000 2,784,925
- -------------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Notes, 10.00%,
12/15/11 4,275,000 4,435,312
=========================================================================
22,641,312
=========================================================================
</Table>
FS-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
HEALTH CARE SUPPLIES-0.79%
DJ Orthopedics LLC, Sr. Unsec. Gtd. Sub.
Notes, 12.63%, 06/15/09 $ 6,775,000 $ 7,452,500
=========================================================================
HOME FURNISHINGS-2.21%
Falcon Products, Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 06/15/09 4,230,000 3,384,000
- -------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 13.38%, 10/15/09 8,395,000 8,436,975
- -------------------------------------------------------------------------
Sealy Mattress Co.-Series B, Sr. Gtd. Sub.
Notes, 9.88%, 12/15/07 8,130,000 6,951,150
- -------------------------------------------------------------------------
Winsloew Furniture, Inc.-Series B, Sr. Gtd.
Sub. Notes, 12.75%, 08/15/07 2,025,000 1,954,125
=========================================================================
20,726,250
=========================================================================
HOMEBUILDING-2.96%
Beazer Homes USA, Inc., Sr. Notes, 8.38%,
04/15/12(a) 3,515,000 3,515,000
- -------------------------------------------------------------------------
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 3,400,000 3,587,000
- -------------------------------------------------------------------------
Schuler Homes, Inc.,
Class A, Sr. Unsec. Gtd. Sub. Notes,
10.50%, 07/15/11 3,575,000 3,610,750
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 4,050,000 4,070,250
- -------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Notes,
9.00%, 07/01/10(a) 6,170,000 5,830,650
- -------------------------------------------------------------------------
WCI Communities Inc., Sr. Unsec. Gtd. Sub.
Notes, 10.63%, 02/15/11 7,100,000 7,135,500
=========================================================================
27,749,150
=========================================================================
HOTELS, RESORTS & CRUISE LINES-2.71%
Host Marriott Corp., Sr. Sec. Gtd. Notes,
7.88%, 08/01/08 1,805,000 1,710,237
- -------------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec. Yankee
Notes, 10.50%, 02/01/10 5,990,000 6,199,650
- -------------------------------------------------------------------------
John Q Hammons Hotels, 1st Mortgage Notes,
8.88%, 05/15/12(a) 3,510,000 3,360,825
- -------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas),
Sr. Sub. Yankee Notes, 8.88%, 08/15/11
(Acquired 05/09/02; Cost $2,884,000)(b) 2,800,000 2,842,000
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Yankee Notes, 8.88%,
08/15/11 1,580,000 1,607,650
- -------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., Sr. Unsec.
Unsub. Notes, 8.75%, 02/02/11 6,740,000 6,133,400
- -------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Notes, 7.88%, 05/01/12(a) 3,775,000 3,595,687
=========================================================================
25,449,449
=========================================================================
HOUSEHOLD APPLIANCES-0.61%
Salton, Inc., Sr. Unsec. Gtd. Sub. Notes,
10.75%, 12/15/05 5,850,000 5,762,250
=========================================================================
HOUSEWARES & SPECIALTIES-0.29%
Johnsondiversey Inc., Sr. Sub. Notes, 9.63%,
05/15/12(a) 2,625,000 2,730,000
=========================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
<Caption>
INDUSTRIAL MACHINERY-0.39%
Actuant Corp., Sr. Unsec. Gtd. Sub. Notes,
13.00%, 05/01/09 $ 856,000 $ 988,680
- -------------------------------------------------------------------------
NMHG Holdings Co., Sr. Unsec. Gtd. Notes,
10.00%, 05/15/09(a) 2,630,000 2,643,150
=========================================================================
3,631,830
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.21%
American Media Operations, Inc.-Series B, Sr.
Unsec. Gtd. Notes, 10.25%, 05/01/09 2,500,000 2,606,250
- -------------------------------------------------------------------------
ICG Services, Inc., Sr. Unsec. Disc. Notes,
10.00%, 02/15/08(c)(e) 64,905,000 324,525
- -------------------------------------------------------------------------
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 10,720,000 7,772,000
- -------------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
08/15/10 7,860,000 2,161,500
- -------------------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Sub. Yankee
Notes, 11.25%, 12/01/09 6,400,000 6,432,000
- -------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd. Notes,
6.13%, 11/15/08 2,000,000 1,445,000
=========================================================================
20,741,275
=========================================================================
LEISURE FACILITIES-1.03%
Six Flags, Inc., Sr. Unsec. Notes,
8.88%, 02/01/10 4,750,000 4,655,000
- -------------------------------------------------------------------------
9.50%, 02/01/09 2,185,000 2,185,000
- -------------------------------------------------------------------------
9.75%, 06/15/07 2,835,000 2,849,175
=========================================================================
9,689,175
=========================================================================
LIFE & HEALTH INSURANCE-0.14%
Conseco, Inc., Sr. Unsec. Gtd. Notes,
8.75%, 08/09/06 (Acquired 07/19/01; Cost
$1,639,950)(b)(c) 1,740,000 478,500
- -------------------------------------------------------------------------
10.75%, 06/15/09 (Acquired 06/26/01; Cost
$2,677,914)(b)(c) 2,710,000 799,450
=========================================================================
1,277,950
=========================================================================
METAL & GLASS CONTAINERS-2.00%
Graphic Packaging Corp., Sr. Unsec. Gtd. Sub.
Notes, 8.63%, 02/15/12(a) 3,425,000 3,407,875
- -------------------------------------------------------------------------
Greif Bros. Corp.-Class A, Sr. Sub. Notes,
8.88%, 08/01/12(a) 4,445,000 4,433,887
- -------------------------------------------------------------------------
Jarden Corp., Sr. Sub. Notes, 9.75%,
05/01/12(a) 6,205,000 5,894,750
- -------------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Notes, 10.75%, 09/01/11 4,535,000 4,875,125
- -------------------------------------------------------------------------
Stone Container Corp., Sr. Notes, 8.38%,
07/01/12(a) 150,000 151,500
=========================================================================
18,763,137
=========================================================================
MOVIES & ENTERTAINMENT-1.52%
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.50%, 02/01/11 10,320,000 9,855,600
- -------------------------------------------------------------------------
</Table>
FS-5
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
MOVIES & ENTERTAINMENT-(CONTINUED)
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11 $ 4,515,000 $ 4,424,700
=========================================================================
14,280,300
=========================================================================
OFFICE SERVICES & SUPPLIES-0.34%
Mail Well I Corp., Sr. Unsec. Gtd. Notes,
9.63%, 03/15/12(a) 3,950,000 3,179,750
=========================================================================
OIL & GAS DRILLING-1.00%
Pride International, Inc., Sr. Unsec. Notes,
10.00%, 06/01/09 8,765,000 9,400,463
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.98%
Hanover Equipment Trust
2001 A, Sr. Sec. Notes, 8.50%, 09/01/08(a) 2,640,000 2,191,200
- -------------------------------------------------------------------------
2001 B, Sr. Sec. Notes, 8.75%, 09/01/11(a) 880,000 734,800
- -------------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Notes, 8.88%,
05/15/11 6,335,000 6,239,975
=========================================================================
9,165,975
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.36%
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.38%, 11/01/08 2,720,000 2,720,000
- -------------------------------------------------------------------------
Comstock Resources, Inc., Sr. Unsec. Gtd.
Notes, 11.25%, 05/01/07 7,820,000 8,015,500
- -------------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Notes, 11.75%,
11/15/09 12,785,000 13,360,325
- -------------------------------------------------------------------------
Pogo Producing Co.-Series B, Sr. Unsec. Sub.
Notes, 10.38%, 02/15/09 4,880,000 5,270,400
- -------------------------------------------------------------------------
Swift Energy Co., Sr. Unsec. Sub. Notes,
9.38%, 05/01/12 2,200,000 2,101,000
=========================================================================
31,467,225
=========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.89%
Texas Petrochemical Corp., Sr. Unsec. Sub.
Notes, 11.13%, 07/01/06 11,895,000 9,218,625
- -------------------------------------------------------------------------
Western Gas Resources, Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 06/15/09 8,000,000 8,520,000
=========================================================================
17,738,625
=========================================================================
PACKAGED FOODS & MEATS-0.28%
Dole Foods Co., Inc., Sr. Unsec. Notes,
7.25%, 05/01/09 2,610,000 2,614,072
=========================================================================
PAPER PRODUCTS-1.03%
Appleton Papers Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 12.50%, 12/15/08 5,390,000 5,430,425
- -------------------------------------------------------------------------
Tembec Industries Inc. (Canada), Sr. Unsec.
Gtd. Yankee Notes, 7.75%, 03/15/12 4,255,000 4,201,132
=========================================================================
9,631,557
=========================================================================
PERSONAL PRODUCTS-2.70%
Armkel LLC, Sr. Sub. Notes, 9.50%, 08/15/09 3,160,000 3,294,300
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
<Caption>
PERSONAL PRODUCTS-(CONTINUED)
Elizabeth Arden, Inc.,
Sr. Notes, 10.38%, 05/15/07 $ 3,190,000 $ 2,982,650
- -------------------------------------------------------------------------
Sr. Sec. Notes, 11.75%, 02/01/11 9,565,000 9,708,475
- -------------------------------------------------------------------------
Herbalife International, Inc., Sr. Sub.
Notes, 11.75%, 07/15/10(a) 3,560,000 3,542,200
- -------------------------------------------------------------------------
Playtex Products, Inc., Sr. Unsec. Gtd. Sub.
Notes, 9.38%, 06/01/11 5,420,000 5,772,300
=========================================================================
25,299,925
=========================================================================
PHARMACEUTICALS-1.66%
aaiPharma Inc., Sr. Sub. Notes, 11.00%,
04/01/10(a) 10,240,000 9,574,400
- -------------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee
Notes, 7.88%, 04/01/10 6,120,000 5,945,702
=========================================================================
15,520,102
=========================================================================
RAILROADS-2.95%
Kansas City Southern Railway, Sr. Unsec. Gtd.
Notes, 9.50%, 10/01/08 5,739,000 6,198,120
- -------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 13,705,000 14,218,938
- -------------------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr. Unsec. Gtd.
Disc. Yankee Deb., 11.75%, 06/15/09 7,563,000 7,260,480
=========================================================================
27,677,538
=========================================================================
REAL ESTATE INVESTMENT TRUSTS-1.17%
Host Marriott LP
Series E, Sr. Sec. Gtd. Notes,
8.38%, 02/15/06 300,000 292,500
- -------------------------------------------------------------------------
Series I, Unsec. Gtd. Notes, 9.50%,
01/15/07 4,900,000 4,900,000
- -------------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 570,000 589,950
- -------------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Notes, 9.13%, 01/15/11 4,430,000 4,208,500
- -------------------------------------------------------------------------
RFS Partnership LP, Sr. Unsec. Gtd. Notes,
9.75%, 03/01/12 980,000 984,900
=========================================================================
10,975,850
=========================================================================
RESTAURANTS-0.10%
Perkins Family Restaurants, L.P.-Series B,
Sr. Unsec. Notes, 10.13%, 12/15/07 970,000 955,450
=========================================================================
SEMICONDUCTORS-0.56%
ON Semiconductor Corp., Sr. Sec. Gtd. Notes,
12.00%, 05/15/08(a) 6,215,000 5,251,675
=========================================================================
SPECIALTY CHEMICALS-0.32%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Notes,
9.25%, 12/15/11 3,110,000 3,001,150
=========================================================================
SPECIALTY STORES-2.64%
Cole National Group, Inc., Sr. Sub. Notes,
8.88%, 05/15/12(a) 1,730,000 1,721,350
- -------------------------------------------------------------------------
</Table>
FS-6
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
SPECIALTY STORES-(CONTINUED)
CSK Auto, Inc.,
Series A, Sr. Gtd. Sub. Deb., 11.00%,
11/01/06 $ 7,325,000 $ 7,727,875
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 12.00%, 06/15/06 4,010,000 4,270,650
- -------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 11/01/11 4,390,000 4,741,200
- -------------------------------------------------------------------------
Petro Stopping Centers LP, Sr. Unsec. Notes,
10.50%, 02/01/07 2,160,000 2,062,800
- -------------------------------------------------------------------------
United Rentals, Inc.-Series B, Sr. Unsec.
Gtd. Notes, 10.75%, 04/15/08 4,085,000 4,207,550
=========================================================================
24,731,425
=========================================================================
STEEL-0.29%
AK Steel Corp., Sr. Unsec. Gtd. Notes, 7.75%,
06/15/12(a) 2,690,000 2,703,450
=========================================================================
TELECOMMUNICATIONS EQUIPMENT-2.20%
Filtronic PLC (United Kingdom), Sr. Unsec.
Yankee Notes, 10.00%, 12/01/05 8,440,000 6,688,700
- -------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Notes,
10.25%, 02/01/09 6,940,000 3,782,300
- -------------------------------------------------------------------------
Spectrasite Holdings, Inc.,
Series B, Sr. Unsec. Sub. Notes, 12.50%,
11/15/10 9,600,000 3,888,000
- -------------------------------------------------------------------------
Sr. Disc. Notes, 12.00%, 07/15/08(e) 13,470,000 4,108,350
- -------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%, 04/15/09(e) 8,660,000 2,165,000
=========================================================================
20,632,350
=========================================================================
TEXTILES-0.87%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 8,000,000 8,200,000
=========================================================================
TRUCKING-1.99%
Avis Group Holdings, Inc., Sr. Unsec. Gtd.
Sub. Notes, 11.00%, 05/01/09 3,005,000 3,162,763
- -------------------------------------------------------------------------
North American Van Lines Inc., Sr. Sub.
Notes, 13.38%, 12/01/09(a) 14,865,000 15,533,925
=========================================================================
18,696,688
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-4.37%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(e)(f) 8,440,000 2,405,400
- -------------------------------------------------------------------------
Alamosa Delaware Inc., Sr. Unsec. Gtd. Notes,
12.50%, 02/01/11 8,630,000 3,279,400
- -------------------------------------------------------------------------
13.63%, 08/15/11 1,545,000 618,000
- -------------------------------------------------------------------------
Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc.
Notes, 12.88%, 02/15/10(e) 2,725,000 504,125
- -------------------------------------------------------------------------
Crown Castle International Corp.,
Sr. Unsec. Disc. Notes, 10.63%, 11/15/07(e) 8,780,000 6,189,900
- -------------------------------------------------------------------------
Sr. Unsec. Notes, 10.75%, 08/01/11 6,585,000 4,543,650
- -------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Notes, 14.00%, 10/01/10(e) 16,795,000 2,771,175
- -------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10(e) 8,995,000 1,484,175
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
<Caption>
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
IWO Holdings, Inc., Sr. Unsec. Gtd. Notes,
14.00%, 01/15/11 $13,320,000 $ 4,728,600
- -------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Notes,
12.00%, 11/01/08 11,465,000 8,312,125
- -------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Notes,
10.38%, 01/15/11 2,679,000 2,270,453
- -------------------------------------------------------------------------
Triton PCS Inc., Sr. Unsec. Gtd. Sub. Notes,
9.38%, 02/01/11 1,760,000 1,152,800
- -------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Sub. Notes, 14.00%, 04/15/10(e) 17,190,000 1,418,175
- -------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec. Gtd.
Sub. Disc. Notes, 13.38%, 11/01/09(e) 4,580,000 1,259,500
=========================================================================
40,937,478
=========================================================================
Total Bonds & Notes (Cost $1,148,761,288) 893,529,737
=========================================================================
<Caption>
SHARES
STOCKS & OTHER EQUITY INTERESTS-1.39%
AEROSPACE & DEFENSE-0.00%
Earthwatch Inc.-Series C,
$0.30 PIK Conv. Pfd. (Acquired 09/15/99-
06/21/02; Cost $65,475)(b) 2,135,750 21,357
- -------------------------------------------------------------------------
$1.20, Conv. Pfd. (Acquired 03/14/97-
06/21/02; Cost $208,406)(b) 132,980 2,660
=========================================================================
24,017
=========================================================================
BROADCASTING & CABLE TV-0.37%
CSC Holdings Inc.-Series M, 11.13% Pfd. 69,120 3,386,880
=========================================================================
MARINE PORTS & SERVICES-0.09%
First Wave Marine, Inc.(d)(g) 43,705 885,026
=========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.00%
World Access, Inc.-Series D, $45.00 Conv.
Pfd. (Acquired 03/03/00; Cost
$16,365,448)(b)(d)(g) 16,707 17
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.93%
Celcaribe S.A., Ordinary Trust Ctfs.
(Acquired 05/17/94-01/23/97; Cost
$0)(b)(d)(g) 2,276,400 22,764
- -------------------------------------------------------------------------
Dobson Communications Corp.,
12.25% PIK Pfd. 29,036 8,710,829
=========================================================================
8,733,593
=========================================================================
Total Stocks & Other Equity Interests
(Cost $70,826,635) 13,029,533
=========================================================================
WARRANTS-0.12%
BROADCASTING & CABLE TV-0.00%
Knology Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98-02/01/00; Cost
$270)(b)(d)(h) 47,295 473
=========================================================================
</Table>
FS-7
<Table>
<Caption>
MARKET
SHARES VALUE
CONSTRUCTION MATERIALS-0.01%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00-01/30/01; Cost
$10,000)(b)(h) 9,580 $ 98,195
=========================================================================
GENERAL MERCHANDISE STORES-0.02%
Travelcenters of America Inc.-Wts., expiring
05/01/09 (Acquired 01/29/01; Cost $0)(b)(h) 13,500 138,375
=========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.-Series B-Pfd.
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(b)(h) 20,195 202
- -------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Wts., expiring
11/15/09 (Acquired 06/13/00; Cost $0)(b)(h) 20,195 202
- -------------------------------------------------------------------------
Winsloew Escrow Corp.-Wts., expiring 08/15/07
(Acquired 12/06/99; Cost $0)(b)(h) 2,025 21,262
=========================================================================
21,666
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
KMC Telecom Holdings, Inc.-Wts., expiring
4/15/08(h) 35 9
- -------------------------------------------------------------------------
PF.Net Communications, Inc.-Wts., expiring
05/15/10 (Acquired 07/19/00; Cost $0)(b)(h) 18,200 182
=========================================================================
191
=========================================================================
RAILROADS-0.07%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(b)(h) 14,375 650,469
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
TELECOMMUNICATIONS EQUIPMENT-0.00%
Loral Space & Communications, Ltd.-Wts.,
expiring 12/26/06(h) 68,302 $ 6,830
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.02%
Horizon PCS, Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(b)(h) 27,480 275
- -------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(b)(h) 5,880 1,470
- -------------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(b)(h) 13,320 3,330
- -------------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(b)(h) 15,155 152
- -------------------------------------------------------------------------
Ubiquitel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(b)(h) 25,910 210,519
=========================================================================
215,746
=========================================================================
Total Warrants (Cost $778,755) 1,131,945
=========================================================================
MONEY MARKET FUNDS-0.05%
STIC Liquid Assets Portfolio(i) 233,544 233,544
- -------------------------------------------------------------------------
STIC Prime Portfolio(i) 233,544 233,544
=========================================================================
Total Money Market Funds (Cost $467,088) 467,088
=========================================================================
TOTAL INVESTMENTS-96.88% (Cost
$1,220,833,766) 908,158,303
=========================================================================
OTHER ASSETS LESS LIABILITIES-3.12% 29,283,983
=========================================================================
NET ASSETS-100.00% $937,442,286
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Dep. - Depositary
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
ROARS - Remarketable or Redeemable Securities
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(b) Restricted securities. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at 07/31/02
was $7,129,004, which represented 0.76% of the Fund's net assets.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(f) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit includes warrants to purchase
common or preferred shares of the issuer.
(g) Non-income producing security.
(h) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(i) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-8
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$1,220,833,766) $908,158,303
- -----------------------------------------------------------
Receivables for:
Investments sold 13,765,809
- -----------------------------------------------------------
Fund shares sold 2,719,847
- -----------------------------------------------------------
Dividends and interest 25,482,867
- -----------------------------------------------------------
Investment for deferred compensation plan 96,624
- -----------------------------------------------------------
Other assets 51,768
===========================================================
Total assets 950,275,218
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 4,290,632
- -----------------------------------------------------------
Fund shares reacquired 3,086,384
- -----------------------------------------------------------
Dividends 4,307,738
- -----------------------------------------------------------
Deferred compensation plan 96,624
- -----------------------------------------------------------
Accrued distribution fees 659,857
- -----------------------------------------------------------
Accrued trustees' fees 1,335
- -----------------------------------------------------------
Accrued transfer agent fees 208,265
- -----------------------------------------------------------
Accrued operating expenses 182,097
===========================================================
Total liabilities 12,832,932
===========================================================
Net assets applicable to shares outstanding $937,442,286
___________________________________________________________
===========================================================
NET ASSETS:
Class A $417,973,856
___________________________________________________________
===========================================================
Class B $469,408,225
___________________________________________________________
===========================================================
Class C $ 50,060,205
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 112,940,894
___________________________________________________________
===========================================================
Class B 126,408,481
___________________________________________________________
===========================================================
Class C 13,516,902
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 3.70
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $3.70 divided by
95.25%) $ 3.88
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 3.71
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 3.70
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Interest $ 156,230,177
- -----------------------------------------------------------
Dividends 3,623,075
- -----------------------------------------------------------
Dividends from affiliated money market funds 666,386
===========================================================
Total investment income 160,519,638
===========================================================
EXPENSES:
Advisory fees 6,811,857
- -----------------------------------------------------------
Administrative services fees 205,198
- -----------------------------------------------------------
Custodian fees 112,427
- -----------------------------------------------------------
Distribution fees -- Class A 1,478,678
- -----------------------------------------------------------
Distribution fees -- Class B 6,539,461
- -----------------------------------------------------------
Distribution fees -- Class C 683,287
- -----------------------------------------------------------
Transfer agent fees 3,118,954
- -----------------------------------------------------------
Trustees' fees 15,053
- -----------------------------------------------------------
Other 576,633
===========================================================
Total expenses 19,541,548
===========================================================
Less: Fees waived (6,338)
- -----------------------------------------------------------
Expenses paid indirectly (71,840)
===========================================================
Net expenses 19,463,370
===========================================================
Net investment income 141,056,268
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (486,124,409)
- -----------------------------------------------------------
Change in net unrealized appreciation of
investment securities 148,209,888
===========================================================
Net gain (loss) from investment securities (337,914,521)
===========================================================
Net increase (decrease) in net assets
resulting from operations $(196,858,253)
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-9
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
--------------- ---------------
OPERATIONS:
Net investment income $ 141,056,268 $ 214,139,633
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (486,124,409) (521,648,172)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 148,209,888 (132,633,058)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (196,858,253) (440,141,597)
================================================================================================
Distributions to shareholders from net investment income:
Class A (69,550,001) (101,172,746)
- ------------------------------------------------------------------------------------------------
Class B (71,741,714) (102,753,707)
- ------------------------------------------------------------------------------------------------
Class C (7,514,536) (10,213,180)
- ------------------------------------------------------------------------------------------------
Return of Capital:
Class A -- (4,772,897)
- ------------------------------------------------------------------------------------------------
Class B -- (5,196,404)
- ------------------------------------------------------------------------------------------------
Class C -- (519,501)
- ------------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (1,659,640)
- ------------------------------------------------------------------------------------------------
Class B -- (1,806,903)
- ------------------------------------------------------------------------------------------------
Class C -- (180,642)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (111,693,259) (73,156,301)
- ------------------------------------------------------------------------------------------------
Class B (114,155,181) (114,095,709)
- ------------------------------------------------------------------------------------------------
Class C (13,464,843) 4,602,693
================================================================================================
Net increase (decrease) in net assets (584,977,787) (851,066,534)
================================================================================================
NET ASSETS:
Beginning of year 1,522,420,073 2,373,486,607
================================================================================================
End of year $ 937,442,286 $ 1,522,420,073
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,988,969,233 $ 3,228,343,419
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (12,425,446) (6,179,915)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (1,726,426,038) (1,236,619,015)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (312,675,463) (463,124,416)
================================================================================================
$ 937,442,286 $ 1,522,420,073
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-10
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of eight
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be 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
the Fund. The Fund's investment objective is to achieve a high level of current
income.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. 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. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the New York Stock Exchange ("NYSE"). Generally,
trading in foreign securities 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 the Fund's shares are determined
as of the close of the respective markets. Occasionally, events affecting
the values of such foreign securities may occur between the times at which
the particular foreign market closes and the close of the customary trading
session of the NYSE which would not be reflected in the computation of the
Fund's net asset value. If a development/ event is so significant that
there is a reasonably high degree of certainty as to both the effect and
the degree of effect that the development/ event has actually caused that
closing price to no longer reflect actual value, the closing prices, as
determined at the close of the applicable foreign market, may be adjusted
to reflect the fair value of the affected foreign securities as of the
close of the NYSE as determined in good faith by or under the supervision
of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
On July 31, 2002, undistributed net investment income was increased by
$3,743,517, undistributed net realized gains decreased by $3,682,614 and
paid-in capital decreased by $60,903 as a result of bond premium
reclassifications, sales of defaulted bonds and other reclassifications.
Net assets of the fund were unaffected by the reclassifications.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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.
FS-11
The Fund has a capital loss carryforward of $1,314,524,641 as of July 31,
2002 which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ---------------
$ 3,132,878 July 31, 2003
----------------------------------------
115,531,161 July 31, 2006
----------------------------------------
297,433,797 July 31, 2007
----------------------------------------
297,100,942 July 31, 2008
----------------------------------------
131,908,743 July 31, 2009
----------------------------------------
469,417,120 July 31, 2010
========================================
$1,314,524,641
________________________________________
========================================
</Table>
As of July 31, 2002, the Fund has a post-October capital loss deferral of
$383,050,893 which will be recognized in the following tax year.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--CHANGE IN ACCOUNTING PRINCIPLE
As required, effective August 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premium on debt securities. Prior to August 1, 2001, the Fund did not amortize
premiums on debt securities. The cumulative effect of this accounting change had
no impact on total net assets of the Fund, but resulted in a $2,239,065
reduction in the cost of securities and a corresponding $2,239,065 increase in
net unrealized gains and losses, based on securities held by the Fund on August
1, 2001.
The effect of this change in the current period was to decrease net investment
income by $917,784, to increase net unrealized gains and losses by $457,513 and
to increase net realized gains and losses by $460,271. As a result the net
investment income per share remained the same, the net realized and unrealized
gains and losses per share remained the same and the ratio of net investment
income to average net assets decreased by 0.07%.
NOTE 3--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.625% on the first
$200 million of the Fund's average daily net assets, plus 0.55% on the next $300
million of the Fund's average daily net assets, plus 0.50% on the next $500
million of the Fund's average daily net assets, plus 0.45% on the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market fund of which the Fund has invested. For the
year ended July 31, 2002, AIM waived fees of $6,338.
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. For the year ended July 31, 2002, AIM was paid
$205,198 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 and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $1,773,789 for such services.
The Trust 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 Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C 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 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. For the year ended July 31, 2002,
the Class A, Class B and Class C shares paid AIM Distributors $1,478,678,
$6,539,461 and $683,287, respectively, as compensation under the Plans.
AIM Distributors retained commissions of $163,249 from sales of the Class A
shares of the Fund during the year ended July 31, 2002. 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 July 31, 2002, AIM
Distributors retained $250,168, $9,088 and $28,718 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2002, the Fund paid legal fees of $6,956 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 4--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $15,499 and reductions in
custodian fees of $56,341 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $71,840.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring
FS-12
compensation have the option to select various AIM Funds in which all or part of
their deferral accounts shall be deemed to be invested.
NOTE 6--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party 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 the funds
based on their respective average net assets for the period.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
------------ ------------
Distributions paid from ordinary income $148,806,251 $217,786,818
- ---------------------------------------------------------------------------
Return of capital -- 10,488,802
===========================================================================
$148,806,251 $228,275,620
___________________________________________________________________________
===========================================================================
</Table>
As of July 31, 2002, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Undistributed ordinary income $ 3,162,374
- ----------------------------------------------------------------
Capital loss carryforward (1,314,524,641)
- ----------------------------------------------------------------
Unrealized appreciation (depreciation) (740,164,680)
================================================================
$(2,051,526,947)
________________________________________________________________
================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales, the deferral of capital losses incurred after October 31 and other timing
differences.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2002 was
$736,354,344 and $966,982,022, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 11,078,060
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (338,386,101)
==========================================================
Net unrealized appreciation (depreciation)
of investment securities $(327,308,041)
__________________________________________________________
==========================================================
Cost of investments for tax purposes is $1,235,466,344.
</Table>
NOTE 9--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ------------ -------------
Sold:
Class A 61,671,459 $ 274,866,210 88,790,617 $ 503,250,413
- ---------------------------------------------------------------------------------------------------------------------------
Class B 28,855,909 131,251,628 36,141,916 204,218,189
- ---------------------------------------------------------------------------------------------------------------------------
Class C 7,361,669 32,891,393 10,285,951 58,789,265
===========================================================================================================================
Issued as reinvestment of dividends:
Class A 9,782,026 43,420,316 12,173,551 68,377,402
- ---------------------------------------------------------------------------------------------------------------------------
Class B 7,389,848 32,867,780 8,839,237 49,784,875
- ---------------------------------------------------------------------------------------------------------------------------
Class C 918,849 4,077,812 1,176,597 6,579,431
===========================================================================================================================
Reacquired:
Class A (97,447,190) (429,979,785) (112,890,159) (644,784,116)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (63,245,842) (278,274,589) (63,698,704) (368,098,773)
- ---------------------------------------------------------------------------------------------------------------------------
Class C (11,408,493) (50,434,048) (10,589,223) (60,766,003)
===========================================================================================================================
(56,121,765) $(239,313,283) (29,770,217) $(182,649,317)
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
FS-13
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------------
YEAR ENDED JULY 31, SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
-------------------------- JULY 31, --------------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- ------------------ ---------- ---------- ----------
Net asset value, beginning of period $ 4.92 $ 7.00 $ 8.07 $ 8.77 $ 10.16 $ 9.88
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.49(a) 0.68 0.47 0.85 0.92 0.90
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (1.19) (2.03) (1.03) (0.66) (1.40) 0.28
=================================================================================================================================
Total from investment operations (0.70) (1.35) (0.56) 0.19 (0.48) 1.18
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.52) (0.69) (0.49) (0.87) (0.91) (0.90)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.03) (0.02) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- (0.01) -- -- -- --
=================================================================================================================================
Total distributions (0.52) (0.73) (0.51) (0.89) (0.91) (0.90)
=================================================================================================================================
Net asset value, end of period $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77 $ 10.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (15.36)% (19.98)% (7.12)% 2.21% (5.10)% 12.52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $417,974 $683,845 $1,056,453 $1,364,502 $1,670,863 $1,786,352
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.07%(c) 0.99% 0.93%(d) 0.92% 0.85% 0.90%
=================================================================================================================================
Ratio of net investment income to
average net assets 11.15%(a)(c) 11.98% 10.79%(d) 10.06% 9.45% 9.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 59% 55% 23% 79% 76% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have remained the same and the ratio of net investment
income to average net assets would have been 11.22%. In accordance with
the AICPA Audit and Accounting Guide for Investment Companies, per share
and ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Does not include sales charges and is not annualized for periods less
than one year.
(c) Ratios are based on average daily net assets of $591,471,201.
(d) Annualized.
FS-14
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------
YEAR ENDED JULY 31, SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
-------------------------- JULY 31, --------------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- ------------------ ---------- ---------- ----------
Net asset value, beginning of period $ 4.93 $ 7.01 $ 8.07 $ 8.76 $ 10.16 $ 9.88
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.45(a) 0.64 0.44 0.79 0.84 0.83
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (1.18) (2.03) (1.03) (0.66) (1.40) 0.28
=================================================================================================================================
Total from investment operations (0.73) (1.39) (0.59) 0.13 (0.56) 1.11
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.49) (0.65) (0.45) (0.80) (0.84) (0.83)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.03) (0.02) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net
investment income -- (0.01) -- -- -- --
=================================================================================================================================
Total distributions (0.49) (0.69) (0.47) (0.82) (0.84) (0.83)
=================================================================================================================================
Net asset value, end of period $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76 $ 10.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (15.99)% (20.60)% (7.49)% 1.46% (5.90)% 11.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $469,408 $756,704 $1,206,737 $1,559,864 $1,820,899 $1,647,801
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.82%(c) 1.75% 1.69%(d) 1.68% 1.61% 1.65%
=================================================================================================================================
Ratio of net investment income to
average net assets 10.40%(a)(c) 11.22% 10.03%(d) 9.30% 8.69% 8.33%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 59% 55% 23% 79% 76% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $653,946,081.
(d) Annualized.
FS-15
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 4, 1997
JULY 31, SEVEN MONTHS ENDED YEAR ENDED DECEMBER 31, (DATE SALES COMMENCED)
------------------------ JULY 31, ----------------------- TO DECEMBER 31,
2002 2001 2000 1999 1998 1997
------- ------- ------------------ -------- ----------- ----------------------
Net asset value, beginning of
period $ 4.92 $ 6.99 $ 8.05 $ 8.74 $ 10.14 $ 10.04
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.45(a) 0.65 0.44 0.78 0.82(b) 0.35
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (1.18) (2.03) (1.03) (0.65) (1.38) 0.10
=================================================================================================================================
Total from investment
operations (0.73) (1.38) (0.59) 0.13 (0.56) 0.45
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.49) (0.65) (0.45) (0.80) (0.84) (0.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.03) (0.02) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of
net investment income -- (0.01) -- -- -- --
=================================================================================================================================
Total distributions (0.49) (0.69) (0.47) (0.82) (0.84) (0.35)
=================================================================================================================================
Net asset value, end of period $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74 $ 10.14
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (16.02)% (20.52)% (7.51)% 1.46% (5.92)% 4.49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $50,060 $81,871 $110,297 $129,675 $113,246 $26,177
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets 1.82%(d) 1.75% 1.69%(e) 1.68% 1.61% 1.68%(e)
=================================================================================================================================
Ratio of net investment income
to average net assets 10.40%(a)(d) 11.22% 10.03%(e) 9.30% 8.69% 8.30%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 59% 55% 23% 79% 76% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $68,328,710.
(e) Annualized.
FS-16
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Income Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Income Fund (a portfolio of AIM Investment Securities Funds), including the
schedule of investments, as of July 31, 2002, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for each of the two years in the 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. The financial
highlights for each of the periods presented through July 31, 2000 were audited
by other auditors whose report dated September 1, 2000, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, 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
Income Fund as of July 31, 2002, the results of its operations for the year then
ended, and the changes in its net assets and financial highlights for each of
the two years in the period then ended in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 10, 2002
FS-17
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. DOLLAR DENOMINATED BONDS & NOTES-77.38%
ADVERTISING-0.68%
Interpublic Group of Cos., Inc. (The), Unsec.
Sub. Conv. Disc. Notes, 1.87%, 06/01/06(a) $ 4,900,000 $ 3,662,750
==========================================================================
AEROSPACE & DEFENSE-0.74%
Dunlop Standard Aerospace Holdings PLC
(United Kingdom), Sr. Unsec. Sub. Yankee
Notes, 11.88%, 05/15/09 2,100,000 2,194,500
- --------------------------------------------------------------------------
Raytheon Co., Notes, 6.75%, 08/15/07 1,700,000 1,799,875
==========================================================================
3,994,375
==========================================================================
ALUMINUM-0.13%
Jorgensen (Earle M.) Co., Sr. Sec. Notes,
9.75%, 06/01/12(b) 700,000 689,500
==========================================================================
APPAREL RETAIL-0.42%
Big 5 Corp.-Series B, Sr. Unsec. Notes,
10.88%, 11/15/07 1,625,000 1,722,500
- --------------------------------------------------------------------------
Gap, Inc. (The), Unsec. Notes, 9.90%,
12/15/05 565,000 556,525
==========================================================================
2,279,025
==========================================================================
AUTO PARTS & EQUIPMENT-0.00%
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(c)(d) 1,325,000 132
==========================================================================
AUTOMOBILE MANUFACTURERS-1.03%
Ford Holdings, Inc., Unsec. Gtd. Unsub. Deb.,
9.30%, 03/01/30 1,200,000 1,251,360
- --------------------------------------------------------------------------
General Motors Corp., Putable Deb., 8.80%,
03/01/21 4,000,000 4,273,720
==========================================================================
5,525,080
==========================================================================
BANKS-6.48%
African Development Bank (Luxembourg), Sr.
Unsec. Unsub. Yankee Notes, 3.25%, 07/29/05 1,700,000 1,683,816
- --------------------------------------------------------------------------
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 2,500,000 2,750,325
- --------------------------------------------------------------------------
BB&T Corp., RAPS Sub. Notes, 6.38%, 06/30/05 1,930,000 2,050,548
- --------------------------------------------------------------------------
Dresdner Funding Trust I, Notes, 8.15%,
06/30/31 (Acquired 05/09/02; Cost
$3,182,910)(e) 3,000,000 3,322,140
- --------------------------------------------------------------------------
European Investment Bank (Luxembourg), Yankee
Notes, 4.63%, 03/01/07 2,500,000 2,580,500
- --------------------------------------------------------------------------
Huntington National Bank, Sub. Notes, 6.60%,
06/15/18 1,000,000 950,150
- --------------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 1,600,000 1,619,312
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BANKS-(CONTINUED)
Regions Financial Corp., Putable Sub. Notes,
7.75%, 09/15/04 $ 3,650,000 $ 3,918,822
- --------------------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec. Unsub.
Notes, 7.13%, 02/15/04 1,500,000 1,575,105
- --------------------------------------------------------------------------
SunTrust Banks, Inc., Sr. Unsec. Putable Deb.
6.00%, 01/15/08 1,750,000 1,781,167
- --------------------------------------------------------------------------
U.S. Bank N.A., Sub. Notes, 6.30%, 02/04/14 3,000,000 3,165,000
- --------------------------------------------------------------------------
Wachovia Corp., Unsec. Putable Sub. Deb.,
6.55%, 10/15/05 660,000 709,289
- --------------------------------------------------------------------------
7.50%, 04/15/05 5,000,000 5,403,550
- --------------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%, 04/01/10 2,500,000 2,831,650
- --------------------------------------------------------------------------
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12 430,000 419,250
==========================================================================
34,760,624
==========================================================================
BREWERS-0.32%
Anheuser-Busch Cos., Inc., Sr. Unsec. Deb.,
6.50%, 02/01/43 1,705,000 1,744,795
==========================================================================
BROADCASTING & CABLE TV-9.05%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(c) 2,350,000 763,750
- --------------------------------------------------------------------------
British Sky Broadcasting Group PLC (United
Kingdom),
Sr. Unsec. Gtd. Yankee Notes, 8.20%,
07/15/09 3,000,000 2,831,940
- --------------------------------------------------------------------------
Unsec. Gtd. Yankee Notes, 7.30%, 10/15/06 3,000,000 2,894,010
- --------------------------------------------------------------------------
Charter Communications Holdings, LLC/ Charter
Communications Holdings Capital Corp., Sr.
Unsec. Sub. Notes,
9.63%, 11/15/09 1,770,000 1,123,950
- --------------------------------------------------------------------------
10.75%, 10/01/09 1,965,000 1,267,425
- --------------------------------------------------------------------------
11.13%, 01/15/11 1,020,000 678,300
- --------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Disc. Deb., 11.20%, 11/15/07 500,000 442,500
- --------------------------------------------------------------------------
Cox Communications, Inc., Sr. Unsec. RAPS
Floating Rate Notes, 2.62%, 11/07/02 2,100,000 2,105,271
- --------------------------------------------------------------------------
CSC Holdings Inc.,
Sr. Unsec. Deb.,
7.63%, 07/15/18 3,250,000 2,307,500
- --------------------------------------------------------------------------
7.88%, 02/15/18 1,000,000 720,000
- --------------------------------------------------------------------------
Sr. Unsec. Notes,
7.25%, 07/15/08 6,230,000 4,952,850
- --------------------------------------------------------------------------
7.88%, 12/15/07 6,680,000 5,477,600
- --------------------------------------------------------------------------
Fox Family Worldwide, Inc., Sr. Unsec. Disc.
Notes, 10.25%, 11/01/07(a) 565,544 598,062
- --------------------------------------------------------------------------
</Table>
FS-18
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-(CONTINUED)
Knology Holdings, Inc., Sr. Unsub. Disc.
Notes, 11.88%, 10/15/07(a) $ 1,915,000 $ 569,712
- --------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec. Sub.
Notes, 8.25%, 02/15/08 5,000,000 4,724,050
- --------------------------------------------------------------------------
Shaw Communications Inc. (Canada), Sr. Unsec.
Unsub. Yankee Notes, 8.25%, 04/11/10 1,250,000 1,244,162
- --------------------------------------------------------------------------
TCI Communications, Inc., Sr. Unsec. Deb.,
8.75%, 08/01/15 4,750,000 4,047,997
- --------------------------------------------------------------------------
7.88%, 02/15/26 1,100,000 868,989
- --------------------------------------------------------------------------
Time Warner Inc.,
Sr. Unsec. Gtd. Deb.,
6.88%, 06/15/18 1,200,000 829,440
- --------------------------------------------------------------------------
7.57%, 02/01/24 2,000,000 1,464,500
- --------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23 5,800,000 4,993,742
- --------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 1,200,000 1,072,728
- --------------------------------------------------------------------------
Turner Broadcasting System, Inc.-Class A, Sr.
Notes, 8.38%, 07/01/13 3,300,000 2,554,926
==========================================================================
48,533,404
==========================================================================
BUILDING PRODUCTS-0.30%
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 1,600,000 1,600,000
==========================================================================
CASINOS & GAMBLING-0.96%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub.
Notes, 10.75%, 02/15/09 460,000 494,500
- --------------------------------------------------------------------------
Boyd Gaming Corp., Sr. Unsec. Sub. Notes,
8.75%, 04/15/12 1,175,000 1,195,562
- --------------------------------------------------------------------------
Hollywood Casino Corp.-Class A, Sr. Sec. Gtd.
Notes, 11.25%, 05/01/07 1,200,000 1,296,000
- --------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Notes, 8.00%, 04/01/12 1,500,000 1,500,000
- --------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Notes, 7.50%, 09/01/09 665,000 650,037
==========================================================================
5,136,099
==========================================================================
COMPUTER HARDWARE-0.31%
Candescent Technologies Corp., Sr. Conv.
Unsec. Gtd. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/20/98; Cost
$2,000,000)(c)(d)(e) 2,000,000 106,000
- --------------------------------------------------------------------------
IBM Corp., Deb., 8.38%, 11/01/19 1,350,000 1,543,792
==========================================================================
1,649,792
==========================================================================
CONSTRUCTION & ENGINEERING-0.66%
Shaw Group Inc. (The), Sr. Unsec. Conv.
Putable LYONS, 3.31%, 05/01/06(f) 6,500,000 3,534,375
==========================================================================
CONSUMER FINANCE-2.71%
CitiFinancial Credit Co.,
Putable Notes, 6.63%, 06/01/15 2,800,000 2,979,284
- --------------------------------------------------------------------------
Unsec. Notes, 6.75%, 07/01/07 1,000,000 1,103,850
- --------------------------------------------------------------------------
Unsec. Putable Notes, 7.88%, 02/01/05 1,400,000 1,575,420
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
CONSUMER FINANCE-(CONTINUED)
Ford Motor Credit Co.,
Notes, 7.88%, 06/15/10 $ 2,000,000 $ 2,056,300
- --------------------------------------------------------------------------
Unsec. Notes,
2.08%, 03/17/03 1,500,000 1,487,723
- --------------------------------------------------------------------------
6.50%, 01/25/07 1,000,000 994,610
- --------------------------------------------------------------------------
6.88%, 02/01/06 900,000 909,351
- --------------------------------------------------------------------------
7.38%, 10/28/09 3,400,000 3,414,994
==========================================================================
14,521,532
==========================================================================
DISTRIBUTORS-0.65%
Ferrellgas Partners, L.P.,-Series B, Sr. Sec.
Gtd. Notes, 9.38%, 06/15/06 3,385,000 3,490,781
==========================================================================
DIVERSIFIED CHEMICALS-0.12%
Equistar Chemicals LP/Equistar Funding Corp.,
Sr. Unsec. Gtd. Notes, 10.13%, 09/01/08 680,000 625,600
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.15%
Tekni-Plex, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 12.75%, 06/15/10 790,000 793,950
==========================================================================
DIVERSIFIED FINANCIAL SERVICES-8.35%
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%,
05/01/20 2,500,000 3,546,750
- --------------------------------------------------------------------------
Bombardier Capital Ltd. (Canada), Yankee
Notes, 7.50%, 08/15/04 (Acquired 06/19/02;
Cost $1,064,650)(e) 1,000,000 1,054,620
- --------------------------------------------------------------------------
CIT Group Inc. (The), Sr. Notes, 7.13%,
10/15/04 600,000 603,372
- --------------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 1,650,000 1,725,256
- --------------------------------------------------------------------------
Citigroup Inc.,
Sr. Unsec. Notes, 4.13%, 06/30/05 1,700,000 1,713,294
- --------------------------------------------------------------------------
Unsec. Sub. Notes, 6.63%, 06/15/32 9,000,000 8,653,680
- --------------------------------------------------------------------------
Fidelity Investments, Bonds, 7.57%, 06/15/29
(Acquired 04/10/01-05/01/02; Cost
$4,177,488)(e) 3,975,000 4,287,038
- --------------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Notes, 5.00%, 06/15/07 1,000,000 1,024,180
- --------------------------------------------------------------------------
General Motors Acceptance Corp.,
Medium Term Notes, 5.25%, 05/16/05 1,700,000 1,719,533
- --------------------------------------------------------------------------
Unsec. Unsub. Notes, 6.13%, 02/01/07 1,000,000 1,009,100
- --------------------------------------------------------------------------
Heller Financial, Inc., Unsec. Notes, 7.38%,
11/01/09 1,500,000 1,652,280
- --------------------------------------------------------------------------
John Hancock Global Funding II,
Medium Term Notes, 6.50%, 03/01/11
(Acquired 07/24/02; Cost $1,687,104)(e) 1,600,000 1,687,216
- --------------------------------------------------------------------------
Notes, 5.00%, 07/27/07 (Acquired 06/12/02;
Cost $1,699,065)(e) 1,700,000 1,737,128
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc.-Series E,
Medium Term Disc. Notes, 9.84%, 02/10/28(f) 8,700,000 1,189,116
- --------------------------------------------------------------------------
NiSource Finance Corp., Sr. Unsec. Gtd.
Notes, 5.75%, 04/15/03 9,800,000 9,705,136
- --------------------------------------------------------------------------
</Table>
FS-19
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Salomon Smith Barney Holdings Inc., Unsec.
Notes, 7.13%, 10/01/06 $ 3,225,000 $ 3,496,481
==========================================================================
44,804,180
==========================================================================
DIVERSIFIED METALS & MINING-0.69%
Centaur Mining and Exploration Ltd.
(Australia), Sr. Gtd. Yankee Notes, 11.00%,
12/01/07(c) 1,720,000 21,500
- --------------------------------------------------------------------------
Rio Algom Ltd. (Canada), Unsec. Yankee Deb.,
7.05%, 11/01/05 3,500,000 3,702,475
==========================================================================
3,723,975
==========================================================================
ELECTRIC UTILITIES-11.17%
AES Corp. (The),
Sr. Unsec. Notes,
8.75%, 12/15/02 5,425,000 3,906,000
- --------------------------------------------------------------------------
9.50%, 06/01/09 1,275,000 529,125
- --------------------------------------------------------------------------
Unsec. Putable Unsub. ROARS Notes,
7.38%, 06/15/03 1,275,000 707,625
- --------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Yankee Notes, 8.50%,
05/01/08 3,800,000 1,957,000
- --------------------------------------------------------------------------
CILCORP, Inc., Sr. Unsec. Bonds, 9.38%,
10/15/29 2,100,000 2,100,966
- --------------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds, 6.86%, 10/01/08 1,700,000 1,788,400
- --------------------------------------------------------------------------
Series D, Sec. Notes, 7.88%, 11/01/17 8,000,000 8,188,080
- --------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 2,645,000 1,811,825
- --------------------------------------------------------------------------
Cogentrix Energy, Inc., Sr. Unsec. Gtd.
Notes, 8.75%, 10/15/08 3,200,000 2,408,000
- --------------------------------------------------------------------------
El Paso Electric Co.
Series D, Sec. First Mortgage Bonds, 8.90%,
02/01/06 3,000,000 3,321,840
- --------------------------------------------------------------------------
Series E, Sec. First Mortgage Bonds, 9.40%,
05/01/11 3,000,000 3,274,200
- --------------------------------------------------------------------------
Hydro-Quebec (Canada), Gtd. Yankee Bonds,
9.40%, 02/01/21 2,000,000 2,707,400
- --------------------------------------------------------------------------
Kincaid Generation LLC, Sec. Bonds, 7.33%,
06/15/20 (Acquired 04/30/98; Cost
$1,887,026)(e) 1,882,377 1,788,070
- --------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Notes,
13.50%, 07/15/08 1,130,000 457,650
- --------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes, 7.75%, 05/15/06 4,300,000 4,748,705
- --------------------------------------------------------------------------
Series H, Sr. Unsec. Disc. Notes, 8.50%,
07/01/10(a) 7,000,000 7,070,000
- --------------------------------------------------------------------------
Public Service Company of New Mexico-
Series A, Sr. Unsec. Notes, 7.10%, 08/01/05 1,200,000 1,260,384
- --------------------------------------------------------------------------
RGS (I&M) Funding Corp.-Series F, Sec. Lease
Obligation Bonds, 9.82%, 12/07/22 4,963,703 5,528,622
- --------------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 9.00%, 07/15/06 1,550,000 1,796,977
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Texas-New Mexico Power Co., Sr. Sec. Notes,
6.25%, 01/15/09 $ 4,800,000 $ 4,551,264
==========================================================================
59,902,133
==========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.08%
Fisher Scientific International Inc., Sr.
Unsec. Sub. Notes, 8.13%, 05/01/12 430,000 427,850
==========================================================================
EMPLOYMENT SERVICES-0.10%
MSX International, Inc., Sr. Unsec. Gtd. Sub.
Notes, 11.38%, 01/15/08 800,000 524,000
==========================================================================
ENVIRONMENTAL SERVICES-2.40%
Allied Waste North America Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.00%, 08/01/09 615,000 556,575
- --------------------------------------------------------------------------
Browning-Ferris Industries, Inc., Deb.,
9.25%, 05/01/21 2,570,000 2,274,450
- --------------------------------------------------------------------------
Waste Management, Inc., Unsec. Putable Notes,
7.10%, 08/01/03 9,800,000 10,061,268
==========================================================================
12,892,293
==========================================================================
GAS UTILITIES-1.89%
El Paso Corp., Medium Term Notes, 8.05%,
10/15/30 1,100,000 796,125
- --------------------------------------------------------------------------
Tennessee Gas Pipeline Co., Unsec. Deb.,
7.63%, 04/01/37 5,000,000 4,264,450
- --------------------------------------------------------------------------
TransCanada Pipelines Ltd. (Canada), Yankee
Deb., 8.63%, 05/15/12 4,310,000 5,070,025
==========================================================================
10,130,600
==========================================================================
HEALTH CARE FACILITIES-0.35%
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Sub. Notes, 10.38%, 02/15/09 1,820,000 1,883,700
==========================================================================
HOMEBUILDING-0.55%
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 1,750,000 1,846,250
- --------------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub.
Notes, 9.13%, 05/01/12 1,150,000 1,098,250
==========================================================================
2,944,500
==========================================================================
INTEGRATED OIL & GAS-2.69%
El Paso CGP Co., Sr. Unsec. Putable Deb.,
6.70%, 02/15/07 750,000 580,313
- --------------------------------------------------------------------------
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes, 7.13%, 11/15/06 3,000,000 3,264,630
- --------------------------------------------------------------------------
Yankee Bonds, 8.90%, 08/15/28 2,645,000 2,902,068
- --------------------------------------------------------------------------
Occidental Petroleum Corp.,
Sr. Putable Deb., 9.25%, 08/01/19 4,375,000 5,362,613
- --------------------------------------------------------------------------
Sr. Unsec. Notes, 7.38%, 11/15/08 2,100,000 2,346,099
==========================================================================
14,455,723
==========================================================================
</Table>
FS-20
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
INTEGRATED TELECOMMUNICATION SERVICES-0.85%
Sprint Capital Corp., Sr. Unsec. Gtd. Notes,
6.13%, 11/15/08 $ 2,500,000 $ 1,806,250
- --------------------------------------------------------------------------
Sprint Corp., Putable Deb., 9.00%, 10/15/19 2,500,000 1,759,375
- --------------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Notes, 6.13%, 06/15/07 1,000,000 997,160
==========================================================================
4,562,785
==========================================================================
LIFE & HEALTH INSURANCE-1.44%
American General Corp., Unsec. Notes, 7.50%,
08/11/10 3,000,000 3,375,240
- --------------------------------------------------------------------------
American General Institute-Series A, Gtd.
Bonds, 7.57%, 12/01/45 (Acquired 07/18/02;
Cost 1,091,690)(e) 1,000,000 1,059,620
- --------------------------------------------------------------------------
Americo Life, Inc., Sr. Sub. Notes, 9.25%,
06/01/05 1,000,000 1,000,000
- --------------------------------------------------------------------------
Conseco, Inc., Sr. Unsec. Gtd. Notes, 8.75%,
08/09/06 (Acquired 07/19/01; Cost
$584,350)(e) 620,000 170,500
- --------------------------------------------------------------------------
Sun Canada Financial Co., Gtd. Sub. Bonds,
6.63%, 12/15/07 (Acquired 10/14/99; Cost
$654,311)(e) 700,000 758,090
- --------------------------------------------------------------------------
Torchmark Corp., Notes, 7.88%, 05/15/23 1,325,000 1,384,824
==========================================================================
7,748,274
==========================================================================
MULTI-LINE INSURANCE-0.29%
AIG SunAmerica Global Financing IX, Bonds,
6.90%, 03/15/32 (Acquired 07/31/02; Cost
$1,567,125)(e) 1,500,000 1,545,662
==========================================================================
OIL & GAS-0.61%
Canadian Oil Sands Ltd., (Canada) Sr. Yankee
Notes, 7.90%, 09/01/21 (Acquired
08/17/01-07/31/02; Cost $3,220,956)(e) 3,200,000 3,286,112
==========================================================================
OIL & GAS DRILLING-0.87%
Transocean Sedco Forex Inc., Unsec. Notes,
6.95%, 04/15/08 4,300,000 4,646,580
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.42%
Kinder Morgan Energy Partners, LP, Sr. Unsec.
Notes, 7.13%, 03/15/12 1,500,000 1,591,397
- --------------------------------------------------------------------------
National-Oilwell, Inc., Sr. Unsec. Notes,
6.50%, 03/15/11 4,000,000 4,018,800
- --------------------------------------------------------------------------
Smith International, Inc., Notes, 6.75%,
02/15/11 2,000,000 2,013,300
==========================================================================
7,623,497
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-5.41%
Anadarko Petroleum Corp., Unsec. Putable
Deb., 7.73%, 09/15/26 1,200,000 1,301,844
- --------------------------------------------------------------------------
Anderson Exploration Ltd. (Canada), Unsec.
Sub. Yankee Notes, 6.75%, 03/15/11 2,400,000 2,450,424
- --------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.38%, 11/01/08 1,250,000 1,250,000
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
OIL & GAS EXPLORATION &
PRODUCTION-(CONTINUED)
Colorado Interstate Gas Co., Sr. Unsec. Deb.,
10.00%, 06/15/05 $ 2,300,000 $ 2,554,702
- --------------------------------------------------------------------------
Devon Energy Corp., Sr. Unsec. Deb., 7.95%,
04/15/32 795,000 864,674
- --------------------------------------------------------------------------
Devon Financing Corp. ULC, Sr. Unsec. Gtd.
Unsub. Deb., 7.88%, 09/30/31 2,155,000 2,315,332
- --------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec.
Notes, 6.88%, 12/01/07 3,500,000 3,804,010
- --------------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec. Unsub.
Notes, 7.63%, 03/01/11 5,500,000 5,610,000
- --------------------------------------------------------------------------
Nexen Inc. (Canada), Unsec. Yankee Notes,
7.40%, 05/01/28 2,000,000 1,971,980
- --------------------------------------------------------------------------
Noble Energy, Inc., Sr. Unsec. Deb., 7.25%,
08/01/97 6,000,000 5,094,960
- --------------------------------------------------------------------------
Union Pacific Resources Group Inc., Unsec.
Notes, 6.75%, 05/15/08 1,700,000 1,832,685
==========================================================================
29,050,611
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.52%
Pennzoil-Quaker State Co., Unsec. Deb.,
7.38%, 04/01/29 6,855,000 7,400,589
- --------------------------------------------------------------------------
Petroleos Mexicanos (Mexico),
Sr. Unsec. Gtd. Putable Yankee Bonds,
9.38%, 12/02/08 2,500,000 2,668,750
- --------------------------------------------------------------------------
Series P, Sr. Unsec. Gtd. Putable Unsub.
Yankee Bonds, 9.50%, 03/15/06 3,100,000 3,426,492
==========================================================================
13,495,831
==========================================================================
PAPER PRODUCTS-0.17%
Appleton Papers Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 12.50%, 12/15/08 900,000 906,750
==========================================================================
PHARMACEUTICALS-0.47%
Johnson & Johnson, Unsec. Debs., 8.72%,
11/01/24 2,200,000 2,515,172
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.79%
Allstate Financial Global Funding, Notes,
6.50%, 06/14/11 (Acquired 06/07/01; Cost
$2,246,558)(e) 2,250,000 2,375,663
- --------------------------------------------------------------------------
American Re Corp.-Series B, Sr. Unsec. Notes,
7.45%, 12/15/26 2,900,000 3,079,133
- --------------------------------------------------------------------------
Markel Corp.,
Unsec. Gtd. Notes, 7.20%, 08/15/07 2,200,000 2,202,948
- --------------------------------------------------------------------------
Unsec. Notes, 7.00%, 05/15/08 2,000,000 1,944,880
==========================================================================
9,602,624
==========================================================================
PUBLISHING-2.39%
News America Holdings, Inc.,
Putable Notes, 8.45%, 08/01/06 5,000,000 5,317,550
- --------------------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 4,950,000 5,427,329
- --------------------------------------------------------------------------
Sr. Unsec. Gtd. Putable Bonds, 7.43%,
10/01/06 2,000,000 2,058,200
==========================================================================
12,803,079
==========================================================================
</Table>
FS-21
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
RAILROADS-1.72%
CSX Corp., Sr. Unsec. Putable Deb., 7.25%,
05/01/05 $ 7,250,000 $ 7,898,005
- --------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 1,300,000 1,348,750
==========================================================================
9,246,755
==========================================================================
REAL ESTATE INVESTMENT TRUSTS-1.99%
EOP Operating L.P.,
Sr. Unsec. Notes, 7.25%, 02/15/18 600,000 640,068
- --------------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 600,000 622,998
- --------------------------------------------------------------------------
HealthCare REIT, Inc., Sr. Unsec. Notes,
7.50%, 08/15/07 3,500,000 3,631,635
- --------------------------------------------------------------------------
Host Marriott LP,
Series E, Sr. Sec. Gtd. Notes, 8.38%,
02/15/06 920,000 897,000
- --------------------------------------------------------------------------
Series I, Unsec. Gtd. Notes, 9.50%,
01/15/07 1,500,000 1,500,000
- --------------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 755,000 781,425
- --------------------------------------------------------------------------
RFS Partnership LP, Sr. Unsec. Gtd. Notes,
9.75%, 03/01/12 465,000 467,325
- --------------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub. Deb.,
7.35%, 12/01/17 2,000,000 2,151,480
==========================================================================
10,691,931
==========================================================================
SOVEREIGN DEBT-0.47%
Export Development Canada (Canada), Yankee
Bonds, 4.00%, 08/01/07 1,100,000 1,098,031
- --------------------------------------------------------------------------
Swiss Bank Corp.-NY, Sub. Notes, 7.38%,
06/15/17 1,300,000 1,436,539
==========================================================================
2,534,570
==========================================================================
SPECIALTY CHEMICALS-0.06%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Notes,
9.25%, 12/15/11 310,000 299,150
==========================================================================
SPECIALTY STORES-0.61%
CSK Auto, Inc., Sr. Unsec. Gtd. Notes,
12.00%, 06/15/06 1,550,000 1,650,750
- --------------------------------------------------------------------------
United Rentals, Inc.-Series B, Sr. Unsec.
Gtd. Notes, 10.75%, 04/15/08 1,550,000 1,596,500
==========================================================================
3,247,250
==========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.20%
SBA Communications Corp., Sr. Unsec. Notes,
10.25%, 02/01/09 2,000,000 1,090,000
==========================================================================
TRUCKING-0.27%
North American Van Lines Inc., Sr. Sub.
Notes, 13.38%, 12/01/09(b) 1,365,000 1,426,425
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.85%
Crown Castle International Corp., Sr. Unsec.
Notes, 10.75%, 08/01/11 1,850,000 1,276,500
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
WIRELESS TELECOMMUNICATION
SERVICES-(CONTINUED)
Nextel Communications, Inc.,
Sr. Notes, 12.00%, 11/01/08 $ 1,550,000 $ 1,123,750
- --------------------------------------------------------------------------
Sr. Unsec. Notes, 9.50%, 02/01/11 2,100,000 1,365,000
- --------------------------------------------------------------------------
Triton PCS Inc., Sr. Unsec. Gtd. Sub. Notes,
8.75%, 11/15/11 1,270,000 793,750
==========================================================================
4,559,000
==========================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $438,796,085) 415,112,826
==========================================================================
<Caption>
PRINCIPAL
AMOUNT(g)
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-6.53%
CANADA-1.62%
AT&T Canada Inc. (Integrated
Telecommunication Services),
Sr. Unsec. Unsub. Notes,
7.15%, 09/23/04 CAD 500,000 35,534
- --------------------------------------------------------------------------
Bell Mobility Cellular Inc.
(Wireless Telecommunication
Services), Unsec. Deb.,
6.55%, 06/02/08 CAD 2,250,000 1,421,451
- --------------------------------------------------------------------------
Canadian Government
(Sovereign Debt), Bonds,
6.63%, 10/03/07 NZD 7,400,000 3,461,062
- --------------------------------------------------------------------------
Ontario (Province of)
(Sovereign Debt), Unsec. Unsub.
Notes, 6.25%, 12/03/08 NZD 2,500,000 1,131,571
- --------------------------------------------------------------------------
Rogers Cablesystems Ltd.
(Broadcasting & Cable TV), Sr.
Sec. Second Priority Deb.,
9.65%, 01/15/14 CAD 3,300,000 1,985,629
- --------------------------------------------------------------------------
Westcoast Energy Inc.
(Gas Utilities)-Series V,
Unsec. Deb., 6.45%, 12/18/06 CAD 1,000,000 653,746
==========================================================================
8,688,993
==========================================================================
GERMANY-2.65%
Bundesrepublik Deutschland
(Sovereign Debt), Bonds,
6.50%, 10/14/05 EUR 650,000 682,125
- --------------------------------------------------------------------------
Germany (Federal Republic of)
(Sovereign Debt), Bonds,
5.25%, 01/04/11 EUR 10,125,000 10,277,288
- --------------------------------------------------------------------------
Kreditanstalt fuer Wiederaufbau
(Banks), Sr. Unsec. Unsub. Deb.,
5.25%, 07/04/12 EUR 3,250,000 3,249,249
==========================================================================
14,208,662
==========================================================================
NETHERLANDS-0.37%
Olivetti International Finance N.V.
(Integrated Telecommunication
Services)-Series E, Gtd.
Medium Term Euro Notes,
6.13%, 07/30/09 EUR 2,050,000 1,974,802
==========================================================================
UNITED KINGDOM-1.89%
British Sky Broadcasting Group PLC
(Broadcasting & Cable TV),
Sr. Unsec. Gtd. Unsub. Euro Bonds,
7.75%, 07/09/09 GBP 1,750,000 2,551,826
- --------------------------------------------------------------------------
Sutton Bridge Financing Ltd.
(Electric Utilities), Gtd. Notes,
8.63%, 06/30/22(b) GBP 1,942,890 3,267,373
- --------------------------------------------------------------------------
</Table>
FS-22
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT(g) VALUE
UNITED KINGDOM-(CONTINUED)
United Kingdom (Treasury of) (Sovereign
Debt), Bonds, 7.25%, 12/07/07 GBP 2,475,000 $ 4,328,794
==========================================================================
10,147,993
==========================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $34,189,334) 35,020,450
==========================================================================
<Caption>
SHARES
DOMESTIC STOCKS & OTHER EQUITY
INTERESTS-1.12%
BROADCASTING & CABLE TV-0.00%
Knology Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98; Cost $0)(d)(e)(h) 4,100 41
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.27%
Cendant Corp.(i) 105,409 1,456,752
==========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.-Series B, Pfd.
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(e)(h) 2,885 29
- --------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Wts., expiring
11/15/09 (Acquired 06/13/00; Cost $0)(e)(h) 2,885 29
==========================================================================
58
==========================================================================
RAILROADS-0.01%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(e)(h) 1,300 58,825
==========================================================================
REAL ESTATE INVESTMENT TRUSTS-0.66%
First Republic Capital Corp.-Series A, Pfd.
(Acquired 05/26/99; Cost $3,500,000)(e) 3,500 3,500,000
==========================================================================
SYSTEMS SOFTWARE-0.18%
Microsoft Corp.(i) 20,291 973,562
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(d)(e)(h) 1,775 18
==========================================================================
Total Domestic Stocks & Other Equity
Interests (Cost $8,370,114) 5,989,256
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-4.36%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-0.52%
Jr. Unsec. Sub. Notes,
5.88%, 03/21/11 $ 1,000,000 1,058,680
- --------------------------------------------------------------------------
Pass Through Ctfs.,
6.00%, 04/01/17 to 06/01/17 696,639 717,219
- --------------------------------------------------------------------------
6.50%, 04/01/17 99,249 103,483
- --------------------------------------------------------------------------
7.50%, 06/01/30 150,000 158,242
- --------------------------------------------------------------------------
7.00%, 06/01/32 199,198 207,423
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-(CONTINUED)
Pass Through Ctfs., TBA,
6.00%, 09/01/32 $ 150,000 $ 151,453
- --------------------------------------------------------------------------
6.50%, 09/01/32 400,000 411,625
==========================================================================
2,808,125
==========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-3.38%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 559,692 591,446
- --------------------------------------------------------------------------
7.00%, 02/01/16 to 03/01/32 1,297,525 1,353,662
- --------------------------------------------------------------------------
6.50%, 09/01/16 257,746 268,833
- --------------------------------------------------------------------------
8.00%, 10/01/30 82,461 87,940
- --------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 09/01/32 1,150,000 1,159,703
- --------------------------------------------------------------------------
6.50%, 09/01/32 2,224,000 2,286,550
- --------------------------------------------------------------------------
Unsec. Notes,
6.20%, 06/13/17 2,500,000 2,562,375
- --------------------------------------------------------------------------
Unsec. Sub. Notes,
5.50%, 05/02/06 1,450,000 1,561,113
- --------------------------------------------------------------------------
4.75%, 01/02/07 1,500,000 1,556,625
- --------------------------------------------------------------------------
6.25%, 02/01/11 3,950,000 4,221,444
- --------------------------------------------------------------------------
5.25%, 08/01/12 2,500,000 2,471,450
==========================================================================
18,121,141
==========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.46%
Pass Through Ctfs.,
8.50%, 11/15/24 543,371 590,421
- --------------------------------------------------------------------------
6.50%, 03/15/31 to 07/15/32 635,207 656,068
- --------------------------------------------------------------------------
7.00%, 04/15/31 to 08/15/31 567,580 593,858
- --------------------------------------------------------------------------
6.00%, 12/15/31 to 01/15/32 248,824 252,385
- --------------------------------------------------------------------------
7.50%, 01/15/32 360,338 381,755
==========================================================================
2,474,487
==========================================================================
Total U.S. Government Agency Securities
(Cost $22,709,437) 23,403,753
==========================================================================
ASSET-BACKED SECURITIES-5.75%
AIRLINES-3.42%
Air 2 US-Series C, Equipment Trust Ctfs.,
10.13%, 10/01/20 (Acquired 10/28/99; Cost
$3,000,000)(e) 3,000,000 2,390,340
- --------------------------------------------------------------------------
American Airlines, Inc.- Class A-1-Series
2001-1, Pass Through Ctfs. 6.98%, 05/23/21 4,523,618 4,444,003
- --------------------------------------------------------------------------
Continental Airlines, Inc.,-Series 974A, Pass
Through Ctfs., 6.90%, 01/02/18 2,960,923 2,813,706
- --------------------------------------------------------------------------
Delta Air Lines, Inc., Equipment Trust Ctfs.,
10.50%, 04/30/16 5,000,000 4,951,250
- --------------------------------------------------------------------------
United Air Lines, Inc.-Class A-2, Pass
Through Ctfs., 7.73%, 07/01/10 4,100,000 3,765,645
==========================================================================
18,364,944
==========================================================================
</Table>
FS-23
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES-2.01%
Citicorp Lease-Class A1, Series 1999-1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-06/19/02; Cost $2,768,495)(e) $ 2,617,217 $ 2,806,311
- --------------------------------------------------------------------------
Citicorp Lease-Class A2, Series 1999-1, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-01/25/01; Cost $3,603,676)(e) 3,600,000 3,893,508
- --------------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp., Sr. Notes, 6.00%, 05/15/06 1,800,000 1,888,290
- --------------------------------------------------------------------------
Premium Asset Trust-Series 2001-6, Sec.
Notes, 5.25%, 07/19/04 (Acquired 07/11/01;
Cost $2,097,228)(e) 2,100,000 2,190,770
==========================================================================
10,778,879
==========================================================================
ELECTRIC UTILITIES-0.32%
Beaver Valley II Funding Corp., Sec. Lease
Obligation Bonds, 9.00%, 06/01/17 1,500,000 1,704,855
==========================================================================
Total Asset-Backed Securities (Cost
$30,908,620) 30,848,678
==========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY SECURITIES-1.14%
U.S. TREASURY NOTES-1.14%
6.13%, 08/15/07 $ 4,100,000 $ 4,578,921
- --------------------------------------------------------------------------
6.50%, 02/15/10 750,000 860,783
- --------------------------------------------------------------------------
5.75%, 08/15/10 300,000 329,820
- --------------------------------------------------------------------------
5.00%, 08/15/11 350,000 365,137
==========================================================================
Total U.S. Treasury Securities (Cost
$5,814,181) 6,134,661
==========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-0.80%
STIC Liquid Assets Portfolio(j) 2,139,047 2,139,047
- --------------------------------------------------------------------------
STIC Prime Portfolio(j) 2,139,047 2,139,047
==========================================================================
Total Money Market Funds (Cost
$4,278,094) 4,278,094
==========================================================================
TOTAL INVESTMENTS-97.08% (Cost $545,065,865) 520,787,718
==========================================================================
OTHER ASSETS LESS LIABILITIES-2.92% 15,666,823
==========================================================================
NET ASSETS-100.00% $536,454,541
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
CAD - Canadian Dollar
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
Jr. - Junior
LYONS - Liquid Yield Option Notes
NZD - New Zealand Dollar
Pfd. - Preferred
RAPS - Redeemable and Putable Securities
REIT - Real Estate Investment Trust
ROARS - Redeemable and Remarketable Securities
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) Restricted securities. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at 07/31/02
was $38,017,730, which represented 7.09% of the Fund's net assets.
(f) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(g) Foreign denominated security. Par value is denominated in currency
indicated.
(h) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(i) Non-income producing security.
(j) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-24
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$545,065,865) $520,787,718
- -----------------------------------------------------------
Foreign currencies, at value (cost $346,907) 353,141
- -----------------------------------------------------------
Receivables for:
Investments sold 16,813,623
- -----------------------------------------------------------
Fund shares sold 2,461,226
- -----------------------------------------------------------
Dividends and interest 10,755,503
- -----------------------------------------------------------
Foreign currency contracts outstanding 23,106
- -----------------------------------------------------------
Investment for deferred compensation plan 70,105
- -----------------------------------------------------------
Other assets 46,577
===========================================================
Total assets 551,310,999
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 12,012,292
- -----------------------------------------------------------
Fund shares reacquired 1,616,258
- -----------------------------------------------------------
Dividends 674,827
- -----------------------------------------------------------
Deferred compensation plan 70,105
- -----------------------------------------------------------
Accrued distribution fees 326,938
- -----------------------------------------------------------
Accrued trustees' fees 771
- -----------------------------------------------------------
Accrued transfer agent fees 85,641
- -----------------------------------------------------------
Accrued operating expenses 69,626
===========================================================
Total liabilities 14,856,458
===========================================================
Net assets applicable to shares outstanding $536,454,541
___________________________________________________________
===========================================================
NET ASSETS:
Class A $281,966,398
___________________________________________________________
===========================================================
Class B $216,709,807
___________________________________________________________
===========================================================
Class C $ 37,768,735
___________________________________________________________
===========================================================
Class R $ 9,601
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 45,470,402
___________________________________________________________
===========================================================
Class B 34,900,924
___________________________________________________________
===========================================================
Class C 6,096,836
___________________________________________________________
===========================================================
Class R 1,548
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 6.20
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $6.20 divided by
95.25%) $ 6.51
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 6.21
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 6.19
___________________________________________________________
===========================================================
Class R
Net asset value and offering price per
share $ 6.20
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Interest $ 44,577,359
- -----------------------------------------------------------
Dividends 367,555
- -----------------------------------------------------------
Dividends from affiliated money market funds 149,725
===========================================================
Total investment income 45,094,639
===========================================================
EXPENSES:
Advisory fees 2,544,570
- -----------------------------------------------------------
Administrative services fees 131,802
- -----------------------------------------------------------
Custodian fees 78,789
- -----------------------------------------------------------
Distribution fees -- Class A 797,679
- -----------------------------------------------------------
Distribution fees -- Class B 2,361,879
- -----------------------------------------------------------
Distribution fees -- Class C 431,875
- -----------------------------------------------------------
Distribution fees -- Class R 8
- -----------------------------------------------------------
Transfer agent fees 1,287,975
- -----------------------------------------------------------
Trustees' fees 10,712
- -----------------------------------------------------------
Other 220,152
===========================================================
Total expenses 7,865,441
===========================================================
Less: Fees waived (1,176)
- -----------------------------------------------------------
Expenses paid indirectly (11,705)
===========================================================
Net expenses 7,852,560
===========================================================
Net investment income 37,242,079
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FOREIGN CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (54,395,886)
- -----------------------------------------------------------
Foreign currencies 1,337
- -----------------------------------------------------------
Foreign currency contracts (1,150,421)
===========================================================
(55,544,970)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (7,324,078)
- -----------------------------------------------------------
Foreign currencies 28,219
- -----------------------------------------------------------
Foreign currency contracts 195,089
===========================================================
(7,100,770)
===========================================================
Net gain (loss) from investment securities,
foreign currencies and foreign currency
contracts (62,645,740)
===========================================================
Net increase (decrease) in net assets
resulting from operations $(25,403,661)
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-25
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------- ------------
OPERATIONS:
Net investment income $ 37,242,079 $ 43,500,196
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and foreign currency contracts (55,544,970) (42,785,523)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and foreign
currency contracts (7,100,770) 23,348,156
===========================================================================================
Net increase (decrease) in net assets resulting from
operations (25,403,661) 24,062,829
===========================================================================================
Distributions to shareholders from net investment income: .
Class A (20,406,662) (25,411,789)
- -------------------------------------------------------------------------------------------
Class B (13,291,002) (14,235,384)
- -------------------------------------------------------------------------------------------
Class C (2,453,982) (2,147,191)
- -------------------------------------------------------------------------------------------
Class R (74) --
- -------------------------------------------------------------------------------------------
Return of Capital:
Class A (994,212) (937,652)
- -------------------------------------------------------------------------------------------
Class B (736,149) (595,428)
- -------------------------------------------------------------------------------------------
Class C (134,853) (90,938)
- -------------------------------------------------------------------------------------------
Class R (32) --
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A (31,273,225) 11,935,605
- -------------------------------------------------------------------------------------------
Class B 4,755,275 30,091,490
- -------------------------------------------------------------------------------------------
Class C (1,919,177) 18,401,373
- -------------------------------------------------------------------------------------------
Class R 10,118 --
===========================================================================================
Net increase (decrease) in net assets (91,847,636) 41,072,915
===========================================================================================
NET ASSETS:
Beginning of year 628,302,177 587,229,262
===========================================================================================
End of year $ 536,454,541 $628,302,177
___________________________________________________________________________________________
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 699,747,585 $730,247,353
- -------------------------------------------------------------------------------------------
Undistributed net investment income (1,534,587) (296,959)
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and foreign currency
contracts (137,540,332) (83,285,278)
- -------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and foreign currency
contracts (24,218,125) (18,362,939)
===========================================================================================
$ 536,454,541 $628,302,177
___________________________________________________________________________________________
===========================================================================================
</Table>
See Notes to Financial Statements.
FS-26
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Investment Securities
Funds (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and Class R shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Class R shares are sold at net asset value.
Matters affecting each portfolio or class will be 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 the Fund. The Fund's investment objective
is to achieve a high level of current income consistent with reasonable concern
for safety of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. 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. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
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 the Fund's shares are determined as of the close of the respective
markets. Occasionally, events affecting the values of such foreign
securities may occur between the times at which the particular foreign
market closes and the close of the customary trading session of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If a development/event is so significant that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
On July 31, 2002, undistributed net investment income was increased by
$782,843, undistributed net realized gains increased by $1,289,916 and paid
in capital decreased by $2,072,759 as a result of book/tax differences due
to foreign currency transactions, defaulted bonds adjustments, bond premium
amortization, return of capital and other reclassifications. Net assets of
the fund were unaffected by the reclassifications.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to
FS-27
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's capital loss carryforward of $93,080,969 as of July 31, 2002
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 1,419,489 July 31, 2006
----------------------------
13,740,010 July 31, 2007
----------------------------
26,912,929 July 31, 2008
----------------------------
2,702,340 July 31, 2009
----------------------------
48,306,201 July 31, 2010
============================
$93,080,969
____________________________
============================
</Table>
As of July 31, 2002 the Fund has a post-October capital loss deferral of
$42,757,374, which will be recognized in the following tax year.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
Outstanding foreign currency contracts at year were as follows:
<Table>
<Caption>
CONTRACT TO
SETTLEMENT ---------------------- UNREALIZED
DATE CURRENCY DELIVER RECEIVE VALUE APPRECIATION
---------- -------- --------- ---------- ---------- ------------
10/09/02 EUR 3,500,000 $3,433,500 $3,410,394 $23,106
_________________________________________________________________________
=========================================================================
</Table>
G. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--CHANGE IN ACCOUNTING PRINCIPLE
As required, effective August 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premium on debt securities and began recording paydown gains and losses on
mortgage and asset-backed securities as adjustments to interest income. Prior to
August 1, 2001, the Fund did not amortize premiums on debt securities and
recorded paydown gains and losses on mortgage and asset-backed securities as
realized gains and losses. The cumulative effect of this accounting change had
no impact on total net assets of the Fund, but resulted in a $1,245,584
reduction in the cost of securities and a corresponding $1,245,584 increase in
net unrealized gains and losses, based on securities held by the Fund on August
1, 2001.
The effect of this change in the current period was to decrease net investment
income by $1,122,887, to increase net unrealized gains and losses by $709,675
and to increase net realized gains and losses by $413,212. As a result the net
investment income per share was decreased by $0.01, the net realized and
unrealized gains and losses per share increased by $0.01, and the ratio of net
investment income to average net assets decreased by 0.19%.
NOTE 3--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market fund of which the Fund has invested. For the
year ended July 31, 2002, AIM waived fees of $1,176.
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. For the year ended July 31, 2002, AIM was paid
$131,802 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 and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $697,042 for such services.
The Trust 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, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.25% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and C shares and 0.50%
of the average daily net assets of Class R 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, Class C or Class R
FS-28
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
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. For the year ended July 31, 2002,
the Class A, Class B, Class C and Class R shares paid AIM Distributors $797,679,
$2,361,879, $431,875 and $8, respectively, as compensation under the Plans.
AIM Distributors retained commissions of $130,523 from sales of the Class A
shares of the Fund during the year ended July 31, 2002. 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 July 31, 2002, AIM
Distributors retained $41,125, $7,536, $24,489 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2002, the Fund paid legal fees of $5,414 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 4--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $6,995 and reductions in custodian
fees of $4,710 under expense offset arrangements which resulted in a reduction
of the Fund's total expenses of $11,705.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 6--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party 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 the funds
based on their respective average net assets for the period.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
----------- -----------
Distributions paid from ordinary
income $36,151,720 $41,794,364
- -------------------------------------------------------------
Return of capital 1,865,246 1,624,018
=============================================================
$38,016,966 $43,418,382
_____________________________________________________________
=============================================================
</Table>
As of July 31, 2002, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Capital loss carryforward $ (93,080,969)
- -----------------------------------------------------------
Unrealized appreciation (depreciation) (70,212,075)
===========================================================
$(163,293,044)
___________________________________________________________
===========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales, the deferral of capital losses incurred after October 31, the realization
for tax purposes of unrealized gains on certain forward foreign currency
contracts, the treatment of bond premium amortization, the treatment of
defaulted bonds and other deferrals.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2002 was
$410,360,027 and $443,357,783, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 13,049,250
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (40,479,224)
===========================================================
Net unrealized appreciation (depreciation)
of investment securities $(27,429,974)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $548,217,692.
</Table>
FS-29
NOTE 9--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
Sold:
Class A 19,535,050 $ 129,985,397 19,948,772 $ 139,192,236
- --------------------------------------------------------------------------------------------------------------------------
Class B 10,824,126 72,286,011 11,714,579 81,887,558
- --------------------------------------------------------------------------------------------------------------------------
Class C 2,329,978 15,549,708 4,180,883 29,145,850
- --------------------------------------------------------------------------------------------------------------------------
Class R* 1,531 10,012 -- --
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 2,547,835 16,937,345 3,099,848 21,590,593
- --------------------------------------------------------------------------------------------------------------------------
Class B 1,516,843 10,088,147 1,543,513 10,761,821
- --------------------------------------------------------------------------------------------------------------------------
Class C 294,792 1,957,101 250,632 1,741,447
- --------------------------------------------------------------------------------------------------------------------------
Class R* 17 106 -- --
==========================================================================================================================
Reacquired:
Class A (26,805,775) (178,195,967) (21,394,116) (148,847,224)
- --------------------------------------------------------------------------------------------------------------------------
Class B (11,702,242) (77,618,883) (8,963,733) (62,557,889)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,930,754) (19,425,986) (1,792,733) (12,485,924)
==========================================================================================================================
(4,388,599) $ (28,427,009) 8,587,645 $ 60,428,468
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
------------------------- JULY 31, --------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- ------------ -------- -------- --------
Net asset value, beginning of period $ 6.91 $ 7.14 $ 7.59 $ 8.38 $ 8.57 $ 8.24
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44(a)(b) 0.53 0.34 0.57 0.57 0.55
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.70) (0.23) (0.47) (0.81) (0.16) 0.39
=================================================================================================================================
Total from investment operations (0.26) 0.30 (0.13) (0.24) 0.41 0.94
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.43) (0.51) (0.25) (0.55) (0.55) (0.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.05) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital (0.02) (0.02) (0.07) -- -- --
=================================================================================================================================
Total distributions (0.45) (0.53) (0.32) (0.55) (0.60) (0.61)
=================================================================================================================================
Net asset value, end of period $ 6.20 $ 6.91 $ 7.14 $ 7.59 $ 8.38 $ 8.57
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (4.05)% 4.42% (1.70)% (2.92)% 4.94% 11.92%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $281,966 $346,967 $346,482 $393,414 $399,701 $340,608
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.96%(d) 0.95% 0.97%(e) 0.91% 0.91% 0.94%
=================================================================================================================================
Ratio of net investment income to average net
assets 6.57%(a)(d) 7.57% 8.03%(e) 7.11% 6.69% 6.55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 70% 83% 43% 78% 41% 54%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.45 and the ratio of net investment income to average
net assets would have been 6.76%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not deduct sales charges and is not annualized for periods less
than one year.
(d) Ratios are based on average daily net assets of $319,071,550.
(e) Annualized.
FS-30
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
------------------------- JULY 31, --------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- ------------ -------- -------- --------
Net asset value, beginning of period $ 6.92 $ 7.14 $ 7.58 $ 8.37 $ 8.55 $ 8.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.39(a)(b) 0.48 0.31 0.50 0.50 0.48
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.70) (0.23) (0.47) (0.80) (0.15) 0.38
=================================================================================================================================
Total from investment operations (0.31) 0.25 (0.16) (0.30) 0.35 0.86
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.38) (0.45) (0.21) (0.49) (0.48) (0.45)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.05) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital (0.02) (0.02) (0.07) -- -- --
=================================================================================================================================
Total distributions (0.40) (0.47) (0.28) (0.49) (0.53) (0.54)
=================================================================================================================================
Net asset value, end of period $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37 $ 8.55
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (4.76)% 3.67% (2.09)% (3.72)% 4.20% 10.89%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $216,710 $237,118 $213,926 $244,713 $219,033 $125,871
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.71%(d) 1.71% 1.73%(e) 1.66% 1.66% 1.69%
=================================================================================================================================
Ratio of net investment income to average net
assets 5.82%(a)(d) 6.81% 7.28%(e) 6.36% 5.94% 5.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 70% 83% 43% 78% 41% 54%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(b) Calculated using average shares outstanding.
(c) Does not deduct contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $236,187,889.
(e) Annualized.
FS-31
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------
AUGUST 4, 1997
SEVEN MONTHS YEAR ENDED (DATE SALES
YEAR ENDED JULY 31, ENDED DECEMBER 31, COMMENCED) TO
----------------------- JULY 31, ------------------ DECEMBER 31,
2002 2001 2000 1999 1998 1997
------- ------- ------------ ------- ------- --------------
Net asset value, beginning of period $ 6.91 $ 7.13 $ 7.57 $ 8.36 $ 8.54 $ 8.38
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.39(a)(b) 0.48 0.31 0.50 0.50 0.19
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.71) (0.23) (0.47) (0.80) (0.15) 0.22
================================================================================================================================
Total from investment operations (0.32) 0.25 (0.16) (0.30) 0.35 0.41
================================================================================================================================
Less distributions:
Dividends from net investment income (0.38) (0.45) (0.21) (0.49) (0.48) (0.16)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.05) (0.09)
- --------------------------------------------------------------------------------------------------------------------------------
Return of capital (0.02) (0.02) (0.07) -- -- --
================================================================================================================================
Total distributions (0.40) (0.47) (0.28) (0.49) (0.53) (0.25)
================================================================================================================================
Net asset value, end of period $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36 $ 8.54
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (4.92)% 3.68% (2.09)% (3.71)% 4.21% 4.96%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $37,769 $44,216 $26,821 $28,202 $19,332 $2,552
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 1.71%(d) 1.71% 1.73%(e) 1.66% 1.66% 1.69%(e)
================================================================================================================================
Ratio of net investment income to average net
assets 5.82%(a)(d) 6.81% 7.28%(e) 6.36% 5.94% 5.80%(e)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 70% 83% 43% 78% 41% 54%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(b) Calculated using average shares outstanding.
(c) Does not deduct contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $43,187,491.
(e) Annualized.
FS-32
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
JULY 31,
2002
-------------
Net asset value, beginning of period $ 6.53
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06(a)(b)
- -----------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.32)
=============================================================================
Total from investment operations (0.26)
=============================================================================
Less distributions:
Dividends from net investment income (0.05)
- -----------------------------------------------------------------------------
Return of capital (0.02)
=============================================================================
Total distributions (0.07)
=============================================================================
Net asset value, end of period $ 6.20
_____________________________________________________________________________
=============================================================================
Total return(c) (4.01)%
_____________________________________________________________________________
=============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
_____________________________________________________________________________
=============================================================================
Ratio of expenses to average net assets 1.21%(d)
=============================================================================
Ratio of net investment income to average net assets 6.32%(a)(d)
_____________________________________________________________________________
=============================================================================
Portfolio turnover rate 70%
_____________________________________________________________________________
=============================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.07 and the ratio of net investment income to average
net assets would have been 6.51%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(b) Calculated using average shares outstanding.
(c) Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $9,857.
FS-33
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Intermediate Government Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Intermediate Government Fund (a portfolio of AIM Investment Securities Funds),
including the schedule of investments, as of July 31, 2002, and the related
statement of operations for the year then ended, and the statements of changes
in net assets and financial highlights for each of the two years in the 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. The financial highlights for each of the periods presented through July
31, 2000 were audited by other auditors whose report dated September 1, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, 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
Intermediate Government Fund as of July 31, 2002, the results of its operations
for the year then ended, and the changes in its net assets and financial
highlights for each of the two years in the period then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
September 10, 2002
FS-34
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT AGENCY SECURITIES-84.20%
FEDERAL FARM CREDIT BANK-3.77%
Bonds,
3.88%, 12/15/04 $ 7,410,000 $ 7,510,331
- -----------------------------------------------------------------------------
4.38%, 04/15/05 7,670,000 7,956,475
- -----------------------------------------------------------------------------
6.00%, 06/11/08 to 03/07/11 19,000,000 20,535,460
- -----------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28 10,000,000 9,713,300
=============================================================================
45,715,566
=============================================================================
FEDERAL HOME LOAN BANK-12.04%
Bonds,
7.36%, 07/01/04 2,800,000 3,053,932
- -----------------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/28/05 40,800,000 40,867,320
- -----------------------------------------------------------------------------
Unsec. Bonds,
4.63%, 04/15/05 23,330,000 24,351,621
- -----------------------------------------------------------------------------
6.50%, 11/15/05 2,000,000 2,202,380
- -----------------------------------------------------------------------------
7.25%, 02/15/07 5,500,000 6,266,645
- -----------------------------------------------------------------------------
5.48%, 01/08/09 1,000,000 1,055,510
- -----------------------------------------------------------------------------
5.75%, 05/15/12 65,210,000 68,370,076
=============================================================================
146,167,484
=============================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-28.58%
Pass Through Certificates,
9.00%, 12/01/05 to 04/01/25 1,388,632 1,505,426
- -----------------------------------------------------------------------------
8.00%, 07/01/06 to 10/01/23 5,220,288 5,628,155
- -----------------------------------------------------------------------------
8.50%, 07/01/07 to 10/01/29 9,925,171 10,674,325
- -----------------------------------------------------------------------------
7.00%, 11/01/10 to 06/01/32 78,745,078 82,076,854
- -----------------------------------------------------------------------------
6.50%, 02/01/11 to 10/01/31 34,152,741 35,432,254
- -----------------------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 3,198,026 3,683,810
- -----------------------------------------------------------------------------
12.00%, 02/01/13 6,974 8,086
- -----------------------------------------------------------------------------
10.50%, 08/01/19 to 01/01/21 549,580 629,066
- -----------------------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 2,840,965 3,157,989
- -----------------------------------------------------------------------------
7.50%, 09/01/30 2,868,244 3,025,853
- -----------------------------------------------------------------------------
Pass Through Certificates TBA,(a)
6.00%, 08/01/32 24,000,000 24,269,250
- -----------------------------------------------------------------------------
6.50%, 08/01/32 50.000,000 51,498,438
- -----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-(CONTINUED)
Unsec. Medium Term Notes,
3.88%, 12/20/04 $ 21,090,000 $ 21,235,521
- -----------------------------------------------------------------------------
4.38%, 08/19/05 9,750,000 9,763,163
- -----------------------------------------------------------------------------
4.50%, 02/27/06 30,000,000 30,386,400
- -----------------------------------------------------------------------------
5.50%, 04/11/06 4,900,000 4,931,556
- -----------------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 30,000,000 31,223,700
- -----------------------------------------------------------------------------
5.13%, 10/15/08 to 07/15/12 27,000,000 27,662,060
=============================================================================
346,791,906
=============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-31.72%
Pass Through Certificates,
8.50%, 01/01/07 to 04/01/30 28,664,593 31,180,403
- -----------------------------------------------------------------------------
7.50%, 06/01/10 to 07/01/31 26,139,030 27,635,188
- -----------------------------------------------------------------------------
7.00%, 05/01/11 to 05/01/32 17,280,390 18,015,494
- -----------------------------------------------------------------------------
8.00%, 02/01/12 to 07/01/31 6,944,788 7,428,424
- -----------------------------------------------------------------------------
6.50%, 05/01/13 to 11/01/31 19,298,716 20,116,419
- -----------------------------------------------------------------------------
6.00%, 10/01/13 to 04/01/24 15,903,424 16,369,742
- -----------------------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 591,715 657,629
- -----------------------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 3,421,065 3,891,052
- -----------------------------------------------------------------------------
10.30%, 04/20/25 1,061,506 1,198,382
- -----------------------------------------------------------------------------
Pass Through Certificates, TBA,(a)
6.00%, 08/01/32 44,000,000 44,433,125
- -----------------------------------------------------------------------------
6.50%, 08/01/32 88,500,000 91,119,047
- -----------------------------------------------------------------------------
8.50%, 09/01/32 3,500,000 3,831,406
- -----------------------------------------------------------------------------
Series B, Unsec. Medium Term Notes,
6.88%, 09/10/12 to 09/24/12 24,765,000 26,871,941
- -----------------------------------------------------------------------------
6.47%, 09/25/12 10,550,000 11,670,726
- -----------------------------------------------------------------------------
Unsec. Notes,
5.35%, 09/19/06 8,000,000 8,034,320
- -----------------------------------------------------------------------------
5.25%, 04/15/07 16,000,000 16,904,320
- -----------------------------------------------------------------------------
4.25%, 07/15/07 23,000,000 23,275,540
- -----------------------------------------------------------------------------
6.13%, 03/15/12 30,000,000 32,281,500
=============================================================================
384,914,658
=============================================================================
</Table>
FS-35
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-2.81%
Pass Through Certificates,
6.00%, 10/15/08 to 11/15/08 $ 245,318 $ 256,236
- -----------------------------------------------------------------------------
6.50%, 10/15/08 196,345 206,927
- -----------------------------------------------------------------------------
7.00%, 10/15/08 to 07/15/28 8,963,946 9,385,855
- -----------------------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 515,649 567,646
- -----------------------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 1,901,714 2,131,444
- -----------------------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 4,205,083 4,793,064
- -----------------------------------------------------------------------------
11.00%, 12/15/09 to 12/15/15 37,324 43,303
- -----------------------------------------------------------------------------
12.50%, 11/15/10 45,366 53,596
- -----------------------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 159,406 192,766
- -----------------------------------------------------------------------------
13.50%, 04/15/11 to 04/15/15 145,524 175,780
- -----------------------------------------------------------------------------
12.00%, 02/15/13 to 07/15/15 203,121 244,076
- -----------------------------------------------------------------------------
10.50%, 02/15/16 22,713 26,588
- -----------------------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 11,787,482 12,647,104
- -----------------------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 3,155,888 3,345,012
=============================================================================
34,069,397
=============================================================================
PRIVATE EXPORT FUNDING COMPANY-1.39%
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06 7,000,000 8,003,100
- -----------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
7.95%, 11/01/06 8,000,000 8,864,480
=============================================================================
16,867,580
=============================================================================
TENNESSEE VALLEY AUTHORITY-3.89%
Bonds, 4.88%, 12/15/16 10,000,000 10,338,400
- -----------------------------------------------------------------------------
Series A, Bonds, 5.63%, 01/18/11 28,517,000 29,881,253
- -----------------------------------------------------------------------------
Series G, Bonds, 5.38%, 11/13/08 6,600,000 7,010,058
=============================================================================
47,229,711
=============================================================================
Total U.S. Government Agency Securities
(Cost $1,004,015,856) 1,021,756,302
=============================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY SECURITIES-16.75%
U.S. TREASURY NOTES-12.64%
6.75%, 05/15/05 $ 29,500,000 $ 32,694,850
- -----------------------------------------------------------------------------
4.63%, 05/15/06 29,800,000 31,384,764
- -----------------------------------------------------------------------------
4.38%, 05/15/07(b) 66,000,000 68,670,360
- -----------------------------------------------------------------------------
4.88%, 02/15/12(b) 20,000,000 20,637,200
=============================================================================
153,387,174
=============================================================================
U.S. TREASURY BONDS-3.28%
7.50%, 11/15/16 to 11/15/24 14,950,000 18,739,609
- -----------------------------------------------------------------------------
6.25%, 05/15/30 18,890,000 21,037,226
=============================================================================
39,776,835
=============================================================================
U.S. TREASURY STRIPS-0.83%(c)
5.38%, 05/15/06 8,000,000 7,092,800
- -----------------------------------------------------------------------------
6.79%, 11/15/18 7,750,000 3,053,423
=============================================================================
10,146,223
=============================================================================
Total U.S. Treasury Securities (Cost
$197,840,943) 203,310,232
=============================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-23.35%
STIT Government & Agency Portfolio (Cost
$283,406,073)(d) 283,406,073 283,406,073
=============================================================================
TOTAL INVESTMENTS-124.30% (Cost
$1,485,262,872) 1,508,472,607
=============================================================================
OTHER ASSETS LESS LIABILITIES-(24.30%) (294,915,053)
=============================================================================
NET ASSETS-100.00% $1,213,557,554
_____________________________________________________________________________
=============================================================================
</Table>
Investment Abbreviations:
<Table>
<Caption>
Gtd. - Guaranteed
Sec. - Secured
STRIPS - Separately Traded Registered Interest and Principal Security
TBA - To Be Announced
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security purchased on forward commitment basis. These securities are subject
to dollar roll transactions. See Note 1 Section B.
(b) Principal amount has been deposited in escrow with broker as collateral for
reverse repurchase agreements outstanding at 07/31/02.
(c) STRIPS are 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.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-36
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$1,485,262,872) $1,508,472,607
- -----------------------------------------------------------
Receivables for:
Fund shares sold 12,780,810
- -----------------------------------------------------------
Dividends and interest 11,713,196
- -----------------------------------------------------------
Principal paydowns 332,135
- -----------------------------------------------------------
Investment for deferred compensation plan 56,200
- -----------------------------------------------------------
Other assets 139,110
===========================================================
Total assets 1,533,494,058
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 214,344,543
- -----------------------------------------------------------
Fund shares reacquired 13,886,549
- -----------------------------------------------------------
Dividends 702,769
- -----------------------------------------------------------
Reverse repurchase agreements 89,705,000
- -----------------------------------------------------------
Deferred compensation plan 56,200
- -----------------------------------------------------------
Accrued interest expense 3,920
- -----------------------------------------------------------
Accrued distribution fees 777,774
- -----------------------------------------------------------
Accrued trustees' fees 1,283
- -----------------------------------------------------------
Accrued transfer agent fees 114,106
- -----------------------------------------------------------
Accrued operating expenses 344,360
===========================================================
Total liabilities 319,936,504
===========================================================
Net assets applicable to shares
outstanding $1,213,557,554
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 473,103,542
___________________________________________________________
===========================================================
Class B $ 613,306,204
___________________________________________________________
===========================================================
Class C $ 127,114,212
___________________________________________________________
===========================================================
Class R $ 33,596
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 50,991,897
___________________________________________________________
===========================================================
Class B 65,901,089
___________________________________________________________
===========================================================
Class C 13,706,567
___________________________________________________________
===========================================================
Class R 3,625
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 9.28
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $9.28 divided by
95.25%) $ 9.74
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 9.31
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 9.27
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 9.27
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Interest $41,389,986
- -----------------------------------------------------------
Dividends from affiliated money market funds 3,934,282
===========================================================
Total investment income 45,324,268
===========================================================
EXPENSES:
Advisory fees 3,328,024
- -----------------------------------------------------------
Administrative services fees 158,838
- -----------------------------------------------------------
Custodian fees 104,840
- -----------------------------------------------------------
Distribution fees -- Class A 913,667
- -----------------------------------------------------------
Distribution fees -- Class B 3,744,307
- -----------------------------------------------------------
Distribution fees -- Class C 823,922
- -----------------------------------------------------------
Distribution fees -- Class R 14
- -----------------------------------------------------------
Interest 350,670
- -----------------------------------------------------------
Transfer agent fees 1,413,898
- -----------------------------------------------------------
Trustees' fees 12,034
- -----------------------------------------------------------
Other 305,503
===========================================================
Total expenses 11,155,717
===========================================================
Less: Fees waived (28,397)
- -----------------------------------------------------------
Expenses paid indirectly (10,009)
===========================================================
Net expenses 11,117,311
===========================================================
Net investment income 34,206,957
===========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 7,060,161
===========================================================
Change in net unrealized appreciation of
investment securities 13,327,043
===========================================================
Net gain from investment securities 20,387,204
===========================================================
Net increase in net assets resulting from
operations $54,594,161
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-37
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
-------------- ------------
OPERATIONS:
Net investment income $ 34,206,957 $ 26,811,062
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities 7,060,161 3,212,879
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 13,327,043 14,303,931
============================================================================================
Net increase in net assets resulting from operations 54,594,161 44,327,872
============================================================================================
Distributions to shareholders from net investment income:
Class A (18,042,169) (14,773,132)
- --------------------------------------------------------------------------------------------
Class B (15,743,394) (11,061,094)
- --------------------------------------------------------------------------------------------
Class C (3,470,538) (2,309,804)
- --------------------------------------------------------------------------------------------
Class R (135) --
- --------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (128,142)
- --------------------------------------------------------------------------------------------
Class B -- (110,507)
- --------------------------------------------------------------------------------------------
Class C -- (23,140)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 162,667,870 72,844,994
- --------------------------------------------------------------------------------------------
Class B 336,030,816 85,911,151
- --------------------------------------------------------------------------------------------
Class C 65,503,763 24,431,473
- --------------------------------------------------------------------------------------------
Class R 33,308 --
============================================================================================
Net increase in net assets 581,573,682 199,109,671
============================================================================================
NET ASSETS:
Beginning of year 631,983,872 432,874,201
============================================================================================
End of year $1,213,557,554 $631,983,872
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,228,796,118 $664,652,890
- --------------------------------------------------------------------------------------------
Undistributed net investment income (133,395) (63,726)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (38,314,904) (41,850,663)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 23,209,735 9,245,371
============================================================================================
$1,213,557,554 $631,983,872
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-38
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of eight
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers four different classes of shares: Class A
shares, Class B shares, Class C shares and Class R shares. Class A shares are
sold with a front-end sales charge. Class B shares and Class C shares are sold
with a contingent deferred sales charge. Class R shares are sold at net asset
value. Matters affecting each portfolio or class will be 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 the Fund. The Fund's investment
objective is to achieve a high level of current income consistent with
reasonable concern for safety of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Debt obligations that are issued or guaranteed by
the U.S. Treasury are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate, maturity and
seasoning differential. Securities for which market prices are not provided
by any of the above methods are valued based upon quotes furnished by
independent sources and are valued at the mean between the last bid and
asked prices. 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. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. The Fund may engage in dollar roll
transactions with respect to mortgage backed securities issued by GNMA,
FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage
backed security held in the Fund to a financial institution such as a bank
or broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for the
Fund exceeding the yield on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities.
Realized gains or losses on sales are computed on the basis of specific
identification of the securities sold. Interest income is recorded on the
accrual basis from settlement date. Dividend income is recorded on the
ex-dividend date. Bond premiums and discounts excluding mortgage-backed
securities, are amortized and/or accreted for financial reporting purposes.
On July 31, 2002, undistributed net investment income was increased by
$3,616,931, undistributed net realized gains decreased by $3,524,402 and
shares of beneficial interest decreased by $92,529 as a result of book/tax
differences due to paydown reclassifications, distributions, bond premium
amortization, and other reclassifications. Net assets of the Fund were
unaffected by the reclassification discussed above.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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.
FS-39
The Fund has a capital loss carryforward of $38,314,903 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 219,350 July 31, 2003
----------------------------
3,466,244 July 31, 2004
----------------------------
4,686 July 31, 2005
----------------------------
25,224,263 July 31, 2007
----------------------------
9,400,360 July 31, 2008
============================
$38,314,903
____________________________
============================
</Table>
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--CHANGE IN ACCOUNTING PRINCIPLE
As required, effective August 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premiums on debt securities and recording paydowns gains and losses or an
asset-backed securities as adjustments to net investment income. Prior to August
1, 2001, the Fund did not amortize premiums on debt securities. The cumulative
effect of this accounting change had no impact on total net assets of the Fund,
but resulted in a $637,321 reduction in the cost of securities and a
corresponding $637,321 increase in net unrealized gains and losses, based on
securities held by the Fund on August 1, 2001.
The effect of this change in the current period was to decrease net investment
income by $1,129,244, to increase net unrealized gains and losses by $760,102
and to increase net realized gains and losses by $369,142. As a result the net
investment income per share decreased $0.04, the net realized and unrealized
gains and losses per share increased by $0.04 and the ratio of net investment
income to average net assets decreased by 0.51%.
NOTE 3--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market fund of which the Fund has invested. For the
year ended July 31, 2002, AIM waived fees of $28,397.
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. For the year ended July 31, 2002, AIM was paid
$158,838 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 and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $666,962 for such services.
The Trust 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, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.25% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and C shares and 0.50%
of the average daily net assets of Class R 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, Class C or Class R 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 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. For the year ended July 31, 2002, the Class A, Class B, Class C and
Class R shares paid AIM Distributors $913,667, $3,744,307, $823,922 and $14,
respectively, as compensation under the Plans.
AIM Distributors retained commissions of $300,212 from sales of the Class A
shares of the Fund during the year ended July 31, 2002. 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 July 31, 2002, AIM
Distributors retained $214,155, $14,615, $54,801 and $0 in contingent deferred
sales charges imposed on redemptions of Class A, Class B, Class C and Class R
shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2002, the Fund paid legal fees of $5,649 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 4--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $9,365 and reductions in custodian
fees of $644 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $10,009.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
FS-40
NOTE 6--BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed
upon price and date. The Fund will use the proceeds of a reverse repurchase
agreement (which are considered to be borrowings under the 1940 Act) to purchase
other permitted securities either maturing, or under an agreement to resell, at
a date simultaneous with or prior to the expiration of the reverse repurchase
agreement. The agreements are collateralized by the underlying securities and
are carried at the amount at which the securities will subsequently be
repurchased as specified in the agreements.
The maximum amount of repurchase agreements outstanding during the year ended
July 31, 2002 was $90,425,000, and averaged $24,797,711 per day with a weighted
average interest rate of 1.41%.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party 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 the funds
based on their respective average net assets for the period.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
----------- -----------
Distributions paid from
ordinary income $37,256,236 $28,405,819
_____________________________________________________________
=============================================================
</Table>
As of July 31, 2002, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Capital loss
carryforward $(38,314,903)
- --------------------------------------
Unrealized appreciation 23,076,339
======================================
$(15,238,564)
______________________________________
======================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of bond premium amortization and
other deferrals.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2002 was
$1,432,206,187 and $966,770,487, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $24,307,748
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,162,277)
===========================================================
Net unrealized appreciation of investment
securities $23,145,471
___________________________________________________________
===========================================================
Cost of investment for tax purposes is $1,485,327,136.
</Table>
FS-41
NOTE 9--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- -------------
Sold:
Class A 141,358,670 $ 1,293,194,070 70,420,358 $ 634,206,122
- -----------------------------------------------------------------------------------------------------------------------------
Class B 54,984,125 507,221,308 21,411,964 193,273,518
- -----------------------------------------------------------------------------------------------------------------------------
Class C 17,930,155 164,422,350 7,928,891 71,408,489
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 4,773 43,973 -- --
=============================================================================================================================
Issued as reinvestment of dividends:
Class A 1,556,614 14,273,598 1,352,466 12,138,035
- -----------------------------------------------------------------------------------------------------------------------------
Class B 1,318,829 12,129,999 904,111 8,138,588
- -----------------------------------------------------------------------------------------------------------------------------
Class C 303,088 2,777,727 211,013 1,893,881
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 15 135 -- --
=============================================================================================================================
Reacquired:
Class A (125,208,629) (1,144,799,798) (63,746,143) (573,499,163)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (20,005,120) (183,320,491) (12,844,788) (115,500,955)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (11,125,287) (101,696,314) (5,443,297) (48,870,897)
- -----------------------------------------------------------------------------------------------------------------------------
Class R* (1,163) (10,800) -- --
=============================================================================================================================
61,116,070 $ 564,235,757 20,194,575 $ 183,187,618
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-42
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
------------------------ JULY 31, --------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- -------------- -------- -------- --------
Net asset value, beginning of period $ 9.08 $ 8.77 $ 8.80 $ 9.58 $ 9.46 $ 9.28
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.43(a) 0.50(b) 0.34 0.60 0.62 0.63
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.23 0.35 (0.03) (0.78) 0.13 0.18
=================================================================================================================================
Total from investment operations 0.66 0.85 0.31 (0.18) 0.75 0.81
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.46) (0.54) (0.34) (0.60) (0.63) (0.61)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- -- (0.02)
=================================================================================================================================
Total distributions (0.46) (0.54) (0.34) (0.60) (0.63) (0.63)
=================================================================================================================================
Net asset value, end of period $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58 $ 9.46
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 7.39% 9.91% 3.55% (1.87)% 8.17% 9.07%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $473,104 $302,391 $221,636 $238,957 $245,613 $167,427
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 0.94%(d) 1.32% 1.25%(e) 1.08% 1.20% 1.11%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 0.90%(d) 0.93% 0.98%(e) 0.89% 0.96% 1.00%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.58%(a)(d) 5.61% 6.61%(e) 6.60% 6.43% 6.77%
=================================================================================================================================
Ratio of interest expense to average net assets 0.04%(d) 0.39% 0.27%(e) 0.19% 0.24% 0.11%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 146% 194% 65% 141% 147% 99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydown gains and losses adjustment to investment income, the
investment income per share would have been $0.47 and the ratio of net
investment income to average net assets would have been 5.09%. In
accordance with the AICPA Audit and Accounting Guide for investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not include sales charges and is not annualized for periods less
than one year.
(d) Ratios are based on average daily net assets of $365,466,933.
(e) Annualized.
FS-43
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
------------------------ JULY 31, -------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- ------------ -------- -------- -------
Net asset value, beginning of period $ 9.11 $ 8.79 $ 8.82 $ 9.59 $ 9.46 $ 9.28
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37(a) 0.44(b) 0.30 0.53 0.55 0.56
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.22 0.35 (0.04) (0.77) 0.13 0.17
===============================================================================================================================
Total from investment operations 0.59 0.79 0.26 (0.24) 0.68 0.73
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.39) (0.47) (0.29) (0.53) (0.55) (0.53)
- -------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- -- (0.02)
===============================================================================================================================
Total distributions (0.39) (0.47) (0.29) (0.53) (0.55) (0.55)
===============================================================================================================================
Net asset value, end of period $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59 $ 9.46
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 6.58% 9.17% 3.05% (2.56)% 7.40% 8.16%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $613,306 $269,677 $177,032 $228,832 $237,919 $89,265
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.69%(d) 2.08% 2.01%(e) 1.85% 1.96% 1.87%
===============================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.65%(d) 1.69% 1.74%(e) 1.66% 1.72% 1.76%
===============================================================================================================================
Ratio of net investment income to average net
assets 3.83%(a)(d) 4.85% 5.85%(e) 5.83% 5.68% 6.01%
===============================================================================================================================
Ratio of interest expense to average net assets 0.04%(d) 0.39% 0.27%(e) 0.19% 0.24% 0.11%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 146% 194% 65% 141% 147% 99%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to net investment income,
the net investment income per share would have been $0.40 and the ratio
of net investment income to average net assets would have been 4.35%. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect the change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $374,430,725.
(e) Annualized.
FS-44
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------
AUGUST 4, 1997
SEVEN MONTHS YEAR ENDED (DATE SALES
YEAR ENDED JULY 31, ENDED DECEMBER 31, COMMENCED) TO
----------------------- JULY 31, ------------------ DECEMBER 31,
2002 2001 2000 1999 1998 1997
-------- ------- ------------ ------- ------- --------------
Net asset value, beginning of period $ 9.08 $ 8.77 $ 8.79 $ 9.56 $ 9.44 $ 9.33
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37(a) 0.44(b) 0.30 0.53 0.56 0.24
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.21 0.34 (0.03) (0.77) 0.11 0.10
===============================================================================================================================
Total from investment operations 0.58 0.78 0.27 (0.24) 0.67 0.34
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.39) (0.47) (0.29) (0.53) (0.55) (0.22)
- -------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- -- -- (0.01)
===============================================================================================================================
Total distributions (0.39) (0.47) (0.29) (0.53) (0.55) (0.23)
===============================================================================================================================
Net asset value, end of period $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56 $ 9.44
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 6.48% 9.08% 3.18% (2.57)% 7.31% 3.64%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $127,114 $59,915 $34,206 $39,011 $38,026 $1,851
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.69%(d) 2.08% 2.01%(e) 1.85% 1.96% 1.87%(e)
===============================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.65%(d) 1.69% 1.74%(e) 1.66% 1.72% 1.76%(e)
===============================================================================================================================
Ratio of net investment income to average
net assets 3.83%(a)(d) 4.85% 5.85%(e) 5.83% 5.68% 6.01%(e)
===============================================================================================================================
Ratio of interest expense to average net
assets 0.04%(d) 0.39% 0.27%(e) 0.19% 0.24% 0.11%(e)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 146% 194% 65% 141% 147% 99%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized premiums on debt
securities or recorded paydowns gains and losses adjustments to net
investment income, the net investment income per share would have been
$0.40 and the ratio of net investment income to average net assets would
have been 4.35%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $82,392,196.
(e) Annualized.
FS-45
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
JULY 31,
2002
-------------
Net asset value, beginning of period $ 9.13
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07(a)
- -----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.14
=============================================================================
Total from investment operations 0.21
=============================================================================
Less distributions from net investment income (0.07)
=============================================================================
Net asset value, end of period $ 9.27
_____________________________________________________________________________
=============================================================================
Total return(b) 2.34%
_____________________________________________________________________________
=============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 34
_____________________________________________________________________________
=============================================================================
Ratio of expenses to average net assets (including interest
expense) 1.19%(c)
=============================================================================
Ratio of expenses to average net assets (excluding interest
expense 1.15%(c)
=============================================================================
Ratio of net investment income to average net assets 4.33%(a)(c)
=============================================================================
Ratio of interest expense to average net assets 0.04%(c)
_____________________________________________________________________________
=============================================================================
Portfolio turnover rate 146%
_____________________________________________________________________________
=============================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized premiums on debt
securities or recorded paydowns gains and losses adjustments to net
investment income, the net investment income per share would have
remained the same and the ratio of net investment to average net assets
would have been 4.85%. In accordance with the AICPA Audit and Accounting
Guide for Investment Companies, per share and ratios for periods prior
to August 1, 2001 have not been restated to reflect this change in
presentation.
(b) Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $17,017.
FS-46
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Limited Maturity Treasury Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Limited Maturity Treasury Fund (a portfolio of AIM Investment Securities Funds),
including the schedule of investments, as of July 31, 2002, and the related
statement of operations for the year then ended, and the statements of changes
in net assets and financial highlights for each of the two years in the 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. The financial highlights for each of the three years in the period ended
July 31, 2000 were audited by other auditors whose report dated September 1,
2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, 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
Limited Maturity Treasury Fund as of July 31, 2002, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for each of the two years in the period then ended in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 10, 2002
FS-47
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
PAR MARKET
MATURITY (000S) VALUE
U.S. TREASURY NOTES--99.03%
3.63% 08/31/03 to 03/31/04 $113,300 $115,952,634
- ---------------------------------------------------------------------------------
2.75% 09/30/03 to 10/31/03 113,100 114,483,803
- ---------------------------------------------------------------------------------
3.00% 11/30/03 to 02/29/04 170,800 173,487,794
- ---------------------------------------------------------------------------------
3.25% 12/31/03 to 05/31/04 113,800 116,080,418
- ---------------------------------------------------------------------------------
3.38% 04/30/04 56,800 58,077,432
- ---------------------------------------------------------------------------------
2.88% 06/30/04 56,800 57,559,416
- ---------------------------------------------------------------------------------
2.25% 07/31/04 56,800 56,831,240
=================================================================================
Total U.S. Treasury Notes (Cost
$681,956,936) 692,472,737
_________________________________________________________________________________
=================================================================================
TOTAL INVESTMENTS--99.03% 692,472,737
_________________________________________________________________________________
=================================================================================
OTHER ASSETS LESS
LIABILITIES--0.97% 6,755,426
_________________________________________________________________________________
=================================================================================
NET ASSETS--100.00% $699,228,163
_________________________________________________________________________________
=================================================================================
</Table>
See Notes to Financial Statements.
FS-48
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$681,956,936) $692,472,737
- -----------------------------------------------------------
Receivables for:
Fund shares sold 6,964,556
- -----------------------------------------------------------
Interest 4,575,706
- -----------------------------------------------------------
Investment for deferred compensation plan 51,395
- -----------------------------------------------------------
Other assets 55,650
===========================================================
Total assets 704,120,044
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 4,411,765
- -----------------------------------------------------------
Amount due custodian 27,710
- -----------------------------------------------------------
Dividends 231,849
- -----------------------------------------------------------
Deferred compensation plan 51,395
- -----------------------------------------------------------
Accrued distribution fees 130,212
- -----------------------------------------------------------
Accrued trustees' fees 784
- -----------------------------------------------------------
Accrued transfer agent fees 3,409
- -----------------------------------------------------------
Accrued operating expenses 34,757
===========================================================
Total liabilities 4,891,881
===========================================================
Net assets applicable to shares outstanding $699,228,163
___________________________________________________________
===========================================================
NET ASSETS:
Class A $696,258,551
___________________________________________________________
===========================================================
Institutional Class $ 2,969,612
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 66,096,475
___________________________________________________________
===========================================================
Institutional Class 281,956
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.53
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.53 divided by
99.00%) $ 10.64
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.53
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Interest $22,206,649
===========================================================
EXPENSES:
Advisory fees 1,200,432
- -----------------------------------------------------------
Administrative services fees 122,783
- -----------------------------------------------------------
Custodian fees 29,855
- -----------------------------------------------------------
Distribution fees -- Class A 921,799
- -----------------------------------------------------------
Transfer agent fees -- Class A 513,161
- -----------------------------------------------------------
Transfer agent fees -- Institutional Class 2,097
- -----------------------------------------------------------
Trustees' fees 11,040
- -----------------------------------------------------------
Other 168,902
===========================================================
Total expenses 2,970,069
===========================================================
Less: Expenses paid indirectly (7,145)
===========================================================
Net expenses 2,962,924
===========================================================
Net investment income 19,243,725
===========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 12,398,048
- -----------------------------------------------------------
Change in net unrealized appreciation of
investment securities 4,356,374
===========================================================
Net gain from investment securities 16,754,422
===========================================================
Net increase in net assets resulting from
operations $35,998,147
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-49
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
OPERATIONS:
Net investment income $ 19,243,725 $ 18,352,135
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 12,398,048 3,891,256
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 4,356,374 6,182,255
==========================================================================================
Net increase in net assets resulting from operations 35,998,147 28,425,646
==========================================================================================
Distributions to shareholders from net investment income:
Class A (19,170,139) (18,285,550)
- ------------------------------------------------------------------------------------------
Institutional Class (70,078) (99,845)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 171,767,941 197,751,141
- ------------------------------------------------------------------------------------------
Institutional Class 1,091,152 (693,669)
==========================================================================================
Net increase in net assets 189,617,023 207,097,723
==========================================================================================
NET ASSETS:
Beginning of year 509,611,140 302,513,417
==========================================================================================
End of year $699,228,163 $509,611,140
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $681,588,473 $508,729,380
- ------------------------------------------------------------------------------------------
Undistributed net investment income -- (3,506)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities 7,123,889 (5,023,381)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 10,515,801 5,908,647
==========================================================================================
$699,228,163 $509,611,140
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware business
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management company consisting of eight separate
series portfolios each having an unlimited number of shares of beneficial
interests. The Fund currently offers two different classes of shares: Class A
shares and the Institutional Class. Class A shares are sold with a front-end
sales charge. 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 the Fund. The Fund's investment
objective is to seek liquidity with minimum fluctuation in principal value and,
consistent with this objective, the highest total return achievable.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Debt obligations that are issued or guaranteed by
the U.S. Treasury are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the
above methods are valued based upon quotes furnished by independent sources
and are valued at the mean between the last bid and asked prices.
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. Short-term obligations
FS-50
having 60 days or less to maturity are valued at amortized cost which
approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
On July 31, 2002, undistributed net investment income was increased and
undistributed net realized gains was decreased by $250,778 as a result of
differing book/tax treatments of bond premium amortization. Net assets of
the Fund were unaffected by the reclassification discussed above.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--CHANGE IN ACCOUNTING PRINCIPLE
As required, effective August 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premiums on debt securities. Prior to August 1, 2001, the Fund did not amortize
premiums on debt securities. The cumulative effect of this accounting change had
no impact on total net assets of the Fund, but resulted in a $250,780 reduction
in the cost of securities and a corresponding $250,780 increase in net
unrealized gains and losses, based on securities held by the Fund on August 1,
2001.
The effect of this change in the current period was to decrease net investment
income by $1,026,779, to increase net unrealized gains and losses by $627,423
and to increase net realized gains and losses by $399,356. As a result the net
investment income per share was decreased by $0.01, and the ratio of net
investment income to average net assets was decreased by 0.17%.
NOTE 3--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.20% on
the first $500 million of the Fund's average daily net assets, plus 0.175% on
the Fund's average daily net assets in excess of $500 million.
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. For the year ended July 31, 2002, AIM was paid
$122,783 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 and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $258,614 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Institutional Class. The Trust has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares. The Fund, pursuant to the Plan, pays AIM Distributors compensation at
the annual rate of 0.15% of the Fund's average daily net assets of Class A
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of Class A 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 under the 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. For the year ended July
31, 2002, the Fund paid AIM Distributors $921,799 as compensation under the
Plan.
AIM Distributors retained commissions of $262,205 from sales of the Class A
shares of the Fund during the year ended July 31, 2002. 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 July 31, 2002, AIM
Distributors received $82,921 and $0 in contingent deferred sales charges
imposed on redemptions of Class A and Institutional Class shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS, and AIM Distributors.
During the year ended July 31, 2002, the Fund paid legal fees of $5,300 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Trustees. A member of that firm is a trustee of the Trust.
NOTE 4--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $7,145 under an expense offset
arrangement which resulted in a reduction of the Fund's net expenses of $7,145.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
FS-51
NOTE 6--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party 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 the funds
based on their respective average net assets for the period.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
----------- -----------
Distributions paid from ordinary
income $19,240,217 $18,385,395
_____________________________________________________________
=============================================================
</Table>
As of July 31, 2002, the components of distributable earnings on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 7,487,787
- -----------------------------------------------------------
Unrealized appreciation 10,151,903
===========================================================
$17,639,690
___________________________________________________________
===========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales and timing
differences.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2002 was
$1,091,795,482 and $906,163,340, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 was as follows:
<Table>
Aggregate unrealized appreciation of investment securities $10,219,199
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities --
=========================================================================
Net unrealized appreciation of investment securities $10,219,199
_________________________________________________________________________
=========================================================================
Cost of investments for tax purposes is $682,253,538.
</Table>
NOTE 9--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
Sold:
Class A 75,803,443 $ 786,911,782 53,134,054 $ 540,139,806
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 184,259 1,912,257 40,446 411,876
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,557,231 16,184,908 1,557,471 15,770,377
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 238 2,477 184 1,869
==========================================================================================================================
Reacquired:
Class A (60,767,295) (631,328,749) (35,304,325) (358,159,042)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (79,249) (823,582) (110,347) (1,107,414)
==========================================================================================================================
16,698,627 $ 172,859,093 19,317,483 $ 197,057,472
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
FS-52
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 10.26 $ 9.96 $ 10.03 $ 10.07 $ 10.07
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33(a) 0.52(b) 0.51 0.47 0.53
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 0.31 (0.07) (0.04) --
============================================================================================================================
Total from investment operations 0.60 0.83 0.44 0.43 0.53
============================================================================================================================
Less distributions from net investment income (0.33) (0.53) (0.51) (0.47) (0.53)
============================================================================================================================
Net asset value, end of period $ 10.53 $ 10.26 $ 9.96 $ 10.03 $ 10.07
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 5.89% 8.53% 4.50% 4.32% 5.42%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $696,259 $507,799 $300,058 $390,018 $345,355
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 0.48%(d) 0.56% 0.54% 0.54% 0.54%
============================================================================================================================
Ratio of net investment income to average net assets 3.12%(a)(d) 5.15% 5.07% 4.61% 5.29%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 149% 137% 122% 184% 133%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.34 and the ratio of net investment income to
average net assets would have been 3.29%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not include sales charges.
(d) Ratios are based on average daily net assets of $614,532,639.
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------
2002 2001 2000 1999 1998
------ ----------- ------ ------- -------
Net asset value, beginning of period $10.26 $ 9.96 $10.03 $ 10.07 $ 10.07
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.54(b) 0.54 0.49 0.56
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 0.31 (0.07) (0.04) --
=========================================================================================================================
Total from investment operations 0.61 0.85 0.47 0.45 0.56
=========================================================================================================================
Less distributions from net investment income (0.34) (0.55) (0.54) (0.49) (0.56)
=========================================================================================================================
Net asset value, end of period $10.53 $10.26 $ 9.96 $ 10.03 $ 10.07
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return 6.05% 8.80% 4.78% 4.55% 5.66%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,970 $1,812 $2,455 $17,131 $50,609
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 0.34%(c) 0.33%(d) 0.29% 0.31% 0.32%
=========================================================================================================================
Ratio of net investment income to average net assets 3.26%(a)(c) 5.38% 5.31% 4.84% 5.51%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 149% 137% 122% 184% 133%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and the Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the Fund
not amortized premium on debt securities, the net investment income per
share would have been $0.35 and the ratio of net investment income to
average assets would have been 3.43%. In accordance with the AICPA Audit
and Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Ratios are based on average daily net assets of $2,165,576.
(d) Including expense reimbursement. Ratio of expenses to average net assets
excluding reimbursement is 0.41%.
FS-53
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Money Market Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Money Market Fund (a portfolio of AIM Investment Securities Funds), including
the schedule of investments, as of July 31, 2002, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for each of the two years in the 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. The financial
highlights for each of the periods presented through July 31, 2000 were audited
by other auditors whose report dated September 1, 2000, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, 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
Money Market Fund as of July 31, 2002, the results of its operations for the
year then ended, and the changes in its net assets and financial highlights for
each of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
September 10, 2002
FS-54
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
PAR
MATURITY (000) VALUE
COMMERCIAL PAPER-32.28%(a)
ASSET-BACKED SECURITIES-COMMERCIAL
LOANS/LEASES-9.09%
Atlantis One Funding Corp.(b)
1.98% 08/01/02 $ 35,000 $ 35,000,000
- --------------------------------------------------------------------------------
1.90% 09/16/02 47,200 47,085,409
- --------------------------------------------------------------------------------
Fountain Square Commercial Funding
Corp.(b)
1.80% 09/18/02 15,124 15,087,702
- --------------------------------------------------------------------------------
Stellar Funding Group, Inc.(b)
1.79% 08/09/02 22,712 22,702,966
- --------------------------------------------------------------------------------
1.80% 08/14/02 10,000 9,993,500
- --------------------------------------------------------------------------------
2.02% 08/20/02 3,001 2,997,801
- --------------------------------------------------------------------------------
1.80% 08/21/02 15,000 14,985,000
- --------------------------------------------------------------------------------
2.02% 08/23/02 4,286 4,280,709
- --------------------------------------------------------------------------------
1.79% 09/20/02 14,000 13,965,194
- --------------------------------------------------------------------------------
1.80% 09/30/02 11,974 11,938,078
================================================================================
178,036,359
================================================================================
ASSET-BACKED SECURITIES-CONSUMER
FINANCE-4.79%
Thunder Bay Funding Inc.(b)
1.80% 08/15/02 14,000 13,990,200
- --------------------------------------------------------------------------------
1.78% 09/16/02 80,000 79,818,044
================================================================================
93,808,244
================================================================================
ASSET-BACKED SECURITIES-FULLY BACKED-2.06%
Enterprise Funding Corp. (LOC-Bank of
America N.A.)(b)
1.84% 08/26/02 10,500 10,486,583
- --------------------------------------------------------------------------------
Newport Funding Corp.(b)(c)
1.85% 11/19/02 30,000 29,830,875
================================================================================
40,317,458
================================================================================
ASSET-BACKED SECURITIES-
MULTI-PURPOSE-4.11%
Charta Corp.(b)(c)
1.81% 08/12/02 47,000 46,974,006
- --------------------------------------------------------------------------------
Jupiter Securitization Corp.(b)
1.79% 08/06/02 14,268 14,264,453
- --------------------------------------------------------------------------------
1.78% 09/18/02 19,290 19,244,219
================================================================================
80,482,678
================================================================================
ASSET-BACKED SECURITIES-TRADE
RECEIVABLES-3.56%
FCAR Owner Trust-Series II
1.90% 10/07/02 30,000 29,893,917
- --------------------------------------------------------------------------------
1.80% 10/23/02 20,000 19,917,000
- --------------------------------------------------------------------------------
1.80% 11/14/02 20,000 19,895,000
================================================================================
69,705,917
================================================================================
</Table>
<Table>
<Caption>
PAR
MATURITY (000) VALUE
BANKS-1.27%
Dresdner U.S. Finance, Inc. (Germany)
1.98% 11/12/02 $ 25,000 $ 24,858,375
================================================================================
DIVERSIFIED FINANCIAL SERVICES-6.34%
CIT Group Inc. (The)
1.85%(b) 09/23/02 10,000 9,972,764
- --------------------------------------------------------------------------------
1.88% 10/31/02 50,000 49,762,389
- --------------------------------------------------------------------------------
1.86%(b) 11/01/02 40,000 39,809,867
- --------------------------------------------------------------------------------
National Australia Funding
2.09% 02/07/03 25,000 24,724,236
================================================================================
124,269,256
================================================================================
DIVERSIFIED METALS & MINING-1.06%
Rio Tinto America, Inc.(b)
1.80% 08/16/02 20,759 20,743,431
================================================================================
Total Commercial Paper (Cost
$632,221,718) 632,221,718
================================================================================
SHORT-TERM OBLIGATIONS-15.09%
CONSUMER FINANCE-1.09%
World Omni Auto Receivables Trust-Series
2002-A
1.87% 07/15/03 21,300 21,300,000
================================================================================
DIVERSIFIED FINANCIAL SERVICES-4.24%
Credit Suisse First Boston (Switzerland),
Gtd. Medium Term Floating Rate Notes,
1.92%(d)(e) 08/20/02 33,000 33,000,000
- --------------------------------------------------------------------------------
M-Market Trust Lilly-Series 2002A,
Floating Rate Notes,
1.89%(b) 06/03/03 50,000 50,000,000
================================================================================
83,000,000
================================================================================
U.S. GOVERNMENT AGENCIES-9.76%
Federal Home Loan Bank,
Unsec. Floating Rate Bonds,
1.68%(e) 08/13/02 25,000 24,999,724
- --------------------------------------------------------------------------------
Unsec. Bonds,
2.11% 08/12/03 30,000 30,000,000
- --------------------------------------------------------------------------------
2.25% 08/14/03 40,000 40,000,000
- --------------------------------------------------------------------------------
Overseas Private Investment, Gtd. Floating
Rate Participation Ctfs.,
1.76%(f) 07/15/03 18,000 18,000,000
- --------------------------------------------------------------------------------
1.76%(f) 12/15/14 15,900 15,900,000
- --------------------------------------------------------------------------------
1.76%(f) 01/15/15 8,450 8,450,000
- --------------------------------------------------------------------------------
1.76%(f) 05/15/15 53,900 53,900,000
================================================================================
191,249,724
================================================================================
</Table>
FS-55
<Table>
<Caption>
PAR
MATURITY (000) VALUE
U.S. GOVERNMENT AGENCIES-(CONTINUED)
Total Short-Term Obligations (Cost
$295,549,724) $ 295,549,724
================================================================================
VARIABLE RATE DEMAND NOTES-8.64%
BANKS-LETTER OF CREDIT-6.34%
Capital One Funding Corp.-Series 00-D,
Floating Rate Notes (LOC-Bank One,
Texas, N.A.),
1.92%(f) 05/01/26 $ 8,500 8,500,000
- --------------------------------------------------------------------------------
Series 97-E, Floating Rate Notes
(LOC-Bank One, Texas, N.A.),
1.92%(f) 08/01/12 9,649 9,649,000
- --------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (National Benevolent
Association); Series E RB (LOC-KBC Bank
N.V.),
1.90%(f) 03/01/30 9,650 9,650,000
- --------------------------------------------------------------------------------
Family Express Corp., LLC-Series A, Loan
Program Notes (LOC-First of America Bank
N.A.),
1.92%(f) 04/01/28 9,070 9,070,000
- --------------------------------------------------------------------------------
Health Midwest Ventures-Series 94-A,
Floating Rate Notes (LOC-Bank of America
N.A.),
2.62%(f) 08/01/19 16,860 16,860,000
- --------------------------------------------------------------------------------
KBL Capital Fund Inc.-Series A, Loan
Program Notes (LOC-National City Bank),
1.92%(f) 05/01/27 16,730 16,730,000
- --------------------------------------------------------------------------------
Miami-Dade (County of) Industrial
Development Authority (Dolphins
Stadium); IDR (LOC-Societe Generale),
1.90%(f) 07/01/22 100 100,000
- --------------------------------------------------------------------------------
Mississippi Business Finance Corp.
(Telepak Inc. Project); IDR (LOC-First
Union National Bank),
1.84%(f) 09/01/15 20,000 20,000,000
- --------------------------------------------------------------------------------
Mississippi Business Finance Corp.
(Viking Range Corp. Project);
IDR (LOC-Bank of
America N.A.),
1.89%(f) 06/01/15 15,230 15,230,000
- --------------------------------------------------------------------------------
Missouri (State of) Development Finance
Board (Historic Restoration Inc.);
Series A RAN (LOC-Firstar Bank),
2.05%(f) 12/01/05 11,000 11,000,000
- --------------------------------------------------------------------------------
Port Blakely Communities; Series C RB
(LOC-Bank of America N.A.),
1.75%(f) 02/15/21 7,500 7,500,000
================================================================================
124,289,000
================================================================================
INSURED-1.79%
Illinois (State of) Health Facilities
Authority (Loyola University Health
Systems); Series C RB,
1.80%(c)(f) 07/01/24 12,420 12,420,000
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PAR
MATURITY (000) VALUE
INSURED-(CONTINUED)
Michigan (State of) Housing Development
Authority; Series C RB,
1.85%(c)(f) 12/01/20 $ 6,405 $ 6,405,000
- --------------------------------------------------------------------------------
SSM Health Care (SSMC Obligated Group);
Montana Health Facilities, Series E RB,
1.85%(c)(f) 06/01/25 16,200 16,200,000
================================================================================
35,025,000
================================================================================
NON-BANKS GUARANTEED-0.51%
Mississippi Business Finance Corp. (GE
Plastics Project); IDR,
1.82%(f) 02/01/23 10,000 10,000,000
================================================================================
Total Variable Rate Demand Notes (Cost
$169,314,000) 169,314,000
================================================================================
CERTIFICATES OF DEPOSIT-7.55%
BANKS-7.55%
Banque Nationale de Paris (France)
2.00% 09/27/02 25,000 25,000,000
- --------------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom)
1.97% 09/24/02 30,000 30,000,223
- --------------------------------------------------------------------------------
Danske Bank A/S (Denmark)
2.00% 08/01/03 11,000 11,000,000
- --------------------------------------------------------------------------------
Lloyds TSB Bank PLC (United Kingdom)
2.15% 02/10/03 32,000 32,000,000
- --------------------------------------------------------------------------------
Royal Bank of Scotland PLC (United
Kingdom)
1.82% 10/16/02 25,000 24,995,047
- --------------------------------------------------------------------------------
UBS A.G. (Switzerland)
2.10% 08/28/02 25,000 25,000,000
================================================================================
Total Certificates Of Deposit (Cost
$147,995,270) 147,995,270
================================================================================
BANK NOTES-1.02%
La Salle Bank N.A.
2.40% (Cost $20,000,000) 12/10/02 20,000 20,000,000
================================================================================
PROMISSORY NOTES-3.83%
DIVERSIFIED FINANCIAL SERVICES-3.83%
Goldman Sachs Group, Inc. (The)
1.95% 03/21/03 50,000 50,000,000
- --------------------------------------------------------------------------------
2.14% 08/29/02 25,000 25,000,000
================================================================================
Total Promissory Notes (Cost
$75,000,000) 75,000,000
================================================================================
MASTER NOTE AGREEMENTS-7.66%(g)
DIVERSIFIED FINANCIAL SERVICES-7.66%
Merrill Lynch Mortgage Capital, Inc.
1.97%(h) 08/19/02 70,000 70,000,000
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co.
1.88%(i) 09/17/02 80,000 80,000,000
================================================================================
Total Master Note Agreements (Cost
$150,000,000) 150,000,000
================================================================================
</Table>
FS-56
<Table>
<Caption>
PAR
MATURITY (000) VALUE
TIME DEPOSITS-8.17%
Deutsche Bank-Cayman (Germany)
1.81% 08/01/02 $ 80,000 $ 80,000,000
- --------------------------------------------------------------------------------
Westdeutsche Landesbank-Cayman (Germany)
1.81% 08/01/02 80,000 80,000,000
================================================================================
Total Time Deposits (Cost
$160,000,000) 160,000,000
================================================================================
Total Investments (excluding
Repurchase Agreements) (Cost
$1,650,080,712) 1,650,080,712
================================================================================
</Table>
<Table>
<Caption>
PAR
MATURITY (000) VALUE
REPURCHASE AGREEMENTS-23.03%(j)
Credit Suisse First Boston (Switzerland)
1.84%(k) 08/01/02 $250,000 $ 250,000,000
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Inc.
1.84%(l) 08/01/02 201,124 201,124,278
================================================================================
Total Repurchase Agreements (Cost
$451,124,278) 451,124,278
================================================================================
TOTAL INVESTMENTS-107.27% 2,101,204,990(m)
================================================================================
OTHER ASSETS LESS LIABILITIES-(7.27%) (142,401,548)
================================================================================
NET ASSETS-100.00% $1,958,803,442
________________________________________________________________________________
================================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Gtd. - Guaranteed
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
RAN - Revenue Anticipation Notes
RB - Revenue Bonds
Sr. - Senior
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) 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.
(b) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(c) Secured by bond insurance provided by Ambac Assurance Corp. or MBIA
Insurance Co.
(d) 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 market value of this security at 07/31/02 represented
1.68% of the Fund's net assets.
(e) Interest rates are redetermined periodically. Rate shown is the rate in
effect on 07/31/02.
(f) 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 rates in effect on 07/31/02.
(g) The investments in master note 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.
(h) 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
07/31/02.
(i) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon seven business days notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
07/31/02.
(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 value 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) Repurchase agreement entered into 07/31/02 with a maturing value of
$250,012,778. Collateralized by $857,174,000 par value of U.S. Government
obligations, 0% to 8.88%, due 04/15/17 to 04/15/30, with an aggregate market
value at 07/31/02 of $255,001,093.
(l) Joint repurchase agreement entered into 07/31/02 with a maturing value of
$250,012,778. Collateralized by $322,449,306 par value of U.S. Government
obligations, 0% to 14%, due 08/01/02 to 12/15/43, with an aggregate market
value at 07/31/02 of $255,000,465.
(m) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-57
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, excluding repurchase
agreements at value (amortized cost) $1,650,080,712
- -----------------------------------------------------------
Repurchase agreements 451,124,278
- -----------------------------------------------------------
Receivables for:
Investments sold 207,000
- -----------------------------------------------------------
Fund shares sold 23,525,409
- -----------------------------------------------------------
Interest 2,699,645
- -----------------------------------------------------------
Investment for deferred compensation plan 90,560
- -----------------------------------------------------------
Other assets 141,672
===========================================================
Total assets 2,127,869,276
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 81,000,000
- -----------------------------------------------------------
Fund shares reacquired 86,401,109
- -----------------------------------------------------------
Dividends 95,997
- -----------------------------------------------------------
Deferred compensation plan 90,560
- -----------------------------------------------------------
Accrued distribution fees 1,059,206
- -----------------------------------------------------------
Accrued trustees' fees 1,356
- -----------------------------------------------------------
Accrued transfer agent fees 294,039
- -----------------------------------------------------------
Accrued operating expenses 123,567
===========================================================
Total liabilities 169,065,834
===========================================================
Net assets applicable to shares outstanding $1,958,803,442
___________________________________________________________
===========================================================
NET ASSETS:
AIM Cash Reserve Shares $1,121,878,913
___________________________________________________________
===========================================================
Class B $ 717,967,208
___________________________________________________________
===========================================================
Class C $ 118,947,311
___________________________________________________________
===========================================================
Class R $ 10,010
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
AIM Cash Reserve Shares 1,121,852,681
___________________________________________________________
===========================================================
Class B 717,949,975
___________________________________________________________
===========================================================
Class C 118,944,860
___________________________________________________________
===========================================================
Class R 10,010
___________________________________________________________
===========================================================
AIM Cash Reserve Shares
Net asset value and offering price per
share $ 1.00
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 1.00
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 1.00
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 1.00
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Interest $41,358,409
===========================================================
EXPENSES:
Advisory fees 9,087,854
- -----------------------------------------------------------
Administrative services fees 251,839
- -----------------------------------------------------------
Custodian fees 65,381
- -----------------------------------------------------------
Distribution fees -- AIM Cash Reserve Shares 2,735,865
- -----------------------------------------------------------
Distribution fees -- Class B 5,230,124
- -----------------------------------------------------------
Distribution fees -- Class C 1,002,104
- -----------------------------------------------------------
Distribution fees -- Class R 9
- -----------------------------------------------------------
Transfer agent fees 2,989,417
- -----------------------------------------------------------
Trustees' fees 16,137
- -----------------------------------------------------------
Other 580,154
===========================================================
Total expenses 21,958,884
===========================================================
Less: Expenses paid indirectly (19,763)
- -----------------------------------------------------------
Net expenses 21,939,121
===========================================================
Net investment income 19,419,288
===========================================================
Net realized gain from investment securities 1,145
===========================================================
Net increase in net assets resulting from
operations $19,420,433
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-58
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
-------------- --------------
OPERATIONS:
Net investment income $ 19,419,288 $ 58,593,065
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities 1,145 26,400
==============================================================================================
Net increase in net assets resulting from operations 19,420,433 58,619,465
==============================================================================================
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (15,341,349) (42,494,569)
- ----------------------------------------------------------------------------------------------
Class B (3,410,961) (13,662,655)
- ----------------------------------------------------------------------------------------------
Class C (666,967) (2,435,841)
- ----------------------------------------------------------------------------------------------
Class R (11) --
- ----------------------------------------------------------------------------------------------
Share transactions-net:
AIM Cash Reserve Shares 184,349,260 25,475,028
- ----------------------------------------------------------------------------------------------
Class B 278,519,026 150,107,943
- ----------------------------------------------------------------------------------------------
Class C 32,062,975 41,425,293
- ----------------------------------------------------------------------------------------------
Class R 10,010 --
==============================================================================================
Net increase in net assets 494,942,416 217,034,664
==============================================================================================
NET ASSETS:
Beginning of year 1,463,861,026 1,246,826,362
==============================================================================================
End of year $1,958,803,442 $1,463,861,026
______________________________________________________________________________________________
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,958,738,706 $1,463,797,435
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 64,736 63,591
==============================================================================================
$1,958,803,442 $1,463,861,026
______________________________________________________________________________________________
==============================================================================================
</Table>
See Notes to Financial Statements.
FS-59
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of eight
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers four different classes of shares: AIM Cash
Reserve Shares, Class B shares, Class C shares and Class R shares. AIM Cash
Reserve Shares and Class R shares are sold at net asset value. Class B shares
and Class C shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class will be 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 the Fund. The Fund's investment objective
is to provide as high a level of current income as is consistent with the
preservation of capital and liquidity.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 as permitted under Rule 2a-7
of the 1940 Act. This method values a security at its cost on the date of
purchase and thereafter, assumes a constant amortization to maturity of any
discount or premiums.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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, adjusted for amortization of premiums and discounts
on investments, is recorded on the accrual basis from settlement date.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date.
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.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.55% on the first $1
billion of the Fund's average daily net assets, plus 0.50% on 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. For the year ended July 31, 2002, AIM was paid
$251,839 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 and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $1,726,313 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the AIM
Cash Reserve Shares, Class B, Class C and Class R shares of the Fund. The Trust
has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's AIM Cash Reserve Shares, Class B shares, Class C shares and Class R
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.25% of the Fund's average
daily net assets of AIM Cash Reserve shares, 1.00% of the average daily net
assets of Class B and C shares and 0.50% on average daily net assets of Class R
shares. Of these amounts, the Fund may pay a service fee of 0.25% of the average
daily net assets of the AIM Cash Reserve Shares, Class B, Class C or Class R
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
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. For the year ended July 31, 2002,
the AIM Cash Reserve Shares, Class B, Class C and Class R shares paid AIM
Distributors $2,735,865, $5,230,124, $1,002,104 and $9, respectively, as
compensation under the Plans.
During the year ended July 31, 2002, AIM Distributors retained $5,458,855,
$91,747, $406,871 and $0 in contingent deferred sales charges imposed on
redemptions of AIM Cash Reserve Shares, Class B, Class C and Class R shares,
respectively.
FS-60
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2002, the Fund paid legal fees of $7,346 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $19,763 under an expense offset
arrangement which resulted in a reduction of the Fund's total expenses of
$19,763.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party 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 the funds
based on their respective average net assets for the period.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
----------- -----------
Distributions paid from ordinary
income $19,419,288 $58,593,065
_____________________________________________________________
=============================================================
</Table>
As of July 31, 2002, the components of distributable earnings on a tax basis
were as follows:
<Table>
Undistributed ordinary income $273,800
- ----------------------------------------------------------
Unrealized appreciation (depreciation) (97,839)
==========================================================
$175,961
__________________________________________________________
==========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of certain expenses
and other timing differences.
NOTE 7--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
Sold:
AIM Cash Reserve Class 7,239,176,762 $ 7,239,176,762 5,502,283,046 $ 5,502,283,046
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 920,671,959 920,671,959 805,015,989 805,015,989
- ---------------------------------------------------------------------------------------------------------------------------------
Class C 492,311,444 492,311,444 362,537,320 362,537,320
- ---------------------------------------------------------------------------------------------------------------------------------
Class R* 14,201 14,201 -- --
=================================================================================================================================
Issued as reinvestment of dividends:
AIM Cash Reserve Class 12,953,250 12,953,250 37,043,906 37,043,906
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 3,021,507 3,021,507 11,949,832 11,949,832
- ---------------------------------------------------------------------------------------------------------------------------------
Class C 550,550 550,550 2,121,575 2,121,575
- ---------------------------------------------------------------------------------------------------------------------------------
Class R* 5 5 -- --
=================================================================================================================================
Reacquired:
AIM Cash Reserve Class (7,067,780,752) (7,067,780,752) (5,513,851,924) (5,513,851,924)
- ---------------------------------------------------------------------------------------------------------------------------------
Class B (645,174,440) (645,174,440) (666,857,878) (666,857,878)
- ---------------------------------------------------------------------------------------------------------------------------------
Class C (460,799,019) (460,799,019) (323,233,602) (323,233,602)
- ---------------------------------------------------------------------------------------------------------------------------------
Class R* (4,196) (4,196) -- --
=================================================================================================================================
494,941,271 $ 494,941,271 217,008,264 $ 217,008,264
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-61
NOTE 8--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CASH RESERVE
-------------------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
---------------------- JULY 31, ---------------------------------------
2002 2001 2000 1999 1998 1997
---------- -------- ------------ -------- ---------- ---------
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 0.0141 0.0467 0.0300(a) 0.0414 0.0453 0.0456
=================================================================================================================================
Less distributions from net investment
income (0.0141) (0.0467) (0.0300) (0.0414) (0.0453) (0.0456)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.42% 4.77% 3.03% 4.22% 4.62% 4.66%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,121,879 $937,532 $912,042 $989,478 $1,179,072 $344,117
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.01%(c) 1.06% 1.07%(d) 1.04% 0.99% 1.05%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to
average net assets 1.40%(c) 4.61% 5.15%(d) 4.16% 4.53% 4.55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Not annualized for periods less than one year.
(c) Ratios are based on average net assets of $1,094,346,112.
(d) Annualized.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
--------------------- JULY 31, --------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- ------------ -------- -------- --------
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 0.0065 0.0392 0.0256(a) 0.0339 0.0371 0.0378
============================================================================================================================
Less distributions from net investment income (0.0065) (0.0392) (0.0256) (0.0339) (0.0371) (0.0378)
============================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 0.66% 3.99% 2.59% 3.45% 3.78% 3.84%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $717,967 $439,445 $289,327 $404,911 $310,534 $116,058
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 1.76%(c) 1.81% 1.82%(d) 1.79% 1.81% 1.80%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of net investment income to average net
assets 0.65%(c) 3.86% 4.40%(d) 3.41% 3.71% 3.80%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average net assets of $523,012,438.
(d) Annualized.
FS-62
NOTE 8--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------------------
AUGUST 4, 1997
SEVEN MONTHS YEAR ENDED (DATE SALES
YEAR ENDED JULY 31, ENDED DECEMBER 31, COMMENCED) TO
------------------------- JULY 31, ---------------------- DECEMBER 31,
2002 2001 2000 1999 1998 1997
-------- ---------- ------------ -------- -------- --------------
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 0.0065 0.0393 0.0256(a) 0.0339 0.0371 0.0158
=================================================================================================================================
Less distributions from net
investment income (0.0065) (0.0393) (0.0256) (0.0339) (0.0371) (0.0158)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.66% 4.00% 2.59% 3.44% 3.78% 3.92%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $118,947 $ 86,884 $ 45,457 $ 56,636 $ 27,391 $ 8,287
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.76%(c) 1.81% 1.82%(d) 1.79% 1.81% 1.80%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to
average net assets 0.65%(c) 3.86% 4.40%(d) 3.41% 3.71% 3.80%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average net assets of $100,210,415.
(d) Annualized.
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
JULY 31,
2002
-------------
Net asset value, beginning of period $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0010
=================================================================================================================================
Less distributions from net investment income (0.0010)
=================================================================================================================================
Net asset value, end of period $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(a) 0.10%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.26%(b)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net assets 1.15%(b)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Not annualized for periods less than one year.
(b) Ratios are annualized and based on average net assets of $11,008.
FS-63
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Municipal Bond Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Municipal Bond Fund (a portfolio of AIM Investment Securities Funds), including
the schedule of investments, as of July 31, 2002, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for each of the two years in the 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. The financial
highlights for each of the periods presented through July 31, 2000 were audited
by other auditors whose report dated September 1, 2000, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, 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
Municipal Bond Fund as of July 31, 2002, the results of its operations for the
year then ended, and the changes in its net assets and financial highlights for
each of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
September 10, 2002
FS-64
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
ALABAMA-1.36%
Alabama (State of) Public School &
College Authority; Capital Improvement
Series 1999 C RB
5.75%, 07/01/17 AA Aa3 $1,400 $ 1,526,994
- --------------------------------------------------------------------------------
Birmingham (City of) Special Care
Facilities Financing Authority
(Children's Hospital of Alabama);
Health Care Facility Series 2002 RB
5.38%, 06/01/23(b) AAA Aaa 1,500 1,539,615
- --------------------------------------------------------------------------------
Courtland (City of) Industrial
Development Board (Champion
International Corp. Project); Refunding
Environmental Improvement Series 1996
RB
6.40%, 11/01/26(c) -- Baa2 2,315 2,392,691
- --------------------------------------------------------------------------------
Jefferson (County of); Capital
Improvement Sewer Series 2001 A RB Wts.
5.00%, 02/01/41(b) AAA Aaa 1,000 954,100
================================================================================
6,413,400
================================================================================
ALASKA-0.28%
Alaska (State of) Housing Finance Corp.;
Collateralized First Veterans' Home
Mortgage Series 1992 A-2 RB
6.75%, 12/01/24(c) AAA Aaa 1,320 1,347,192
================================================================================
AMERICAN SAMOA-0.30%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO
6.00%, 09/01/08(b) A -- 1,280 1,426,970
================================================================================
ARIZONA-1.38%
Arizona (State of) Educational Loan
Marketing Corp.; Sr. Educational Loan
Series 1992 RB
6.13%, 09/01/02(c) -- Aa2 1,900 1,905,320
- --------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center
Project); Refunding Development Series
2002 RB
6.50%, 12/01/09(d) -- -- 365 368,066
- --------------------------------------------------------------------------------
6.70%, 12/01/10(d) -- -- 390 393,666
- --------------------------------------------------------------------------------
6.70%, 12/01/11(d) -- -- 415 419,333
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
ARIZONA-(CONTINUED)
Pima (County of) Unified School District
No. 10; Unlimited Tax School
Improvement Series 1992 E GO
6.50%, 07/01/05 A+ A3 $3,100 $ 3,447,541
================================================================================
6,533,926
================================================================================
ARKANSAS-0.33%
Jefferson (County of) (Regional Medical
Center Project); Refunding &
Improvement Hospital Series 2001 RB
5.85%, 06/01/26 A -- 500 513,465
- --------------------------------------------------------------------------------
Van Buren (County of); Refunding &
Construction Sales & Use Tax Series
2000 RB
5.60%, 12/01/25(b) AAA Aaa 1,000 1,050,780
================================================================================
1,564,245
================================================================================
CALIFORNIA-1.69%
Abag Financing Authority for Non-Profit
Corps. (Lincoln Glen Manor for Sr.
Citizens); Series 2000 COP
6.10%, 02/15/25 A+ -- 1,000 1,069,640
- --------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Lytton Gardens Inc.);
Series 1999 COP
6.00%, 02/15/19 A+ -- 2,085 2,186,039
- --------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Odd Fellow Home of California);
Series 1999 COP
6.00%, 08/15/24 A+ -- 1,000 1,067,830
- --------------------------------------------------------------------------------
California (State of) Educational
Facilities Authority (Fresno Pacific
University); Series 2000 A RB
6.05%, 03/01/11 -- Baa3 1,350 1,515,699
- --------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency
(California Toll Road Project); Sr.
Lien Series 1995 A RB
6.00%, 01/01/10(e)(f) AAA Aaa 400 470,716
- --------------------------------------------------------------------------------
Los Angeles (County of); Series 2001 RB
5.15%, 02/12/06(d) -- -- 377 392,658
- --------------------------------------------------------------------------------
</Table>
FS-65
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
CALIFORNIA-(CONTINUED)
Sacramento (City of) Cogeneration
Authority (Proctor & Gamble Project);
Series 1995 RB
7.00%, 07/01/04 BBB -- $ 500 $ 544,045
- --------------------------------------------------------------------------------
Sacramento City Financing Authority
(Convention Center Hotel); Sr. Series
1999 A RB
6.25%, 01/01/30(d) -- -- 750 750,555
================================================================================
7,997,182
================================================================================
COLORADO-3.50%
Adams (County of) School District No. 1;
Unlimited Tax Series 1992 GO
6.63%, 12/01/02(e)(f) AAA Aaa 500 513,550
- --------------------------------------------------------------------------------
Aurora (City of); Public Improvement
Series 2000 COP
5.50%, 12/01/30(b)(f) AAA Aaa 3,230 3,363,141
- --------------------------------------------------------------------------------
Broomfield (City of); Refunding &
Improvement Sale & Use Tax Series 2002
A RB
5.00%, 12/01/31(b) AAA Aaa 1,000 990,810
- --------------------------------------------------------------------------------
Colorado (State of) E-470 Public Highway
Authority; Sr. Series 2000 A RB
5.75%, 09/01/35(b) AAA Aaa 1,000 1,087,800
- --------------------------------------------------------------------------------
Colorado (State of) Educational &
Cultural Facilities Authority (Student
Housing-University of Colorado
Foundation Project); Series 2002 RB
5.00%, 07/01/22(b) AAA Aaa 1,000 1,013,850
- --------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Exempla Inc.); Series 2002 A
RB
5.50%, 01/01/23 A A1 3,500 3,486,805
- --------------------------------------------------------------------------------
5.63%, 01/01/33 A A1 2,000 1,986,780
- --------------------------------------------------------------------------------
El Paso (County of) School District No. 2
(Harrison); Unlimited Tax Series 2001
GO
5.25%, 12/01/26(b) AAA Aaa 1,435 1,461,361
- --------------------------------------------------------------------------------
Highlands Ranch (City of) Metro District
No. 1; Refunding & Improvement
Unlimited Tax Series 1992 A GO
7.30%, 09/01/02(e)(f) NRR NRR 500 517,415
- --------------------------------------------------------------------------------
Meridian (City of) Metro District;
Refunding & Improvement Unlimited Tax
Series 2001 B GO
5.00%, 12/01/25 AA -- 1,000 977,040
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
COLORADO-(CONTINUED)
Mountain Village (City of) Metro District
(San Miguel County); Prerefunded
Unlimited Tax Series 1992 GO
7.95%, 12/01/02(e)(f) NRR NRR $ 50 $ 51,573
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1992 GO
7.95%, 12/01/03(d) -- -- 105 107,511
- --------------------------------------------------------------------------------
Northwest Parkway Public Highway
Authority; Sr. Series 2001 A RB
5.25%, 06/15/41(b) AAA Aaa 1,000 999,930
================================================================================
16,557,566
================================================================================
CONNECTICUT-5.66%
Brooklyn (City of); Unlimited Tax Series
1995 GO
5.50%, 05/01/06(b) AAA Aaa 250 274,395
- --------------------------------------------------------------------------------
5.70%, 05/01/08(b) AAA Aaa 250 274,377
- --------------------------------------------------------------------------------
Chester (City of); Unlimited Tax Series
1989 GO
7.00%, 10/01/05 -- A2 190 191,510
- --------------------------------------------------------------------------------
Connecticut (State of) (Bradley
International Airport); Special
Obligation Parking Series 2000 A RB
6.60%, 07/01/24(b)(c) A A 1,250 1,302,800
- --------------------------------------------------------------------------------
Connecticut (State of)
(Transportation Infrastructure);
Special Obligation Tax Series 1991 A RB
6.80%, 06/01/03(e)(f) AA- Aa3 1,000 1,044,640
- --------------------------------------------------------------------------------
Special Obligation Tax Series 1991 B RB
6.50%, 10/01/10 AA- Aa3 530 634,447
- --------------------------------------------------------------------------------
6.50%, 10/01/12 AA- Aa3 1,500 1,824,360
- --------------------------------------------------------------------------------
Connecticut (State of) Area Cooperative
Educational Services (Staff
Development/Administration Facilities);
Unlimited Tax; Series 1999 GO
5.63%, 07/15/19(b) A A 1,060 1,119,424
- --------------------------------------------------------------------------------
Connecticut (State of) Clean Water Fund;
Series 1991 RB
7.00%, 01/01/11(e)(f) AAA Aaa 25 25,410
- --------------------------------------------------------------------------------
Connecticut (State of) Development
Authority (Bridgeport Hydraulic Co.
Project); Refunding Water Facilities
Series 1990 RB
7.25%, 06/01/20 A -- 800 807,488
- --------------------------------------------------------------------------------
Connecticut (State of) Development
Authority (Pfizer Inc. Project); Series
1982 PCR
6.55%, 02/15/13 AAA Aaa 250 260,987
- --------------------------------------------------------------------------------
</Table>
FS-66
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
CONNECTICUT-(CONTINUED)
Connecticut (State of) Health & Education
Facilities Authority (Bridgeport
Hospital); Series 1992 A RB
6.63%, 07/01/18(b) AAA Aaa $ 500 $ 510,570
- --------------------------------------------------------------------------------
Connecticut (State of) Health & Education
Facilities Authority (Danbury
Hospital);
Series 1999 G RB
5.63%, 07/01/25(b) AAA Aaa 250 262,887
- --------------------------------------------------------------------------------
Unrefunded Series 1991 E RB
6.50%, 07/01/14(b) AAA Aaa 110 111,913
- --------------------------------------------------------------------------------
Connecticut (State of) Health & Education
Facilities Authority (Loomis Chaffee
School); Series 2001 D RB
5.25%, 07/01/31(f) -- A2 1,500 1,521,915
- --------------------------------------------------------------------------------
Connecticut (State of) Health & Education
Facilities Authority (Stamford
Hospital); Series 1996 F RB
5.40%, 07/01/09(b) AAA Aaa 1,000 1,090,840
- --------------------------------------------------------------------------------
Connecticut (State of) Health & Education
Facilities Authority (William W. Backus
Hospital); Series 1997 D RB
5.75%, 07/01/27(b) AAA Aaa 1,000 1,055,230
- --------------------------------------------------------------------------------
Connecticut (State of) Health & Education
Facilities Authority (Windham Community
Memorial Hospital); Series 1996 C RB
5.75%, 07/01/11(b) A A 740 790,823
- --------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Group Home Mortgage);
Special Obligation Series 2000 GH-5 RB
5.85%, 06/15/30(b) AAA Aaa 500 523,140
- --------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program);
Refunding Sub-Series 1996 E-1 RB
5.95%, 05/15/17 AAA Aaa 500 525,005
- --------------------------------------------------------------------------------
Series 1991 C-3 RB
6.55%, 11/15/13 AAA Aaa 225 230,650
- --------------------------------------------------------------------------------
Series 1993 E-1 RB
6.00%, 05/15/17 AAA Aaa 675 697,484
- --------------------------------------------------------------------------------
Series 1996 C-1 RB
6.30%, 11/15/17 AAA Aaa 1,270 1,350,772
- --------------------------------------------------------------------------------
Series 1996 C-2 RB
6.25%, 11/15/18 AAA Aaa 750 795,622
- --------------------------------------------------------------------------------
Series 1996 G RB
6.00%, 11/15/27(c) AAA Aaa 1,000 1,035,260
- --------------------------------------------------------------------------------
Series 1998 C RB
5.50%, 11/15/35(c) AAA Aaa 1,775 1,805,157
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
CONNECTICUT-(CONTINUED)
Series 1998 D-2 RB
5.45%, 11/15/24(c) AAA Aaa $ 250 $ 254,575
- --------------------------------------------------------------------------------
Series 2001 A-1 RB
5.25%, 11/15/28 AAA Aaa 550 551,556
- --------------------------------------------------------------------------------
Sub-Series 1997 C-2 RB
5.85%, 11/15/28(c) AAA Aaa 440 452,012
- --------------------------------------------------------------------------------
Sub-Series 1998 E-1 RB
5.13%, 05/15/21 AAA Aaa 445 448,324
- --------------------------------------------------------------------------------
Sub-Series 2000 B-2 RB
5.85%, 05/15/31(c) AAA Aaa 955 978,178
- --------------------------------------------------------------------------------
Manchester (City of) Eighth Utilities
District; Unlimited Tax Series 1991 GO
6.75%, 08/15/06 -- Aa3 180 208,613
- --------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax Series
1990 GO
6.00%, 06/15/07 -- Aa3 100 114,201
- --------------------------------------------------------------------------------
6.00%, 06/15/08 -- Aa3 100 114,909
- --------------------------------------------------------------------------------
6.00%, 06/15/09 -- Aa3 100 115,853
- --------------------------------------------------------------------------------
New Britain (City of); Unlimited Tax
Series 1992 GO
6.00%, 02/01/11(b) AAA Aaa 400 465,864
- --------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax
Series 1991 GO
6.50%, 01/15/08 -- A3 125 145,187
- --------------------------------------------------------------------------------
6.50%, 01/15/09 -- A3 125 146,780
- --------------------------------------------------------------------------------
6.50%, 01/15/10 -- A3 125 147,947
- --------------------------------------------------------------------------------
6.50%, 01/15/11 -- A3 125 150,182
- --------------------------------------------------------------------------------
Somers (City of); Unlimited Tax Series
1990 GO
6.00%, 12/01/10 -- A1 190 221,935
- --------------------------------------------------------------------------------
University of Connecticut (Student Fee);
Series 2000 A RB
6.00%, 11/15/10(e)(f) AA- Aa3 1,325 1,559,631
- --------------------------------------------------------------------------------
Waterbury (City of) Housing Authority
(Connecticut Associates II Limited
Partnership); Refunding Mortgage Series
1998 C RB
5.45%, 07/01/23(b) AAA Aaa 150 150,177
- --------------------------------------------------------------------------------
Westbrook (City of); Unlimited Tax Series
1992 GO
6.40%, 03/15/10(b) AAA Aaa 380 449,160
================================================================================
26,742,190
================================================================================
DELAWARE-0.34%
Delaware (State of) Economic Development
Authority (Osteopathic Hospital
Association); Series 1993 A RB
6.75%, 01/01/13(e)(f) NRR Aaa 250 303,637
- --------------------------------------------------------------------------------
</Table>
FS-67
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
DELAWARE-(CONTINUED)
Wilmington (City of) Parking Authority;
Gtd. Parking Series 2002 RB
2.50%, 09/15/03(b) AAA Aaa $1,300 $ 1,314,261
================================================================================
1,617,898
================================================================================
DISTRICT OF COLUMBIA-0.44%
District of Columbia (George Washington
University); Series 2001 A RB
5.13%, 09/15/31(b) AAA Aaa 1,000 991,720
- --------------------------------------------------------------------------------
District of Columbia (Gonzaga College
High School); Series 1999 RB
5.38%, 07/01/19(b) AAA Aaa 1,055 1,109,280
================================================================================
2,101,000
================================================================================
FLORIDA-1.66%
Crossings at Fleming Island Community
Development District; Refunding Special
Assessment Series 2000 B RB
5.80%, 05/01/16(b) AAA Aaa 1,000 1,121,110
- --------------------------------------------------------------------------------
Escambia (County of) (Champion
International Corp. Project); Series
1994 PCR
6.90%, 08/01/22(c) BBB Baa2 1,125 1,173,397
- --------------------------------------------------------------------------------
Escambia (County of) Health Facilities
Authority (Health Care Facility
Loan-Veterans Hospital Project); Series
2000 RB
5.95%, 07/01/20(b) AAA Aaa 1,000 1,137,060
- --------------------------------------------------------------------------------
Jacksonville (City of) Electric
Authority; Series 2000 A RB
5.30%, 10/01/30 A+ Aa3 1,000 1,001,650
- --------------------------------------------------------------------------------
Miami-Dade (County of) (Miami
International Airport); Series 2000 B
RB
5.75%, 10/01/29(b) AAA Aaa 2,000 2,136,240
- --------------------------------------------------------------------------------
Plantation (City of) Health Facilities
Authority (Covenant Retirement
Communities Inc.); Series 1992 RB
7.75%, 12/01/02(e)(f) NRR NRR 250 260,140
- --------------------------------------------------------------------------------
Sunrise (City of) Utility System;
Refunding Series 1998 RB
5.00%, 10/01/28(b) AAA Aaa 1,000 998,480
================================================================================
7,828,077
================================================================================
GEORGIA-0.51%
Athens-Clarke (County of) Unified
Government Development Authority
(Catholic Health East); Series 2002 RB
5.50%, 11/15/32 A A2 500 494,860
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
GEORGIA-(CONTINUED)
Floyd (County of) Hospital Authority
(Floyd Medical Center Project); Series
2002 RAC
5.25%, 07/01/29(b) AAA Aaa $1,510 $ 1,536,697
- --------------------------------------------------------------------------------
Georgia (State of) Housing & Finance
Authority (Home Ownership Opportunity
Program); Series 1992 C RB
6.50%, 12/01/11 AA+ Aa2 390 400,128
================================================================================
2,431,685
================================================================================
GUAM-0.03%
Guam (Territory of) Power Authority;
Series 1993 A RB
5.25%, 10/01/23 BBB -- 125 125,459
================================================================================
ILLINOIS-8.52%
Bellwood (City of); Unlimited Tax Series
2002 GO
5.25%, 12/01/25(b) AAA Aaa 1,000 1,012,650
- --------------------------------------------------------------------------------
Chicago (City of); Project & Refunding
Unlimited Tax Series 2000 C GO
5.50%, 01/01/40(b) AAA Aaa 1,750 1,793,225
- --------------------------------------------------------------------------------
Project & Refunding
Unlimited Tax Series 2001 A GO
5.25%, 01/01/33(b) AAA Aaa 3,940 3,957,218
- --------------------------------------------------------------------------------
Special Transportation Series 2001 RB
5.25%, 01/01/31(b) AAA Aaa 1,000 1,005,110
- --------------------------------------------------------------------------------
Chicago (City of) (Cottage View Terrace
Apartments); FHA/ GNMA Collateralized
Multi-Family Housing Series 2000 A RB
6.13%, 02/20/42(c) AAA -- 1,580 1,630,544
- --------------------------------------------------------------------------------
Chicago (City of) Parks District;
Unlimited Tax Series 2001 D GO
5.00%, 01/01/29(b) AAA Aaa 3,000 2,935,290
- --------------------------------------------------------------------------------
Cook (County of); Unlimited Tax Series
1992 B GO
5.75%, 11/15/02(e)(f) AAA Aaa 2,000 2,064,680
- --------------------------------------------------------------------------------
Freeport (City of); Unlimited Tax Series
2000 RB
6.00%, 12/01/29(b) AAA Aaa 1,000 1,095,400
- --------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Adventist Health Systems
Project); Series 1997 A RB
6.00%, 11/15/11(b) AAA Aaa 2,500 2,886,350
- --------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (CPC International Inc.
Project); Refunding Series 1992 PCR
6.75%, 05/01/16 -- A1 2,000 2,048,400
- --------------------------------------------------------------------------------
</Table>
FS-68
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
ILLINOIS-(CONTINUED)
Illinois (State of) Development Finance
Authority (Evanston Northwestern
Healthcare Corp.); VRD Series 2001 C RB
1.45%, 05/01/31(g) AA+ Aa2 $7,245 $ 7,245,000
- --------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Northwestern
University); Adjustable Rate Medium
Term Series 1997 RB
5.25%, 11/01/14(f) AA+ Aa1 1,000 1,107,700
- --------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Robert Morris
College); Series 2000 RB
5.80%, 06/01/30(b) AAA Aaa 1,000 1,055,520
- --------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Blessing Hospital); Series
1999 A RB
6.00%, 11/15/19(b) AAA Aaa 1,000 1,090,840
- --------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital Corp.);
Refunding Series 1992 A RB
6.25%, 04/15/22(e)(f) AA- Aaa 1,000 1,183,300
- --------------------------------------------------------------------------------
Series 1992 C RB
6.25%, 04/15/22(e)(f) NRR NRR 1,150 1,355,919
- --------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Franciscan Sisters Health
Care); Series 1992 RB
6.40%, 09/01/04(e)(f) AAA Aaa 2,000 2,190,140
- --------------------------------------------------------------------------------
Illinois State University Auxiliary
Facilities System; Series 1993 RB
5.75%, 04/01/14(b) AAA Aaa 1,000 1,044,220
- --------------------------------------------------------------------------------
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB
5.25%, 06/15/42(b) AAA Aaa 1,000 996,610
- --------------------------------------------------------------------------------
5.92%, 12/15/29(b)(h) AAA Aaa 1,500 318,885
- --------------------------------------------------------------------------------
5.94%, 06/15/30(b)(h) AAA Aaa 1,000 206,100
- --------------------------------------------------------------------------------
Rockford (City of) School District No.
205; Unlimited Tax Series 2001 GO
5.00%, 02/01/17(b) AAA Aaa 500 533,550
- --------------------------------------------------------------------------------
Tazewell (County of) Community High
School District No. 303 (Pekin);
Unlimited Tax Series 1996 GO
5.63%, 01/01/14(b) AAA Aaa 1,435 1,517,584
================================================================================
40,274,235
================================================================================
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
INDIANA-3.15%
Carmel (City of) Retirement Rental
Housing (Beverly Enterprises Inc.
Project); Refunding Series 1992 RB
8.75%, 12/01/08(d) -- -- $ 80 $ 82,789
- --------------------------------------------------------------------------------
East Allen (City of) Multi-School
Building Corp.; First Mortgage Series
2000 RB
5.75%, 01/15/10(e)(f) AAA Aaa 735 835,320
- --------------------------------------------------------------------------------
Indiana (State of) Bond Bank; Series 2000
A RB
5.90%, 02/01/14(b) AAA Aaa 1,000 1,125,880
- --------------------------------------------------------------------------------
Indiana (State of) Bond Bank (Hendricks
Project); Series 2002 D RB
5.25%, 04/01/30(b) AAA Aaa 500 502,975
- --------------------------------------------------------------------------------
Indiana (State of) Housing Finance
Authority; Single Family Mortgage
Series 1995 B-1 RB
6.15%, 07/01/17 -- Aaa 115 119,670
- --------------------------------------------------------------------------------
Indiana (State of) Transportation Finance
Authority;
Highway Series 2000 RB
5.38%, 12/01/25 AA Aa2 2,000 2,040,840
- --------------------------------------------------------------------------------
Prerefunded Airport Facilities Lease
Series 1992 A RB
6.25%, 11/01/02(e)(f) NRR Aaa 395 407,561
- --------------------------------------------------------------------------------
Unrefunded Airport Facilities Lease
Series 1992 A RB
6.25%, 11/01/16 AA A1 105 108,090
- --------------------------------------------------------------------------------
Indianapolis (City of) (Lake Nora & Fox
Club Project); Multifamily Series 1999
A RB
5.90%, 10/01/19(b) AAA Aaa 1,795 1,901,569
- --------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank (Waterworks
Project); Series 2002 A RB
5.25%, 07/01/33(b) AAA Aaa 1,700 1,718,241
- --------------------------------------------------------------------------------
Indianapolis (City of) Thermal Energy
System; Series 2001 A RB
5.00%, 10/01/11(b) AAA Aaa 1,500 1,629,555
- --------------------------------------------------------------------------------
Lafayette (City of); Sewer Series 2002 RB
5.15%, 07/01/24(b) AAA Aaa 1,000 1,006,150
- --------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project); Refunding
Convertible Series 1991 PCR 5.75%,
08/01/21 BBB- A3 2,500 2,354,200
- --------------------------------------------------------------------------------
Wa-Nee Middle School Building Corp.;
Unlimited Tax First Mortgage Series
2001 GO
5.50%, 01/15/20(b) AAA Aaa 1,000 1,085,760
================================================================================
14,918,600
================================================================================
</Table>
FS-69
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
KANSAS-0.31%
Newton (City of) (Newton Healthcare
Corp.); Hospital Series 1994 A RB
7.38%, 11/15/04(e)(f) NRR NRR $ 250 $ 284,550
- --------------------------------------------------------------------------------
Overland Park (City of) Development Corp.
(Overland Park Project); First Tier
Series 2001 A RB
7.38%, 01/01/32(d) -- -- 1,135 1,167,597
================================================================================
1,452,147
================================================================================
KENTUCKY-0.79%
Jefferson (County of) (Beverly
Enterprises Project); Refunding Health
Facilities Series 1999 RB
5.88%, 05/01/08(d) -- -- 595 584,772
- --------------------------------------------------------------------------------
Mount Sterling (City of) (Kentucky League
Cities); Lease Funding Series 1993 A RB
6.15%, 03/01/13 -- Aa3 3,000 3,129,600
================================================================================
3,714,372
================================================================================
LOUISIANA-5.00%
Lafayette (City of); Public Improvement
Sales Tax Series 2000 A RB
5.50%, 03/01/23(b) AAA Aaa 1,360 1,430,489
- --------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority
(Capital Projects & Equipment
Acquisitions); Series 2000 RB
6.55%, 09/01/25(b) A A 6,000 6,633,300
- --------------------------------------------------------------------------------
Series 2000 A RB
6.30%, 07/01/30(b) AAA Aaa 3,000 3,478,050
- --------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (Parking
Facilities Corp. Garage Project);
Series 2001 A RB
5.20%, 10/01/20(b) AAA Aaa 1,000 1,033,030
- --------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Medical Center at New
Orleans Project); Series 1992 RB
6.13%, 10/15/07(b) AAA -- 2,775 2,797,228
- --------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Tulane University);
Series 1996 RB
6.00%, 10/01/16(b) AAA Aaa 2,500 2,808,825
- --------------------------------------------------------------------------------
Series 2002 A RB
5.13%, 07/01/27(b) AAA Aaa 2,100 2,112,054
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
LOUISIANA-(CONTINUED)
Ouachita (Parish of) Hospital Service
District No. 1 (Glenwood Regional
Medical Center); Refunding Series 1996
RB
5.70%, 05/15/16(b) AAA Aaa $1,000 $ 1,089,580
- --------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales Tax
District; Series 1987 RB
7.60%, 01/01/08(e)(f) NRR NRR 500 606,795
- --------------------------------------------------------------------------------
7.60%, 01/01/09(e)(f) NRR NRR 500 616,400
- --------------------------------------------------------------------------------
West Feliciana (Parish of) (Gulf States
Utilities); Series 1992 A PCR
7.50%, 05/01/15 BB+ Ba1 1,000 1,030,080
================================================================================
23,635,831
================================================================================
MAINE-0.47%
Maine (State of) Educational Loan
Authority (Supplemental Education Loan
Program); Series 1992 A-2 RB
6.95%, 12/01/07(c)(d) -- -- 640 656,896
- --------------------------------------------------------------------------------
Maine (State of) Housing Authority;
Mortgage Series 1999 E-1 RB
5.85%, 11/15/20 AA+ Aa1 1,500 1,566,630
================================================================================
2,223,526
================================================================================
MARYLAND-1.04%
Maryland (State of) Health & Higher
Education Facilities Authority (Johns
Hopkins University); Refunding Series
2001 B RB
5.00%, 07/01/41 AA Aa2 1,000 969,950
- --------------------------------------------------------------------------------
Maryland (State of) Health & Higher
Education Facilities Authority
(University of Maryland Medical
System); Series 2001 RB
5.25%, 07/01/28 A Baa1 2,000 1,994,280
- --------------------------------------------------------------------------------
5.25%, 07/01/34 A Baa1 2,000 1,975,480
================================================================================
4,939,710
================================================================================
MASSACHUSETTS-1.39%
Massachusetts (State of) Development
Financing Agency (Briarwood Project);
Series 2001 B RB
7.88%, 12/01/15(d) -- -- 1,000 1,049,250
- --------------------------------------------------------------------------------
Massachusetts (State of) Health &
Educational Facilities Authority
(Winchester Hospital); Series 1994 D RB
5.80%, 07/01/09(b) AAA -- 1,000 1,081,650
- --------------------------------------------------------------------------------
Massachusetts (State of) Housing Finance
Agency; Single Family Housing Series
1994 RB
6.60%, 12/01/26(c) AA Aa3 1,385 1,436,841
- --------------------------------------------------------------------------------
</Table>
FS-70
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
MASSACHUSETTS-(CONTINUED)
Massachusetts (State of) Port Authority;
Series 1997 A RB
5.00%, 07/01/27(b) AAA Aaa $1,000 $ 991,510
- --------------------------------------------------------------------------------
Massachusetts (State of) Water Resources
Authority; Series 2002 B RB
5.13%, 08/01/27(b) AAA Aaa 2,000 2,005,820
================================================================================
6,565,071
================================================================================
MICHIGAN-7.58%
Anchor Bay School District; Refunding
Unlimited Tax Series 2001 GO
5.00%, 05/01/29 AAA Aaa 1,000 981,120
- --------------------------------------------------------------------------------
Bullock Creek School District; Unlimited
Tax Series 2000 GO
5.50%, 05/01/22 AAA Aaa 1,000 1,039,480
- --------------------------------------------------------------------------------
Chippewa Valley Schools; Refunding
Unlimited Tax Series 2002 GO
5.13%, 05/01/27 AAA Aaa 1,000 1,003,340
- --------------------------------------------------------------------------------
Dearborn Heights (City of) Finance
Authority; Limited Tax Series 2001 A GO
5.00%, 10/01/30(b) AAA Aaa 1,000 983,610
- --------------------------------------------------------------------------------
Detroit (City of) School District;
Unlimited Tax Series 2001 A GO
5.13%, 05/01/31(b) AAA Aaa 2,000 2,000,600
- --------------------------------------------------------------------------------
Detroit (City of) Water Supply System;
Sr. Lien Series 2001 A RB
5.00%, 07/01/30(b) AAA Aaa 8,500 8,348,955
- --------------------------------------------------------------------------------
5.25%, 07/01/33(b) AAA Aaa 3,500 3,532,025
- --------------------------------------------------------------------------------
Garden City Hospital Finance Authority
(Garden City Hospital); Refunding
Hospital Series 1998 A RB
5.63%, 09/01/10 -- B1 850 693,056
- --------------------------------------------------------------------------------
Grand Rapids (City of) Building
Authority; Series 2002 A RB
5.00%, 10/01/22(b) AAA Aaa 1,660 1,671,720
- --------------------------------------------------------------------------------
Lake Orion Community School District;
Refunding Unlimited Tax Series 1994 GO
7.00%, 05/01/05(e)(f) AAA Aaa 2,500 2,847,175
- --------------------------------------------------------------------------------
Lincoln Park (City of) School District;
Unlimited Tax Series 1996 GO
6.00%, 05/01/06(e)(f) AAA Aaa 1,210 1,372,636
- --------------------------------------------------------------------------------
Michigan (State of) Housing Development
Authority; Rental Housing Series 1992 A
RB
6.60%, 10/01/02(e)(f) AA- NRR 945 968,616
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
MICHIGAN-(CONTINUED)
Michigan (State of) Municipal Bond
Authority (Drinking Water Revolving
Fund); Series 2000 RB
5.50%, 10/01/22 AAA Aaa $1,000 $ 1,051,300
- --------------------------------------------------------------------------------
Michigan (State of) Public Water Agency
(Combustion Turbine No. 1); Series 2001
A RB
5.25%, 01/01/24(b) AAA Aaa 2,500 2,540,700
- --------------------------------------------------------------------------------
Michigan (State of) Trunk Line; Refunding
Series 1998 A RB
5.00%, 11/01/26(b) AAA Aaa 1,000 990,220
- --------------------------------------------------------------------------------
West Ottawa (City of) Public School
District; Unlimited Tax Series 2002 A
GO
5.00%, 05/01/27 AAA Aaa 1,000 988,730
- --------------------------------------------------------------------------------
Ypsilanti (City of) School District;
Refunding Unlimited Tax Series 1996 GO
5.75%, 05/01/07(e)(f) AAA Aaa 4,275 4,820,704
================================================================================
35,833,987
================================================================================
MINNESOTA-0.41%
Minneapolis (City of) (Parking Ramp);
Unlimited Tax Series 2000 A GO
5.90%, 12/01/20 AAA Aa1 1,000 1,099,130
- --------------------------------------------------------------------------------
Minneapolis & St. Paul (Cities of)
Metropolitan Airports Commission
(Northwest Airlines Inc.); Special
Facilities Series 2001 A RB
7.00%, 04/01/25(c)(d) -- -- 1,000 857,200
================================================================================
1,956,330
================================================================================
MISSISSIPPI-1.11%
Mississippi (State of) Higher Education
Assistance Corp.; Sub-Series 1994 C RB
7.50%, 09/01/09(c) -- A2 5,000 5,228,900
================================================================================
MISSOURI-0.94%
Kansas City Industrial Development
Authority (General Motors Corp.
Project); Series 1984 PCR 6.05%,
04/01/06 BBB+ A3 170 170,624
- --------------------------------------------------------------------------------
Missouri (State of) Environmental
Improvement & Energy Resources
Authority (State Revolving Fund);
Prerefunded Water Pollution Series 1995
C RB
5.85%, 01/01/05(e)(f) NRR Aaa 730 807,577
- --------------------------------------------------------------------------------
Unrefunded Water Pollution Series 1995
C RB
5.85%, 01/01/10 -- Aaa 270 292,270
- --------------------------------------------------------------------------------
</Table>
FS-71
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
MISSOURI-(CONTINUED)
Missouri (State of) Health & Educational
Facilities Authority (Washington
University Project); Educational
Facilities Series 2001 A RB
5.13%, 06/15/41 AA+ Aa1 $3,250 $ 3,198,617
================================================================================
4,469,088
================================================================================
NEBRASKA-0.22%
Omaha (City of) Public Power District;
Electric Series 2002 A RB
5.20%, 02/01/22 AA Aa2 1,000 1,017,980
================================================================================
NEVADA-3.20%
Boulder (City of) (Boulder City Hospital
Inc. Project); Refunding Hospital
Series 1998 RB
5.85%, 01/01/22(d) -- -- 500 423,505
- --------------------------------------------------------------------------------
Clark (County of); Airport Lien
Sub-Series 2001 B RB
5.25%, 07/01/34(b) AAA Aaa 3,000 3,027,450
- --------------------------------------------------------------------------------
Clark (County of) (Nevada Power Company
Project); Series 1992 C IDR 7.20%,
10/01/22 BB Ba2 1,500 1,482,210
- --------------------------------------------------------------------------------
Clark (County of) Bond Bank; Limited Tax
Series 2001 GO
5.00%, 06/01/31(b) AAA Aaa 5,000 4,873,000
- --------------------------------------------------------------------------------
Humboldt (County of) (Sierra Pacific
Project); Refunding Series 1987 PCR
6.55%, 10/01/13(b) AAA Aaa 3,000 3,073,740
- --------------------------------------------------------------------------------
Reno (City of) Redevelopment Agency;
Refunding Sub-Series 1995 A TAN
6.00%, 06/01/10 -- Baa3 1,185 1,235,481
- --------------------------------------------------------------------------------
Truckee Meadows Water Authority; Water
Series 2001 A RB
5.13%, 07/01/30(b) AAA Aaa 1,000 993,340
================================================================================
15,108,726
================================================================================
NEW JERSEY-2.02%
New Jersey (State of) Economic
Development Authority (Continental
Airlines, Inc.
Project); Special Facility
Series 1999 RB
6.25%, 09/15/29(c)(f) B+ B3 6,300 4,970,511
- --------------------------------------------------------------------------------
6.40%, 09/15/23(c)(f) B+ B3 1,000 820,570
- --------------------------------------------------------------------------------
Special Facility Series 2000 RB
7.00%, 11/15/30(c)(f) B+ B3 4,000 3,525,520
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
NEW JERSEY-(CONTINUED)
New Jersey (State of) Health Care
Facilities Financing Authority (Raritan
Bay Medical Center); Series 1994 RB
7.25%, 07/01/27(d) -- -- $ 250 $ 250,903
================================================================================
9,567,504
================================================================================
NEW MEXICO-1.07%
Las Cruces (City of) South Central Solid
Waste Authority; Environmental Services
Series 1995 RB
5.65%, 06/01/09 -- A3 575 604,124
- --------------------------------------------------------------------------------
Los Alamos (County of); Refunding Utility
System Series 1994 A RB
6.00%, 07/01/15(b) AAA Aaa 2,000 2,178,200
- --------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 RB
6.25%, 06/01/04(e)(f) AAA Aaa 2,100 2,274,237
================================================================================
5,056,561
================================================================================
NEW YORK-3.46%
Metropolitan Transportation
Authority; Dedicated Tax Fund
Series 2000 A RB
5.88%, 04/01/25(b) AAA Aaa 1,500 1,614,120
- --------------------------------------------------------------------------------
Refunding Series 2002 A RB
5.13%, 01/01/29 AA- A3 1,000 990,660
- --------------------------------------------------------------------------------
New York (City of);
Prerefunded Unlimited Tax Series 1994
B1 GO
7.38%, 08/15/04(e)(f) A Aaa 500 562,655
- --------------------------------------------------------------------------------
Unlimited Tax Series 1996 A GO
6.25%, 08/01/17(e)(f) A A2 3,035 3,361,263
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1991 B
GO
7.00%, 02/01/18(e)(f) AAA Aaa 520 528,554
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1992 D
GO
7.70%, 02/01/09(e) A A2 15 15,298
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Sub-Series
1992 C-1 GO
7.00%, 08/01/17 A A2 10 10,187
- --------------------------------------------------------------------------------
New York (City of) Industrial Development
Agency (University of Staten Island
Hospital Project); Civic Facilities
Series 2001 B RB
6.38%, 07/01/31 -- Baa3 600 605,430
- --------------------------------------------------------------------------------
</Table>
FS-72
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
NEW YORK-(CONTINUED)
New York (City of) Municipal Water
Finance Authority;
Water & Sewer System Series 1987 A RB
5.00%, 06/15/17 AA Aa2 $1,350 $ 1,352,201
- --------------------------------------------------------------------------------
Water & Sewer System Series 1996 A RB
5.50%, 06/15/24(b) AAA Aaa 1,000 1,027,350
- --------------------------------------------------------------------------------
Water & Sewer System Series 1997 B RB
5.75%, 06/15/29 AA Aa2 3,850 4,054,320
- --------------------------------------------------------------------------------
New York (State of) Dorm Authority (State
University Educational Facilities);
Series 1995 A RB
6.50%, 05/15/06 AA- A3 1,000 1,134,790
- --------------------------------------------------------------------------------
New York (State of) Environmental
Facilities Corp. (State Water Revolving
Project); Unrefunded Series 1991 E PCR
6.88%, 06/15/10 AAA Aaa 1,100 1,117,545
================================================================================
16,374,373
================================================================================
NORTH CAROLINA-1.23%
North Carolina (State of) Eastern
Municipal Power Agency; Power System
Series 1993 A RB
6.13%, 01/01/10(e)(f) AAA Aaa 1,500 1,742,115
- --------------------------------------------------------------------------------
North Carolina (State of) Housing Finance
Agency; Single Family Series 1996 II RB
6.20%, 03/01/16 AA Aa2 445 468,367
- --------------------------------------------------------------------------------
North Carolina (State of) Municipal Power
Agency (No. 1 Catawba Electric
Project);
Refunded Series 1990 RB
6.50%, 01/01/10(e)(f) AAA Aaa 260 302,918
- --------------------------------------------------------------------------------
Refunding Series 1992 RB
7.25%, 01/01/07 BBB+ Baa1 2,890 3,289,571
================================================================================
5,802,971
================================================================================
NORTH DAKOTA-0.11%
Fargo (City of) Health System (Meritcare
Medical Group); Series 2002 A RB
5.13%, 06/01/27(b)(f) AAA Aaa 500 499,615
================================================================================
OHIO-2.01%
Cleveland (City of); Parking Facilities
Improvement Series 1992 RB
8.00%, 09/15/02(e)(f) NRR NRR 500 513,620
- --------------------------------------------------------------------------------
Fairfield (City of) School District;
Unlimited Tax Series 1995 GO
6.10%, 12/01/05(e)(f) AAA Aaa 1,000 1,123,910
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
OHIO-(CONTINUED)
Findlay (City of); Limited Tax Series
1996 GO
5.88%, 07/01/17 AA- Aa3 $1,000 $ 1,083,890
- --------------------------------------------------------------------------------
Lake Ohio School District; Unlimited Tax
Series 2000 GO
5.75%, 12/01/26(b) AAA Aaa 2,500 2,691,375
- --------------------------------------------------------------------------------
Montgomery (County of) (Grandview
Hospital & Medical Center); Refunding
Hospital Series 1997 RB
5.50%, 12/01/09(e)(f) BBB+ NRR 1,000 1,126,090
- --------------------------------------------------------------------------------
Ohio (State of) Department of
Transportation (Panhandle Rail Line
Project); Series 1992 COP
6.50%, 04/15/12(b) AAA Aaa 1,100 1,127,082
- --------------------------------------------------------------------------------
University of Cincinnati; Series 2002 F
RB
5.00%, 06/01/22 AA Aa3 820 824,371
- --------------------------------------------------------------------------------
5.00%, 06/01/23 AA Aa3 1,000 998,650
================================================================================
9,488,988
================================================================================
OKLAHOMA-1.76%
Mustang (City of) Improvement Utility
Authority; Series 1999 RB
5.70%, 10/01/19(b) AAA Aaa 1,500 1,632,735
- --------------------------------------------------------------------------------
Oklahoma (State of) Development Finance
Authority (St. John Health System);
Refunding Series 1999 RB
5.75%, 02/15/18 AA Aa3 675 719,813
- --------------------------------------------------------------------------------
5.75%, 02/15/25 AA Aa3 1,750 1,849,435
- --------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority (St.
John's Medical Center Project);
Hospital Series 1994 RB
6.25%, 02/15/06(e)(f) AA Aa3 2,000 2,252,460
- --------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority
(Tulsa Regional Medical Center);
Hospital Series 1992 RB
7.20%, 06/01/03(e)(f) AAA NRR 500 533,715
- --------------------------------------------------------------------------------
Tulsa (City of) Public Facilities
Authority; Capital Improvement Series
1988 B RB
6.00%, 03/01/08 A+ -- 1,305 1,351,680
================================================================================
8,339,838
================================================================================
OREGON-0.73%
Cow Creek Band Umpqua Tribe of Indians;
Series 1998 B RB
(Acquired 08/18/98; Cost $997,470)
5.10%, 07/01/12(b)(i) AAA Aaa 1,000 1,040,240
- --------------------------------------------------------------------------------
</Table>
FS-73
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
OREGON-(CONTINUED)
Portland (City of) Sewer System; Series
1994 A RB
6.20%, 06/01/04(e)(f) AAA A1 $1,200 $ 1,310,136
- --------------------------------------------------------------------------------
6.25%, 06/01/04(e)(f) AAA A1 1,000 1,092,680
================================================================================
3,443,056
================================================================================
PENNSYLVANIA-2.48%
Allegheny (County of) Higher Education
Building Authority (Carnegie Mellon
University); Series 2002 RB
5.25%, 03/01/32 AA- -- 1,500 1,505,535
- --------------------------------------------------------------------------------
Allegheny (County of) Port Authority;
Special Transportation Series 1999 RB
6.13%, 03/01/09(e)(f) AAA Aaa 1,000 1,168,560
- --------------------------------------------------------------------------------
Chester (County of) Industrial
Development Authority (Westtown School
Project); Educational Facilities Series
2002 RB
5.00%, 01/01/31(b) AAA Aaa 1,000 985,030
- --------------------------------------------------------------------------------
Clarion (County of) Industrial
Development Authority (Beverly
Enterprises Inc. Project); Refunding
Series 2001 RB
7.38%, 12/01/08(d) -- -- 1,450 1,482,422
- --------------------------------------------------------------------------------
Montgomery (County of) Industrial
Development Authority (Pennsburg
Nursing & Rehabilitation Center);
Series 1993 RB
7.63%, 03/31/04(e)(f) NRR Aaa 100 112,576
- --------------------------------------------------------------------------------
Pennsylvania (State of); Unlimited Tax
Third Series 1994 GO
6.75%, 11/15/04(e)(f) AAA Aaa 1,250 1,409,650
- --------------------------------------------------------------------------------
Pennsylvania (State of) Economic
Financing Authority (Colver Project);
Resource Recovery Series 1994 D RB
7.05%, 12/01/10(c) BBB- -- 2,900 3,043,753
- --------------------------------------------------------------------------------
Pennsylvania (State of) Public School
Building Authority (Lehigh Career &
Technical Institution); Series 2001 RB
5.00%, 10/01/26(b) AAA Aaa 1,000 994,380
- --------------------------------------------------------------------------------
Spring-Ford Area School District;
Unlimited Tax Series 2002 GO
5.00%, 04/01/23(b) AAA Aaa 1,025 1,027,265
================================================================================
11,729,171
================================================================================
PUERTO RICO-0.36%
Children's Trust Fund; Sr. Tobacco
Settlement Series 2000 RB
6.00%, 07/01/26 A Aa3 1,000 1,041,400
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
PUERTO RICO-(CONTINUED)
Puerto Rico (Commonwealth of); Unlimited
Tax Public Improvement Series 2000 GO
6.00%, 07/01/05(b)(f) A- Baa1 $ 500 $ 560,740
- --------------------------------------------------------------------------------
Puerto Rico (Commonwealth of) Highway &
Transportation Authority;
Transportation Series 2000 B RB
6.00%, 07/01/10(e)(f) A Baa1 100 117,968
================================================================================
1,720,108
================================================================================
RHODE ISLAND-1.05%
Rhode Island (State of) Housing &
Mortgage Finance Corp.; Homeownership
Opportunity Series 1994 15-B RB
6.00%, 10/01/04 AA+ Aa2 1,000 1,052,060
- --------------------------------------------------------------------------------
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
6.00%, 06/01/23 A A1 4,000 3,934,280
================================================================================
4,986,340
================================================================================
SOUTH CAROLINA-0.94%
Piedmont Municipal Power Agency;
Refunding Electric Series 1986 A RB
5.75%, 01/01/24 BBB- Baa3 1,150 1,108,819
- --------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (Palmetto Health
Alliance); Hospital Facilities
Improvement Series 2000 A RB
7.13%, 12/15/15 BBB Baa2 1,000 1,088,670
- --------------------------------------------------------------------------------
South Carolina (State of) Public Service
Authority; Series 2002 B RB
5.13%, 01/01/32(b) AAA Aaa 1,250 1,255,038
- --------------------------------------------------------------------------------
South Carolina (State of) Transportation
Infrastructure Bank; Series 2001 A RB
5.00%, 10/01/29(b) AAA Aaa 1,000 991,130
================================================================================
4,443,657
================================================================================
SOUTH DAKOTA-0.46%
Aberdeen (City of) School District No.
6-1; Unlimited Tax Series 2000 GO
5.45%, 01/01/26(b) AAA Aaa 2,000 2,055,520
- --------------------------------------------------------------------------------
South Dakota (State of) Health &
Educational Facilities Authority (Huron
Regional Medical Center); Series 1994
RB
7.25%, 04/01/20 BBB -- 100 103,793
================================================================================
2,159,313
================================================================================
</Table>
FS-74
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TENNESSEE-1.24%
Franklin (City of) Industrial Development
Board (Landings Apartment Project);
Multifamily Housing Refunding Series
1996 A RB
5.75%, 04/01/10(b) AAA Aaa $ 820 $ 878,851
- --------------------------------------------------------------------------------
Putnam (County of); Refunding Unlimited
Tax Series 2001 GO
5.25%, 04/01/17(b) AAA Aaa 2,500 2,744,650
- --------------------------------------------------------------------------------
Robertson & Somner (Counties of) White
House Utility District; Water & Sewer
Series 2000 RB
6.00%, 01/01/10(e)(f) NRR Aaa 1,000 1,151,950
- --------------------------------------------------------------------------------
Shelby (County of) Health Educational &
Housing Facilities Board (Kirby Pines
Retirement Community); Health Care
Facilities Series 1997 A RB
6.25%, 11/15/16(d) -- -- 1,000 921,800
- --------------------------------------------------------------------------------
Tennessee (State of) Housing Development
Agency; Homeownership Progressive
Series 1992 RB
6.80%, 07/01/17 AA Aa2 155 158,364
================================================================================
5,855,615
================================================================================
TEXAS-22.67%
Allen (City of) Independent School
District; Refunding Unlimited Tax
Series 2000 GO
5.95%, 02/15/25 AAA Aaa 1,600 1,717,168
- --------------------------------------------------------------------------------
Arlington (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1995
GO
5.75%, 02/15/05(e)(f) NRR Aaa 705 767,477
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
5.75%, 02/15/21 -- Aaa 295 306,714
- --------------------------------------------------------------------------------
Austin (City of) Community College
District; Refunding Combined Fee Series
1995 RB
6.10%, 02/01/05(e)(f) AAA Aaa 1,115 1,221,750
- --------------------------------------------------------------------------------
Austin (City of) Electric Utility System;
Refunding Series 2002 A RB
4.00%, 11/15/03(b) AAA Aaa 1,500 1,543,395
- --------------------------------------------------------------------------------
Austin (City of) Hotel Occupancy Tax;
Refunding Sub. Lien Series 1999 RB
5.80%, 11/15/29(b) AAA Aaa 1,000 1,057,590
- --------------------------------------------------------------------------------
Austin (City of) Water & Wastewater
System;
Refunding Series 2001 B RB
5.25%, 05/15/31(b) AAA Aaa 1,750 1,757,175
- --------------------------------------------------------------------------------
Refunding Series 2002 A RB
4.00%, 11/15/03(b) AAA Aaa 1,000 1,029,190
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Bellville (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1995
GO
6.13%, 02/01/06(e)(f) NRR Aaa $ 535 $ 599,601
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
6.13%, 02/01/20 -- Aaa 295 322,149
- --------------------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Dymaxion & Monarch Park Apartments);
Multifamily Housing Series 2000 RB
6.10%, 08/01/30(b)(f) AAA Aaa 1,000 1,044,070
- --------------------------------------------------------------------------------
Bexar (County of) Metropolitan Water
District; Lease Purchase Series 2001 RB
(Acquired 07/27/01; Cost $684,426)
5.53%, 07/20/06(d) -- -- 678 686,025
- --------------------------------------------------------------------------------
Brazos (County of) Health Facilities
Development Corp. (Franciscan Services
Corp.); Series 1997 A RB
5.38%, 01/01/22(b) AAA Aaa 1,250 1,274,838
- --------------------------------------------------------------------------------
Carroll (City of) Independent School
District; Refunding Unlimited Tax
Series 2001 GO
5.25%, 02/15/33 AAA Aaa 1,350 1,358,276
- --------------------------------------------------------------------------------
Carrollton (City of); Limited Tax Series
1996 GO
5.75%, 08/15/06(e)(f) AA Aa2 1,000 1,119,300
- --------------------------------------------------------------------------------
Cisco (City of) Jr. College District;
Refunding Consolidated Fund Series 2002
RB
5.25%, 07/01/26(b) AAA Aaa 1,000 1,008,400
- --------------------------------------------------------------------------------
Cleveland (City of) Independent School
District;
Unlimited Tax Series 2001 GO
5.13%, 02/01/31 AAA Aaa 2,000 1,983,700
- --------------------------------------------------------------------------------
Comal (County of) Independent School
District; Refunding Unlimited Tax
Series 1999 GO
5.75%, 08/01/28 -- Aaa 1,000 1,065,050
- --------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2001 GO
5.25%, 02/01/28 -- Aaa 1,000 1,010,220
- --------------------------------------------------------------------------------
Dallas (City of) Area Rapid Transit; Sr.
Lien Series 2001 RB
5.00%, 12/01/31(b) AAA Aaa 1,250 1,218,013
- --------------------------------------------------------------------------------
DeSoto (City of) Independent School
District; Refunding Unlimited Tax
Series 1998 GO
5.13%, 08/15/17 AAA -- 1,000 1,000,210
- --------------------------------------------------------------------------------
Georgetown (City of) Utility System;
Series 1995 A RB
6.20%, 08/15/05(e)(f) AAA Aaa 1,500 1,672,005
- --------------------------------------------------------------------------------
</Table>
FS-75
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Grapevine (City of); Limited Tax Series
2000 GO Ctfs.
5.88%, 08/15/26(b) AAA Aaa $1,610 $ 1,727,482
- --------------------------------------------------------------------------------
Harris (County of); Refunding Limited Tax
Series 2002 GO
5.13%, 08/15/31 AA+ Aa1 1,000 994,750
- --------------------------------------------------------------------------------
Harris (County of) Flood Control
District; Refunding Unlimited Tax
Series 2002 GO
3.00%, 10/01/03 AA+ Aa1 1,500 1,523,415
- --------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann
Health Care Project); Hospital Series
2001 A RB
6.38%, 06/01/29 A- A3 750 798,045
- --------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (St. Luke's Episcopal
Hospital Project);
Series 1991 RB
6.70%, 02/15/03(e)(f) AAA Aa3 1,000 1,028,040
- --------------------------------------------------------------------------------
Series 2001 A RB
5.38%, 02/15/26 AA -- 1,000 1,008,880
- --------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Children's
Hospital Project); Hospital Series 1999
A RB
5.25%, 10/01/29 AA Aa2 2,000 2,004,180
- --------------------------------------------------------------------------------
Harris (County of) Houston Sports
Authority; Refunding Jr. Lien Series
2001 B RB
5.25%, 11/15/40(b) AAA Aaa 3,000 3,001,920
- --------------------------------------------------------------------------------
Harris (County of) Mental Health and
Mental Retardation Authority; Refunding
Series 1992 RB
6.25%, 09/15/10(b) AAA Aaa 4,500 4,521,195
- --------------------------------------------------------------------------------
Houston (City of) Airport System; Sub.
Lien Series 2000 B RB
5.50%, 07/01/30(b) AAA Aaa 1,000 1,024,400
- --------------------------------------------------------------------------------
Houston (City of) Water & Sewer System;
Jr. Lien Series 1997 C RB
5.38%, 12/01/27(b) AAA Aaa 2,495 2,536,292
- --------------------------------------------------------------------------------
Hurst-Euless-Bedford Independent School
District;
Prerefunded Unlimited Tax Series 1994
GO
6.50%, 08/15/04(e)(f) AAA Aaa 640 700,838
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
6.50%, 08/15/24 AAA Aaa 360 390,308
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Katy (City of) Independent School
District;
Limited Tax Series 1999 GO
6.13%, 02/15/32 AAA Aaa $1,500 $ 1,624,200
- --------------------------------------------------------------------------------
Unlimited Tax Series 2001 B GO
5.00%, 02/15/32 AAA Aaa 3,000 2,909,910
- --------------------------------------------------------------------------------
Keller (City of) Independent School
District;
Refunding Unlimited Tax Series 2001 GO
5.25%, 08/15/26 AAA Aaa 2,000 2,018,580
- --------------------------------------------------------------------------------
Series 1994 COP
6.00%, 08/15/05(b) AAA Aaa 885 978,863
- --------------------------------------------------------------------------------
Laredo (City of) Community College
District; Limited Tax Series 2002 GO
5.25%, 08/01/32(b) AAA Aaa 1,000 1,004,620
- --------------------------------------------------------------------------------
Little Elm (City of) Independent School
District;
Refunding Unlimited Tax Series 1999 GO
6.00%, 08/15/35 AAA -- 2,500 2,697,225
- --------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2000 GO
6.13%, 08/15/35 AAA -- 1,000 1,089,480
- --------------------------------------------------------------------------------
Lockhart (City of) Tax and Utility
Systems; Limited Tax Series 1996 GO
Ctfs.
5.85%, 08/01/11(b) AAA Aaa 605 661,979
- --------------------------------------------------------------------------------
5.90%, 08/01/06(e)(f) AAA Aaa 1,100 1,238,468
- --------------------------------------------------------------------------------
Matagorda (County of) Navigation District
No. 1 (Reliant Energy Project);
Refunding Series 1999 B RB
5.95%, 05/01/30(c) BBB Baa2 2,000 1,788,860
- --------------------------------------------------------------------------------
Nacogdoches (City of) Independent School
District; Refunding Unlimited Tax
Series 2001 GO
5.30%, 02/15/25 AAA Aaa 1,765 1,787,910
- --------------------------------------------------------------------------------
North Texas Higher Education Authority
Inc.; Student Loan
Series 1993 C RB
6.10%, 04/01/08(c) -- Aa2 1,000 1,031,890
- --------------------------------------------------------------------------------
Student Loan Series 1993 D RB
6.30%, 04/01/09(c) -- A2 500 515,525
- --------------------------------------------------------------------------------
Northside Independent School District;
Unlimited Tax Series 1999 A GO
5.50%, 08/15/24 AAA Aaa 1,000 1,035,900
- --------------------------------------------------------------------------------
Pasadena (City of); Limited Tax Series
2002 GO
5.25%, 04/01/32(b) AAA Aaa 2,000 2,015,080
- --------------------------------------------------------------------------------
</Table>
FS-76
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Pflugerville (City of) Independent School
District; Unlimited Tax Series 2000 GO
5.50%, 08/15/23 AAA Aaa $1,615 $ 1,672,155
- --------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000
GO
5.88%, 09/01/19 AAA Aaa 850 928,948
- --------------------------------------------------------------------------------
Richardson (City of);
Limited Tax Series 2000 A GO
5.75%, 02/15/21(b) AAA Aaa 2,000 2,138,360
- --------------------------------------------------------------------------------
Limited Tax Series 2001 GO
5.00%, 02/15/19 AA+ Aa1 1,720 1,743,822
- --------------------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Richardson Medical Center); Unrefunded
Hospital Series 1993 RB
6.50%, 12/01/12 BBB+ Baa1 870 901,581
- --------------------------------------------------------------------------------
6.75%, 12/01/23 BBB+ Baa1 1,000 1,026,710
- --------------------------------------------------------------------------------
San Angelo (City of) Waterworks & Sewer
System; Refunding & Improvement Series
2001 RB
5.25%, 04/01/19(b) AAA Aaa 1,000 1,035,800
- --------------------------------------------------------------------------------
San Antonio (City of) Independent School
District; Unlimited Tax Series 1999 GO
5.50%, 08/15/24 AAA Aaa 3,500 3,625,650
- --------------------------------------------------------------------------------
Schertz-Cibolo-Universal City Independent
School District; Refunding Unlimited
Tax Building Series 2001 GO
5.13%, 08/01/25 AAA Aaa 1,535 1,536,627
- --------------------------------------------------------------------------------
Spring Branch Independent School
District; Limited Tax Series 2000 GO
5.75%, 02/01/24 AAA Aaa 1,700 1,798,396
- --------------------------------------------------------------------------------
Texas (State of); Refunding Unlimited Tax
Water Development Series 2001 A GO
5.25%, 08/01/35 AA Aa1 1,840 1,847,838
- --------------------------------------------------------------------------------
Texas (State of) (Veteran's Land);
Unlimited Tax Series 1994 GO
6.40%, 12/01/24(c) AA Aa1 2,000 2,171,980
- --------------------------------------------------------------------------------
Texas (State of) (Water Financial
Assistance); Unlimited Tax Series 2002
GO
5.00%, 08/01/23 AA Aa1 1,000 988,470
- --------------------------------------------------------------------------------
5.00%, 08/01/24 AA Aa1 1,000 985,560
- --------------------------------------------------------------------------------
Texas (State of) Department of Housing &
Community Affairs (Asmara Affordable
Housing Inc. Project); Multifamily
Housing Series 1996 A RB
6.30%, 01/01/16 A -- 310 317,809
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
TEXAS-(CONTINUED)
Texas (State of) Public Property Finance
Corp. (Mental Health & Mental
Retardation); Series 1996 RB
6.20%, 09/01/16 BBB+ -- $ 735 $ 737,536
- --------------------------------------------------------------------------------
Town Center Improvement District; Sales &
Hotel Occupancy Tax Series 2001 RB
5.13%, 03/01/23(b) AAA Aaa 1,000 1,004,440
- --------------------------------------------------------------------------------
5.25%, 03/01/27(b) AAA Aaa 2,800 2,819,096
- --------------------------------------------------------------------------------
5.50%, 03/01/13(b) AAA Aaa 1,725 1,896,707
- --------------------------------------------------------------------------------
Tyler (City of) Health Facilities
Development Corp. (Mother Frances
Hospital); Hospital Series 1997 A RB
5.63%, 07/01/13 -- Baa1 1,000 1,000,300
- --------------------------------------------------------------------------------
United Independent School District;
Unlimited Tax Series 2000 GO
5.13%, 08/15/26 AAA Aaa 1,000 1,000,370
- --------------------------------------------------------------------------------
University of Texas Financing System;
Series 1999 B RB
5.70%, 08/15/20 AAA Aaa 1,000 1,064,170
- --------------------------------------------------------------------------------
Victoria (County of) (Citizens Medical
Center); Hospital Series 1994 RB
6.20%, 01/01/10(b) AAA Aaa 1,000 1,071,820
- --------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax
Series 2002 GO
5.25%, 08/15/26 -- Aaa 2,000 2,018,580
- --------------------------------------------------------------------------------
5.38%, 08/15/27 -- Aaa 1,000 1,018,230
- --------------------------------------------------------------------------------
Weatherford (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1994
GO
6.40%, 02/15/05(e)(f) NRR Aaa 900 994,077
- --------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
6.40%, 02/15/12 -- Aaa 100 109,007
- --------------------------------------------------------------------------------
Ysleta (City of) Independent School
District Public Facility Corp.;
Refunding Lease Series 2001 RB
5.38%, 11/15/24(b) AAA Aaa 1,300 1,323,894
================================================================================
107,198,484
================================================================================
UTAH-1.57%
Intermountain Power Agency;
Power Supply Series 1995 B RB
5.00%, 07/01/16(e)(f) A+ A1 2,000 2,004,940
- --------------------------------------------------------------------------------
Unrefunded Power Supply Series 1995 B
RB
5.00%, 07/01/16 A+ A1 1,150 1,152,151
- --------------------------------------------------------------------------------
</Table>
FS-77
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
UTAH-(CONTINUED)
Salt Lake (County of) (Westminster
College Project); Series 1997 RB
5.75%, 10/01/27 BBB -- $1,000 $ 1,013,860
- --------------------------------------------------------------------------------
South Jordan (City of); Sales Tax Series
2001 RB
5.20%, 08/15/26(b) AAA Aaa 1,500 1,548,045
- --------------------------------------------------------------------------------
Utah (State of) Housing Finance
Agency; Single Family Mortgage
Sub-Series 1994 C RB
6.05%, 07/01/06 -- Aa3 125 132,505
- --------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994
E-1 RB
6.30%, 07/01/06 AA- -- 85 90,451
- --------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994
G-1 RB
7.15%, 07/01/06 AA- A1 30 31,256
- --------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 2000
B-1 RB
6.00%, 07/01/10(c) AA- Aa3 855 890,448
- --------------------------------------------------------------------------------
Sr. Single Family Mortgage Series 1995
G-2 RB
6.45%, 07/01/27(c) AAA Aaa 560 580,317
================================================================================
7,443,973
================================================================================
VERMONT-0.23%
Vermont (State of) Educational & Health
Buildings Financing Agency (Fletcher
Allen Health
Care); Hospital Series 2000 A RB
6.00%, 12/01/23(b) AAA Aaa 1,000 1,092,510
================================================================================
VIRGIN ISLANDS-0.33%
Virgin Islands (Territory of) Public
Finance Authority (Gross Receipts Taxes
Loan Notes); Series 1999 A RB
6.13%, 10/01/29(b) A A 500 530,695
- --------------------------------------------------------------------------------
Virgin Islands (Territory of) Public
Financing Authority (Matching Fund Loan
Notes); Refunding Series 1992 A RB
7.25%, 10/01/02(e)(f) AAA NRR 1,000 1,029,390
================================================================================
1,560,085
================================================================================
VIRGINIA-0.64%
Fauquier (County of) Industrial
Development Authority (Fauquier
Hospital Foundation, Inc.); Hospital
Series 2002 RB
5.25%, 10/01/31 AA -- 1,000 996,960
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
VIRGINIA-(CONTINUED)
Norton (City) Industrial Development
Authority (Norton Community Hospital);
Refunding & Improvement Hospital Series
2001 RB
6.00%, 12/01/22(b) A -- $1,000 $ 1,036,510
- --------------------------------------------------------------------------------
Virginia (State of) Resources Authority
(Goochland County Tuckahoe Creek
Service District Project); Water &
Sewer System Series 2002 RB
5.00%, 11/01/35 AA Aa2 1,000 987,150
================================================================================
3,020,620
================================================================================
WASHINGTON-1.68%
Clark (County of) School District No.
117; Unlimited Tax Series 1995 GO
6.00%, 12/01/05(e)(f) AAA Aaa 1,000 1,117,310
- --------------------------------------------------------------------------------
King (County of);
Sewer Series 1999 RB
5.50%, 01/01/22(b) AAA Aaa 1,000 1,041,050
- --------------------------------------------------------------------------------
Unlimited Tax Series 1969 GO
5.50%, 07/01/07(e)(f) AAA Aaa 490 548,565
- --------------------------------------------------------------------------------
Pend Oreille (County of) Public Utility
District No. 1; Electric Series 1996 B
RB
6.30%, 01/01/17 BBB+ A3 1,400 1,498,602
- --------------------------------------------------------------------------------
Washington (State of) Health Care
Facilities Authority (Providence Health
System Project); Series 2001 RB
5.25%, 10/01/21(b) AAA Aaa 1,000 1,018,120
- --------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project No. 1);
Refunding Series 1996 A RB
5.75%, 07/01/12(b) AAA Aaa 2,000 2,165,640
- --------------------------------------------------------------------------------
West Richland (City of); Water & Sewer
Series 1994 RB
7.00%, 12/01/04(e)(f) AAA Aaa 500 559,950
================================================================================
7,949,237
================================================================================
WISCONSIN-1.12%
Muskego-Norway School District; Refunding
Unlimited Tax Series 2002 GO
5.00%, 04/01/21(b) AAA Aaa 1,000 1,003,740
- --------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sinai Samaritan
Medical Center Inc.); Series 1996 RB
5.75%, 08/15/16(b) AAA Aaa 1,500 1,616,490
- --------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sisters Sorrowful
Mother); Series 1997 A RB
5.90%, 08/15/24(b) AAA Aaa 2,500 2,663,675
================================================================================
5,283,905
================================================================================
</Table>
FS-78
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
WYOMING-0.50%
Laramie (County of) (Memorial Hospital
Project); Hospital Series 1992 RB
6.70%, 05/01/12(b) AAA Aaa $ 250 $ 257,750
- --------------------------------------------------------------------------------
Natrona (County of) (Wyoming Medical
Center Project); Hospital Series 1995
RB
6.00%, 09/15/11(b) AAA Aaa 1,000 1,101,850
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
WYOMING-(CONTINUED)
Sweetwater (County of) (Idaho Power Co.
Project); Refunding Series 1996 A PCR
6.05%, 07/15/26 BBB+ A3 $1,000 $ 1,023,970
================================================================================
2,383,570
================================================================================
TOTAL INVESTMENTS-99.27% (Cost
$446,261,602) 469,424,787
================================================================================
OTHER ASSETS LESS LIABILITIES-0.73% 3,444,540
================================================================================
NET ASSETS-100.00% $472,869,327
________________________________________________________________________________
================================================================================
</Table>
Investment Abbreviations:
<Table>
COP - Certificate of Participation
FHA - Federal Housing Administration
GNMA - Government National Mortgage Association
GO - General Obligation Bonds
Gtd. - Guaranteed
IDR - Industrial Development Revenue Bonds
Jr. - Junior
PCR - Pollution Control Revenue Bonds
RAC - Revenue Anticipation Certificates
RB - Revenue Bonds
Sr. - Senior
Sub. - Subordinated
TAN - Tax Allocation Notes
VRD - Variable Rate Demand
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's"). NRR indicates a security that is not
re-rated subsequent to funding of an escrow fund (consisting of U.S.
Treasury obligations); this funding is pursuant to an advance refunding of
this security. Ratings are not covered by the Report of the Independent
Auditors.
(b) Secured by bond insurance provided by one of the following companies: Ambac
Assurance Corp., American Capital Access Corp., Financial Guaranty Insurance
Co., Financial Security Assurance, or MBIA Insurance Co.
(c) Security subject to the alternative minimum tax.
(d) Unrated security; determined by the investment advisor to be of comparable
quality to the rated securities in which the Fund may invest pursuant to
guidelines of quality adopted by the Board of Trustees and followed by the
investment advisor.
(e) Secured by an escrow fund of U.S. Government obligations.
(f) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(g) Demand securities; payable upon demand by the Fund with usually no more than
seven calendar days' notice. Interest rates are redetermined weekly. Rates
shown are rates in effect on 07/31/02.
(h) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(i) 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 market value of this security at 07/31/02 represented
0.22% of the Fund's net assets.
See Notes to Financial Statements
FS-79
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$446,261,602) $469,424,787
- -----------------------------------------------------------
Receivables for:
Investments sold 4,338,252
- -----------------------------------------------------------
Fund shares sold 2,582,141
- -----------------------------------------------------------
Interest 6,706,460
- -----------------------------------------------------------
Investment for deferred compensation plan 102,139
- -----------------------------------------------------------
Other assets 34,216
===========================================================
Total assets 483,187,995
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 8,067,370
- -----------------------------------------------------------
Fund shares reacquired 1,132,293
- -----------------------------------------------------------
Dividends 708,897
- -----------------------------------------------------------
Deferred compensation plan 102,139
- -----------------------------------------------------------
Accrued distribution fees 232,801
- -----------------------------------------------------------
Accrued trustees' fees 730
- -----------------------------------------------------------
Accrued transfer agent fees 12,815
- -----------------------------------------------------------
Accrued operating expenses 61,623
===========================================================
Total liabilities 10,318,668
===========================================================
Net assets applicable to shares outstanding $472,869,327
___________________________________________________________
===========================================================
NET ASSETS:
Class A $339,544,853
___________________________________________________________
===========================================================
Class B $104,149,851
___________________________________________________________
===========================================================
Class C $ 29,174,623
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 42,123,332
___________________________________________________________
===========================================================
Class B 12,899,746
___________________________________________________________
===========================================================
Class C 3,620,231
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 8.06
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $8.06 divided by
95.25%) $ 8.46
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 8.07
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 8.06
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Interest $25,762,084
===========================================================
EXPENSES:
Advisory fees 2,040,421
- -----------------------------------------------------------
Administrative services fees 112,021
- -----------------------------------------------------------
Custodian fees 18,431
- -----------------------------------------------------------
Distribution fees -- Class A 853,515
- -----------------------------------------------------------
Distribution fees -- Class B 947,150
- -----------------------------------------------------------
Distribution fees -- Class C 239,843
- -----------------------------------------------------------
Transfer agent fees 229,495
- -----------------------------------------------------------
Trustees' fees 10,348
- -----------------------------------------------------------
Other 177,776
===========================================================
Total expenses 4,629,000
===========================================================
Less: Expenses paid indirectly (5,356)
===========================================================
Net expenses 4,623,644
===========================================================
Net investment income 21,138,440
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (210,205)
- -----------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (392,841)
===========================================================
Net gain (loss) from investment securities (603,046)
===========================================================
Net increase in net assets resulting from
operations $20,535,394
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-80
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
OPERATIONS:
Net investment income $ 21,138,440 $ 18,710,476
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (210,205) 84,203
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (392,841) 10,776,758
==========================================================================================
Net increase in net assets resulting from operations 20,535,394 29,571,437
==========================================================================================
Distributions to shareholders from net investment income:
Class A (16,156,773) (14,953,354)
- ------------------------------------------------------------------------------------------
Class B (3,770,131) (3,257,124)
- ------------------------------------------------------------------------------------------
Class C (953,868) (511,438)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 17,431,346 30,618,904
- ------------------------------------------------------------------------------------------
Class B 17,606,047 17,088,547
- ------------------------------------------------------------------------------------------
Class C 11,286,232 9,301,793
==========================================================================================
Net increase in net assets 45,978,247 67,858,765
==========================================================================================
NET ASSETS:
Beginning of year 426,891,080 359,032,315
==========================================================================================
End of year $472,869,327 $426,891,080
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $460,855,163 $416,536,814
- ------------------------------------------------------------------------------------------
Undistributed net investment income 319,824 (18,974)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (11,468,845) (10,631,732)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 23,163,185 21,004,972
==========================================================================================
$472,869,327 $426,891,080
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-81
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of eight
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be 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
the Fund. The Fund's investment objective is to achieve a high level of current
income exempt from federal income taxes, consistent with the preservation of
principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 on the basis of
prices provided by an independent pricing service approved by the Board of
Trustees. 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
Trustees, or persons designated by the Board of Trustees, determines that
the mean between the last available bid and asked prices does not
accurately reflect the current market value of the security. Securities
with a demand feature exercisable within one to seven days are valued at
par. 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 Trust's officers in a manner
specifically authorized by the Board of Trustees. Notwithstanding the
above, short-term obligations with maturities of 60 days or less are valued
at amortized cost.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
On July 31, 2002, undistributed net investment income was increased by
$13,103, undistributed net realized gains (losses) decreased by $626,908
and paid in capital increased by $613,805 as a result of differing book/tax
treatment of capital loss and other reclassifications. Net assets of the
Fund were unaffected by the reclassifications discussed above.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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 of $11,200,174 as of July 31,
2002 expires as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 728,546 July 31, 2003
----------------------------
92,144 July 31, 2004
----------------------------
1,947,609 July 31, 2007
----------------------------
8,431,875 July 31, 2008
============================
$11,200,174
____________________________
============================
</Table>
Utilization of such capital losses may be limited to the extent required
under IRS rules. As of July 31, 2002 the Fund has a post-October capital
loss deferral of $176,112, which will be recognized in the following tax
year.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--CHANGE IN ACCOUNTING PRINCIPLE
As required, effective August 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
market discounts on debt securities. Prior to August 1, 2001, the Fund did not
amortize market discounts on debt securities. The cumulative effect of this
accounting change had no impact on total net assets of the Fund, but resulted in
a $68,027 addition in the cost of securities and a corresponding $68,027
decrease in net unrealized gains and losses, based on securities held by the
Fund on August 1, 2001.
The effect of this change in the current period was to increase net investment
income by $20,700 and to decrease net unrealized gains and losses by $20,700. As
a result, the net investment income per share and the net realized and
unrealized gains and losses per share remained unchanged. The ratio of net
investment income to average net assets remained unchanged.
FS-82
NOTE 3--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on 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. For the year ended July 31, 2002, AIM was paid
$112,021 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 and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $145,314 for such services.
The Trust 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 Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C 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 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. For the year ended July 31, 2002,
the Class A, Class B and Class C shares paid AIM Distributors $853,515, $947,150
and $239,843, respectively, as compensation under the Plans.
AIM Distributors retained commissions of $67,279 from sales of the Class A
shares of the Fund during the year ended July 31, 2002. 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 July 31, 2002, AIM
Distributors retained $56,839, $16,132 and $24,087 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2002, the Fund paid legal fees of $5,067 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 4--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $5,356 under an expense offset
arrangement which resulted in a reduction of the Fund's total expenses of
$5,356.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 6--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party 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 the funds
based on their respective average net assets for the period.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
----------- -----------
Distributions paid from ordinary
income -- tax exempt $20,880,772 $18,721,916
_____________________________________________________________
=============================================================
</Table>
As of July 31, 2002, the components of distributable earnings on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 347,045
- -----------------------------------------------------------
Capital loss carryforward (11,200,174)
- -----------------------------------------------------------
Unrealized appreciation 22,867,293
===========================================================
$ 12,014,164
___________________________________________________________
===========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales and the
deferral of capital losses incurred after October 31.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2002 was
$181,855,428 and $154,317,109, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $25,452,716
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (2,293,361)
===========================================================
Net unrealized appreciation of investment
securities $23,159,355
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $446,265,432.
</Table>
FS-83
NOTE 9--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
Sold:
Class A 25,443,792 $ 203,919,132 17,360,190 $ 138,325,073
- --------------------------------------------------------------------------------------------------------------------------
Class B 5,648,537 45,438,128 5,218,248 41,564,270
- --------------------------------------------------------------------------------------------------------------------------
Class C 3,492,497 27,986,065 2,036,726 16,215,773
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,118,428 8,950,726 995,116 7,907,174
- --------------------------------------------------------------------------------------------------------------------------
Class B 281,101 2,253,388 250,418 1,993,001
- --------------------------------------------------------------------------------------------------------------------------
Class C 86,031 687,981 40,422 321,603
==========================================================================================================================
Issued in connection with acquisitions:*
Class A 4,890,500 39,744,960 -- --
==========================================================================================================================
Reacquired:
Class A (29,353,247) (235,183,472) (14,519,194) (115,613,343)
- --------------------------------------------------------------------------------------------------------------------------
Class B (3,758,234) (30,085,469) (3,329,032) (26,468,724)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,179,285) (17,387,814) (910,042) (7,235,583)
==========================================================================================================================
5,670,120 $ 46,323,625 7,142,852 $ 57,009,244
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* As of the close of business on September 7, 2001, the Fund acquired all the
net assets of AIM Tax-Exempt Bond Fund of Connecticut pursuant to a plan of
reorganization approved by AIM Tax-Exempt Bond Fund of Connecticut
shareholders on June 13, 2001. The acquisition was accomplished by a tax-free
exchange of 4,890,500 shares of the Fund for 3,624,409 shares of AIM
Tax-Exempt Bond Fund of Connecticut outstanding as of the close of business on
September 7, 2001. AIM Tax-Exempt Bond Fund of Connecticut net assets at that
date of $39,744,960 including $2,619,081 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $446,100,096.
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
------------------------- JULY 31, --------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- ------------ -------- -------- --------
Net asset value, beginning of period $ 8.06 $ 7.83 $ 7.74 $ 8.35 $ 8.34 $ 8.19
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38(a) 0.40 0.24(b) 0.41 0.42 0.42
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.00 0.23 0.09 (0.61) 0.01 0.16
================================================================================================================================
Total from investment operations 0.38 0.63 0.33 (0.20) 0.43 0.58
================================================================================================================================
Less dividends from net investment income (0.38) (0.40) (0.24) (0.41) (0.42) (0.43)
================================================================================================================================
Net asset value, end of period $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35 $ 8.34
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 4.84% 8.28% 4.32% (2.45)% 5.28% 7.27%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $339,545 $322,437 $283,416 $294,720 $327,705 $318,469
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 0.81%(d) 0.85% 0.85%(e) 0.84% 0.82% 0.90%
================================================================================================================================
Ratio of net investment income to average net
assets 4.79%(a)(d) 5.06% 5.32%(e) 5.01% 5.00% 5.14%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 35% 28% 18% 28% 19% 24%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing market discounts on debt securities. Had
the Fund not amortized market discounts on debt securities, the net
investment income per share and the ratio of net investment income to
average net assets would have remained the same. In accordance with the
AICPA Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not include sales charges and is not annualized for periods less
than one year.
(d) Ratios are based on average daily net assets of $341,405,967.
(e) Annualized.
FS-84
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
------------------------ JULY 31, -----------------------------
2002 2001 2000 1999 1998 1997
-------- ------- ------------ ------- ------- -------
Net asset value, beginning of period $ 8.07 $ 7.84 $ 7.75 $ 8.37 $ 8.36 $ 8.19
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32(a) 0.34 0.21(b) 0.35 0.36 0.36
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.00 0.23 0.08 (0.62) 0.01 0.17
===============================================================================================================================
Total from investment operations 0.32 0.57 0.29 (0.27) 0.37 0.53
===============================================================================================================================
Less dividends from net investment income (0.32) (0.34) (0.20) (0.35) (0.36) (0.36)
===============================================================================================================================
Net asset value, end of period $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37 $ 8.36
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 4.05% 7.46% 3.84% (3.28)% 4.48% 6.59%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $104,150 $86,565 $67,363 $72,256 $72,723 $47,185
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.56%(d) 1.60% 1.61%(e) 1.59% 1.57% 1.66%
===============================================================================================================================
Ratio of net investment income to average net assets 4.04%(a)(d) 4.31% 4.56%(e) 4.26% 4.25% 4.38%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 35% 28% 18% 28% 19% 24%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing market discounts on debt securities. Had
the Fund not amortized market discounts on debt securities, the net
investment income per share and the ratio of net investment income to
average net assets would have remained the same. In accordance with the
AICPA Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $94,714,991.
(e) Annualized.
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------
AUGUST 4, 1997
SEVEN MONTHS YEAR ENDED (DATE SALES
YEAR ENDED JULY 31, ENDED DECEMBER 31, COMMENCED) TO
----------------------- JULY 31, ---------------- DECEMBER 31,
2002 2001 2000 1999 1998 1997
------- ------- ------------ ------ ------ --------------
Net asset value, beginning of period $ 8.05 $ 7.83 $ 7.74 $ 8.35 $ 8.35 $ 8.30
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32(a) 0.34 0.21(b) 0.35 0.36 0.15
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.01 0.22 0.08 (0.61) -- 0.04
===============================================================================================================================
Total from investment operations 0.33 0.56 0.29 (0.26) 0.36 0.19
===============================================================================================================================
Less dividends from net investment income (0.32) (0.34) (0.20) (0.35) (0.36) (0.14)
===============================================================================================================================
Net asset value, end of period $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35 $ 8.35
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 4.19% 7.34% 3.85% (3.16)% 4.36% 2.36%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,175 $17,889 $8,252 $9,652 $9,565 $ 825
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.56%(d) 1.60% 1.61%(e) 1.59% 1.57% 1.67%(e)
===============================================================================================================================
Ratio of net investment income to average net
assets 4.04%(a)(d) 4.31% 4.56%(e) 4.26% 4.25% 4.37%(e)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 35% 28% 18% 28% 19% 24%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing market discounts on debt securities. Had
the Fund not amortized market discounts on debt securities, the net
investment income per share and the ratio of net investment income to
average net assets would have remained the same. In accordance with the
AICPA Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $23,984,279.
(e) Annualized.
FS-85
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Total Return Bond Fund
And Board of Trustees of AIM Investment Securities Funds:
We have audited the accompanying statement of assets and liabilities of Total
Return Bond Fund (a portfolio of AIM Investment Securities Funds), including the
schedule of investments, as of July 31, 2002, and the related statement of
operations, statement of changes in net assets and financial highlights for the
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
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Total Return Bond Fund as of July 31, 2002, and the results of its operations,
changes in its net assets, and financial highlights for the period then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
September 10, 2002
FS-86
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BONDS & NOTES-29.26%
AEROSPACE & DEFENSE-0.16%
Raytheon Co., Notes, 6.75%, 08/15/07 $ 40,000 $ 42,350
======================================================================
AUTOMOBILE MANUFACTURERS-0.24%
General Motors Corp., Unsec. Putable Deb.,
8.80%, 03/01/21 60,000 64,106
======================================================================
BANKS-4.92%
African Development Bank (Luxembourg), Sr.
Unsec. Unsub. Yankee Notes, 3.25%, 07/29/05 350,000 346,668
- ----------------------------------------------------------------------
Dresdner Funding Trust I, Bonds, 8.15%,
06/30/31 (Acquired 05/09/02; Cost
$53,049)(a) 50,000 55,369
- ----------------------------------------------------------------------
European Investment Bank (Luxembourg), Medium
Term Yankee Notes, 4.88%, 09/06/06 250,000 260,688
- ----------------------------------------------------------------------
Yankee Notes, 4.63%, 03/01/07 400,000 412,880
- ----------------------------------------------------------------------
Huntington National Bank, Sub. Notes, 6.60%,
06/15/18 80,000 76,012
- ----------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 100,000 101,207
- ----------------------------------------------------------------------
SunTrust Banks, Inc., Sr. Unsec. Putable Sub.
Deb., 6.00%, 01/15/08 50,000 50,890
- ----------------------------------------------------------------------
U.S. Bank N.A., Sub. Notes, 6.30%, 02/04/14 25,000 26,375
======================================================================
1,330,089
======================================================================
BREWERS-0.25%
Anheuser-Busch Cos., Inc., Sr. Unsec. Deb.,
6.50%, 02/01/43 65,000 66,517
======================================================================
BROADCASTING & CABLE TV-1.89%
Cox Communications, Inc., Sr. Unsec. RAPS
Floating Rate Notes, 2.62%, 11/07/02(b) 325,000 325,816
- ----------------------------------------------------------------------
Shaw Communications Inc. (Canada), Sr. Unsec.
Unsub. Yankee Notes, 8.25%, 04/11/10 60,000 59,720
- ----------------------------------------------------------------------
TCI Communications, Inc., Sr. Unsec. Deb.,
7.88%, 02/15/26 50,000 39,499
- ----------------------------------------------------------------------
Time Warner Inc.,
Sr. Unsec. Gtd. Deb., 6.88%, 06/15/18 60,000 41,472
- ----------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 50,000 44,697
======================================================================
511,204
======================================================================
COMPUTER HARDWARE-0.63%
International Business Machines Corp., Deb.,
8.38%, 11/01/19 150,000 171,532
======================================================================
CONSUMER FINANCE-2.80%
CitiFinancial Credit Co., Putable Notes,
6.63%, 06/01/15 50,000 53,201
- ----------------------------------------------------------------------
Unsec. Notes, 6.75%, 07/01/07 100,000 110,385
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
CONSUMER FINANCE-(CONTINUED)
Ford Motor Credit Co.,
Notes, 7.88%, 06/15/10 $ 60,000 $ 61,689
- ----------------------------------------------------------------------
Unsec. Floating Rate Notes, 2.08%,
03/17/03(b) 350,000 347,135
- ----------------------------------------------------------------------
Unsec. Notes, 6.50%, 01/25/07 150,000 149,191
- ----------------------------------------------------------------------
Unsec. Notes, 6.88%, 02/01/06 35,000 35,364
======================================================================
756,965
======================================================================
DIVERSIFIED FINANCIAL SERVICES-8.21%
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%,
05/01/20 50,000 70,935
- ----------------------------------------------------------------------
Bombardier Capital Ltd. (Canada), Yankee
Notes, 7.50%, 08/15/04 (Acquired 06/19/02;
Cost $159,698)(a) 150,000 158,193
- ----------------------------------------------------------------------
CIT Group Inc., Sr. Notes, 7.13%, 10/15/04 40,000 40,225
- ----------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 200,000 209,122
- ----------------------------------------------------------------------
Citigroup Inc.,
Sr. Unsec. Notes, 4.13%, 06/30/05 110,000 110,860
- ----------------------------------------------------------------------
Unsec. Sub. Notes, 6.63%, 06/15/32 375,000 360,570
- ----------------------------------------------------------------------
Fidelity Investments, Bonds, 7.57%, 06/15/29
(Acquired 05/01/02-07/25/02; Cost
$218,028)(a) 200,000 215,700
- ----------------------------------------------------------------------
General Electric Capital Corp., Gtd. Sub.
Notes, 8.13%, 05/15/12 45,000 52,268
- ----------------------------------------------------------------------
Series A, Medium Term Notes, 5.00%,
06/15/07 200,000 204,836
- ----------------------------------------------------------------------
General Motors Acceptance Corp., Medium Term
Notes, 5.25%, 05/16/05 100,000 101,149
- ----------------------------------------------------------------------
Unsec. Unsub. Notes, 6.13%, 02/01/07 200,000 201,820
- ----------------------------------------------------------------------
Heller Financial, Inc., Unsec. Notes, 7.38%,
11/01/09 60,000 66,091
- ----------------------------------------------------------------------
John Hancock Global Funding II,
Medium Term Notes, 6.50%, 03/01/11
(Acquired 07/24/02; Cost $263,610)(a) 250,000 263,628
- ----------------------------------------------------------------------
Notes, 5.00%, 07/27/07 (Acquired 06/12/02;
Cost $99,945)(a) 100,000 102,184
- ----------------------------------------------------------------------
Lehman Brothers Holdings Inc., Notes, 6.63%,
01/18/12 60,000 62,501
======================================================================
2,220,082
======================================================================
ELECTRIC UTILITIES-0.44%
Cleveland Electric Illuminating Co.
(The)-Series D, Sec. Notes, 7.88%, 11/01/17 50,000 51,176
- ----------------------------------------------------------------------
Hydro-Quebec (Canada), Gtd. Yankee Bonds,
9.40%, 02/01/21 50,000 67,685
======================================================================
118,861
======================================================================
ENVIRONMENTAL SERVICES-0.95%
Waste Management, Inc., Unsec. Putable Notes,
7.10%, 08/01/03 250,000 256,665
======================================================================
</Table>
FS-87
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
GAS UTILITIES-0.21%
El Paso Corp., Medium Term Notes, 8.05%,
10/15/30 $ 80,000 $ 57,900
======================================================================
INTEGRATED OIL & GAS-0.25%
Occidental Petroleum Corp., Sr. Unsec. Notes,
7.38%, 11/15/08 60,000 67,031
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.65%
Sprint Capital Corp., Sr. Unsec. Gtd. Unsub.
Notes, 6.13%, 11/15/08 35,000 25,288
- ----------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Notes, 6.13%, 06/15/07 150,000 149,574
======================================================================
174,862
======================================================================
LIFE & HEALTH INSURANCE-1.22%
American General Corp., Unsec. Notes, 7.50%,
08/11/10 200,000 225,016
- ----------------------------------------------------------------------
American General Institute-Series A, Gtd.
Bonds, 7.57%, 12/01/45 (Acquired 07/18/02;
Cost $109,169)(a) 100,000 105,962
======================================================================
330,978
======================================================================
MULTI-LINE INSURANCE-1.14%
AIG SunAmerica Global Financing IX, Bonds,
6.90%, 03/15/32 (Acquired 07/31/02; Cost
$313,425)(a) 300,000 309,132
======================================================================
OIL & GAS-1.14%
Canadian Oil Sands Ltd. (Canada), Sr. Yankee
Notes, 7.90%, 09/01/21 (Acquired 07/31/02;
Cost $304,776)(a) 300,000 308,073
======================================================================
OIL & GAS EQUIPMENT & SERVICES-0.98%
Kinder Morgan Energy Partners, L.P., Sr.
Unsec. Notes, 7.13%, 03/15/12 250,000 265,233
======================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.76%
Colorado Interstate Gas Co., Sr. Unsec. Deb.,
10.00%, 06/15/05 50,000 55,537
- ----------------------------------------------------------------------
Devon Energy Corp., Sr. Unsec. Deb., 7.95%,
04/15/32 30,000 32,629
- ----------------------------------------------------------------------
Devon Financing Corp. ULC, Unsec. Gtd. Unsub.
Deb., 7.88%, 09/30/31 30,000 32,232
- ----------------------------------------------------------------------
Noble Energy, Inc., Sr. Unsec. Deb., 7.25%,
08/01/97 100,000 84,916
======================================================================
205,314
======================================================================
PHARMACEUTICALS-0.84%
Johnson & Johnson, Unsec. Deb., 8.72%,
11/01/24 200,000 228,652
======================================================================
PROPERTY & CASUALTY INSURANCE-0.10%
American Re Corp.-Series B, Sr. Unsec. Notes,
7.45%, 12/15/26 25,000 26,544
======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
REAL ESTATE INVESTMENT TRUSTS-0.19%
EOP Operating L.P.,
Sr. Unsec. Notes, 7.25%, 02/15/18 $ 30,000 $ 32,003
- ----------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 20,000 20,767
======================================================================
52,770
======================================================================
SOVEREIGN DEBT-1.29%
Export Development Canada (Canada), Yankee
Bonds, 4.00%, 08/01/07 350,000 349,374
======================================================================
Total Bonds & Notes (Cost $7,960,412) 7,914,234
======================================================================
ASSET-BACKED SECURITIES-1.55%
AIRLINES-0.62%
American Airlines, Inc.-Class A-1, Series
2001-1, Pass Through Ctfs., 6.98%, 05/23/21 64,623 63,486
- ----------------------------------------------------------------------
Continental Airlines, Inc.-Series 974A, Pass
Through Ctfs., 6.90%, 01/02/18 108,857 103,445
======================================================================
166,931
======================================================================
DIVERSIFIED FINANCIAL SERVICES-0.93%
Citicorp Lease-Class A-1, Series 1999-1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-06/19/02; Cost $247,976)(a) 234,378 251,311
======================================================================
Total Asset-Backed Securities (Cost
$414,304) 418,242
======================================================================
U.S. GOVERNMENT AGENCY SECURITIES-54.19%
FEDERAL HOME LOAN BANK-2.55%
Unsec. Bonds,
4.88%, 04/16/04 150,000 156,528
- ----------------------------------------------------------------------
5.70%, 03/03/09 500,000 533,055
======================================================================
689,583
======================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-19.15%
Pass Through Ctfs.,
6.50%, 06/01/16 to 05/01/32 199,122 206,775
- ----------------------------------------------------------------------
6.00%, 04/01/17 to 05/01/32 574,497 590,533
- ----------------------------------------------------------------------
7.50%, 04/01/17 to 03/01/32 314,938 333,096
- ----------------------------------------------------------------------
7.00%, 03/01/32 to 06/01/32 524,399 546,052
- ----------------------------------------------------------------------
Pass Through Ctfs., TBA,(c)
6.50%, 09/01/17 to 09/01/32(d) 1,475,000 1,519,180
- ----------------------------------------------------------------------
7.00%, 09/01/17 to 09/01/32 450,000 469,735
- ----------------------------------------------------------------------
6.00%, 09/01/32(d) 750,000 757,266
- ----------------------------------------------------------------------
7.50%, 09/01/32 225,000 237,164
- ----------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 500,000 520,395
======================================================================
5,180,196
======================================================================
</Table>
FS-88
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-21.05%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 $ 356,475 $ 376,403
- ----------------------------------------------------------------------
7.00%, 12/01/15 to 07/01/32 681,557 711,565
- ----------------------------------------------------------------------
6.50%, 05/01/16 to 05/01/17 166,588 173,702
- ----------------------------------------------------------------------
6.00%, 01/01/17 to 05/01/17 445,805 458,907
- ----------------------------------------------------------------------
8.00%, 08/01/21 to 08/01/31 248,983 266,052
- ----------------------------------------------------------------------
Pass Through Ctfs., TBA,(c)
6.00%, 09/01/32(d) 675,000 680,695
- ----------------------------------------------------------------------
6.50%, 09/01/32(d) 1,337,000 1,374,603
- ----------------------------------------------------------------------
Unsec. Bonds,
6.63%, 11/15/30 45,000 48,753
- ----------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 to 04/15/07 560,000 591,829
- ----------------------------------------------------------------------
4.25%, 07/15/07 500,000 505,990
- ----------------------------------------------------------------------
6.00%, 05/15/11 90,000 96,482
- ----------------------------------------------------------------------
6.20%, 06/13/17 150,000 153,743
- ----------------------------------------------------------------------
Unsec. Sub. Notes,
4.75%, 01/02/07 150,000 155,663
- ----------------------------------------------------------------------
5.25%, 08/01/12 100,000 98,858
======================================================================
5,693,245
======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-9.29%
Pass Through Ctfs.,
8.50%, 02/15/25 186,246 201,019
- ----------------------------------------------------------------------
8.00%, 08/15/25 45,361 48,677
- ----------------------------------------------------------------------
7.00%, 04/15/28 to 08/15/31 478,409 500,542
- ----------------------------------------------------------------------
7.50%, 12/15/30 to 05/15/32 258,441 273,802
- ----------------------------------------------------------------------
6.50%, 03/15/31 to 07/15/32 619,256 639,594
- ----------------------------------------------------------------------
6.00%, 12/15/31 to 01/15/32 274,551 278,478
- ----------------------------------------------------------------------
Pass Through Ctfs., TBA,(c)
6.50%, 09/01/32 350,000 360,828
- ----------------------------------------------------------------------
7.00%, 09/01/32 125,000 130,547
- ----------------------------------------------------------------------
7.50%, 09/01/32 75,000 79,641
======================================================================
2,513,128
======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
TENNESSEE VALLEY AUTHORITY-2.15%
Unsec. Bonds,
7.14%, 05/23/12 $ 500,000 $ 579,835
======================================================================
Total U.S. Government Agency Securities
(Cost $14,513,785) 14,655,987
======================================================================
U.S. TREASURY SECURITIES-33.83%
U.S. TREASURY BILLS-25.85%
1.67%, 08/29/02(e) 7,000,000 6,990,917
======================================================================
U.S. TREASURY NOTES-7.29%
3.25%, 12/31/03 210,000 214,068
- ----------------------------------------------------------------------
6.75%, 05/15/05 1,000,000 1,108,300
- ----------------------------------------------------------------------
6.50%, 10/15/06 to 02/15/10 260,000 294,995
- ----------------------------------------------------------------------
6.13%, 08/15/07 150,000 167,521
- ----------------------------------------------------------------------
4.75%, 11/15/08 180,000 188,633
======================================================================
1,973,517
======================================================================
U.S. TREASURY BONDS-0.69%
8.88%, 08/15/17 135,000 186,870
======================================================================
Total U.S. Treasury Securities (Cost
$9,108,744) 9,151,304
======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-5.00%
STIC Liquid Assets Portfolio(f) 676,791 676,791
- ----------------------------------------------------------------------
STIC Prime Portfolio(f) 676,791 676,791
======================================================================
Total Money Market Funds (Cost
$1,353,582) 1,353,582
======================================================================
TOTAL INVESTMENTS--123.83% (Cost $33,350,827) 33,493,349
======================================================================
OTHER ASSETS LESS LIABILITIES-(23.83%) (6,445,657)
======================================================================
NET ASSETS-100.00% $27,047,692
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Gtd. - Guaranteed
Jr. - Junior
N.A. - National Association
RAPS - Redeemable and Putable Securities
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Restricted securities. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at 07/31/02
was $1,769,552, which represented 6.54% of the Fund's net assets.
(b) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 07/31/02.
(c) Securities purchased on forward commitment basis.
(d) These securities are subject to dollar roll transactions. See Note 1 Section
B.
(e) The interest rate shown represents the rate of discount paid or received at
the time of purchase by the Fund.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-89
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$33,350,827) $33,493,349
- -----------------------------------------------------------
Receivables for:
Investments sold 311,333
- -----------------------------------------------------------
Fund shares sold 374,940
- -----------------------------------------------------------
Dividends and interest 261,456
- -----------------------------------------------------------
Investment for deferred compensation plan 1,218
- -----------------------------------------------------------
Other assets 27,452
===========================================================
Total assets 34,469,748
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 7,185,330
- -----------------------------------------------------------
Fund shares reacquired 186,829
- -----------------------------------------------------------
Dividends 6,906
- -----------------------------------------------------------
Deferred compensation plan 1,218
- -----------------------------------------------------------
Accrued distribution fees 18,757
- -----------------------------------------------------------
Accrued trustees' fees 837
- -----------------------------------------------------------
Accrued transfer agent fees 3,878
- -----------------------------------------------------------
Accrued operating expenses 18,301
===========================================================
Total liabilities 7,422,056
===========================================================
Net assets applicable to shares outstanding $27,047,692
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 9,324,539
___________________________________________________________
===========================================================
Class B $14,678,263
___________________________________________________________
===========================================================
Class C $ 3,044,890
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 914,968
___________________________________________________________
===========================================================
Class B 1,440,120
___________________________________________________________
===========================================================
Class C 298,760
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.19
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.19 divided
by 95.25%) $ 10.70
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 10.19
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 10.19
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE PERIOD DECEMBER 31, 2001 (DATE OPERATIONS COMMENCED) TO JULY 31, 2002
<Table>
INVESTMENT INCOME:
Interest $ 201,020
- ----------------------------------------------------------
Dividends from affiliated money market funds 16,310
==========================================================
Total investment income 217,330
__________________________________________________________
==========================================================
EXPENSES:
Advisory fees 26,520
- ----------------------------------------------------------
Administrative services fees 29,178
- ----------------------------------------------------------
Custodian fees 4,849
- ----------------------------------------------------------
Distribution fees -- Class A 7,055
- ----------------------------------------------------------
Distribution fees -- Class B 23,688
- ----------------------------------------------------------
Distribution fees -- Class C 9,195
- ----------------------------------------------------------
Registration and filing fees 30,060
- ----------------------------------------------------------
Printing fees 15,305
- ----------------------------------------------------------
Professional fees 23,513
- ----------------------------------------------------------
Transfer agent fees 12,121
- ----------------------------------------------------------
Trustees' fees 5,355
- ----------------------------------------------------------
Other 4,996
==========================================================
Total expenses 191,835
==========================================================
Less: Fees waived and expenses reimbursed (114,038)
- ----------------------------------------------------------
Expenses paid indirectly (100)
- ----------------------------------------------------------
Net expenses 77,697
==========================================================
Net investment income 139,633
==========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 87,097
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities 142,522
- ----------------------------------------------------------
Net gain from investment securities 229,619
==========================================================
Net increase in net assets resulting from
operations $ 369,252
__________________________________________________________
==========================================================
</Table>
See Notes to Financial Statements.
FS-90
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE PERIOD DECEMBER 31, 2001 (DATE OPERATIONS COMMENCED) TO JULY 31, 2002
<Table>
<Caption>
2002
-----------
OPERATIONS:
Net investment income $ 139,633
- ---------------------------------------------------------------------------
Net realized gain from investment securities 87,097
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities 142,522
===========================================================================
Net increase in net assets resulting from operations 369,252
===========================================================================
Distributions to shareholders from net investment income:
Class A (77,172)
- ---------------------------------------------------------------------------
Class B (73,438)
- ---------------------------------------------------------------------------
Class C (27,624)
- ---------------------------------------------------------------------------
Share transactions-net:
Class A 9,251,803
- ---------------------------------------------------------------------------
Class B 14,591,873
- ---------------------------------------------------------------------------
Class C 3,012,998
===========================================================================
Net increase in net assets 27,047,692
===========================================================================
NET ASSETS:
Beginning of period --
===========================================================================
End of period $27,047,692
___________________________________________________________________________
===========================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $26,827,563
- ---------------------------------------------------------------------------
Undistributed net investment income (1,218)
- ---------------------------------------------------------------------------
Undistributed net realized gain from investment securities 78,825
- ---------------------------------------------------------------------------
Unrealized appreciation of investment securities 142,522
===========================================================================
$27,047,692
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
FS-91
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Total Return Bond Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware business trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of eight
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers three different classes of shares: Class A
shares, Class B shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be 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
the Fund. The Fund's investment objective is to achieve maximum total return
consistent with preservation of capital. The Fund commenced operations on
December 31, 2001.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. 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. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
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 the Fund's shares are determined as of the close of the respective
markets. Occasionally, events affecting the values of such foreign
securities may occur between the times at which the particular foreign
market closes and the close of the customary trading session of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If a development/event is so significant that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. The Fund may engage in dollar roll
transactions with respect to mortgage backed securities issued by GNMA,
FNMA and FHLMC. In a dollar roll transaction, the Fund sells a mortgage
backed security held in the Fund to a financial institution such as a bank
or broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for the
Fund exceeding the yield on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event the buyer of
FS-92
securities in a dollar roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds from the sale of the securities
may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities.
Realized gains or losses on sales are computed on the basis of specific
identification of the securities sold. Interest income is recorded on the
accrual basis from settlement date. Dividend income is recorded on the
ex-dividend date. Bond premiums and discounts are amortized and/or accreted
for financial reporting purposes.
On July 31, 2002 shares of beneficial interest was decreased by $29,111,
undistributed net investment income was increased by $37,383 and
undistributed net realized gains decreased by $8,272 as a result of
differing book/tax treatment of nondeductible stock issuances costs,
reclassification of paydown gains/losses and other reclassifications. Net
assets of the Fund were unaffected by the reclassification discussed above.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$500 million of the Fund's average daily net assets, plus 0.45% on the next $500
million of the Fund's average daily net assets, plus 0.40% on the Fund's average
daily net assets in excess of $1 billion. AIM has agreed to waive and/or
reimburse expenses (excluding Rule 12b-1 plan fees, interest, taxes, dividends
on short sales, extraordinary items and increases in expenses due to expense
offset arrangements, if any) of Class A, Class B and Class C shares to the
extent necessary to limit the total annual fund operating expenses of Class A
expenses to 1.25%. Further, AIM has voluntarily agreed to waive advisory fees of
the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market fund of which the Fund has invested. For the period
December 31, 2001 (date operations commenced) through July 31, 2002, AIM waived
fees of $26,520 and reimbursed expenses of $85,502.
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. For the period December 31, 2001 (date
operations commenced) through July 31, 2002, AIM was paid $29,178 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 and
shareholder services to the Fund. During the period December 31, 2001 (date
operations commenced) through July 31, 2002, AFS retained $4,909 for such
services.
The Trust 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 Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C 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 under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. AIM Distributors has agreed to waive
0.10% of the Rule 12b-1 plan fees on Class A shares. For the period December 31,
2001 (date operations commenced) through July 31, 2002, the Class A, Class B and
Class C shares paid AIM Distributors $5,039, $23,688 and $9,195, respectively,
as compensation under the Plans. AIM Distributors waived fees of $2,016 for
Class A shares.
AIM Distributors retained commissions of $13,297 from sales of the Class A
shares of the Fund during the period December 31, 2001 (date operations
commenced) through July 31, 2002. Such commissions are not an expense of the
Fund. They are deducted from, and are not included in, the proceeds from sales
of Class A shares. During the period December 31, 2001 (date operations
commenced) through July 31, 2002, AIM Distributors retained $0, $0 and $14 in
contingent deferred sales charges imposed on redemptions of Class A, Class B and
Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the period December 31, 2001 (date operations commenced) through July
31, 2002, the Fund paid $1,390 for services rendered by Kramer, Levin, Naftalis
& Frankel LLP as counsel to the Board of Trustees. A member of that firm is a
trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the period December 31, 2001 (date operations commenced) through July 31,
2002, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) of $51 and reductions in custodian fees of $49 under expense
offset arrangements which resulted in a reduction of the Fund's total expenses
of $100.
FS-93
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party 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 the funds
based on their respective average net assets for the period.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2002 was as follows:
<Table>
<Caption>
2002
--------
Distributions paid from ordinary income $178,234
__________________________________________________________
==========================================================
</Table>
As of July 31, 2002, the components of distributable earnings on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 78,825
- ----------------------------------------------------------
Undistributed appreciation 141,304
==========================================================
$220,129
__________________________________________________________
==========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to deferral of Trustees compensation.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period December 31, 2001 (date
operations commenced) through July 31, 2002 was $39,466,276 and $15,809,500,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $180,764
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (38,242)
==========================================================
Net unrealized appreciation of investment
securities $142,522
__________________________________________________________
==========================================================
Investments have the same costs for tax and financial
statement purposes.
</Table>
NOTE 8--SHARE INFORMATION
Changes in shares outstanding during the period December 31, 2001 (date
operations commenced) through July 31, 2002 were as follows:
<Table>
<Caption>
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
JULY 31, 2002
------------------------
SHARES AMOUNT
--------- -----------
Sold:
Class A 992,436 $10,034,790
- -------------------------------------------------------------
Class B 1,538,451 15,590,664
- -------------------------------------------------------------
Class C 385,449 3,888,452
=============================================================
Issued as reinvestment of
dividends:
Class A 7,294 73,755
- -------------------------------------------------------------
Class B 6,117 61,932
- -------------------------------------------------------------
Class C 2,532 25,581
=============================================================
Reacquired:
Class A (84,762) (856,742)
- -------------------------------------------------------------
Class B (104,448) (1,060,723)
- -------------------------------------------------------------
Class C (89,221) (901,035)
=============================================================
2,653,848 $26,856,674
_____________________________________________________________
=============================================================
</Table>
FS-94
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
JULY 31,
2002
-----------------
Net asset value, beginning of period $10.00
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a)
- ---------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.23
=================================================================================
Total from investment operations 0.41
=================================================================================
Less dividends from net investment income (0.22)
=================================================================================
Net asset value, end of period $10.19
_________________________________________________________________________________
=================================================================================
Total return(b) 4.09%
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,325
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets:
With fee waivers and reimbursements 1.00%(c)
- ---------------------------------------------------------------------------------
Without fee waivers and reimbursements 3.21%(c)
=================================================================================
Ratio of net investment income to average net assets 3.10%(c)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate 215%
_________________________________________________________________________________
=================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less
than one year.
(c) Ratios are annualized and based on average daily net assets of
$3,454,144.
<Table>
<Caption>
CLASS B
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
JULY 31,
2002
-----------------
Net asset value, beginning of period $ 10.00
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a)
- ---------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.22
=================================================================================
Total from investment operations 0.36
=================================================================================
Less dividends from net investment income (0.17)
=================================================================================
Net asset value, end of period $ 10.19
_________________________________________________________________________________
=================================================================================
Total return(b) 3.65%
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,678
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets:
With fee waivers and reimbursements 1.75%(c)
- ---------------------------------------------------------------------------------
Without fee waivers and reimbursements 3.86%(c)
=================================================================================
Ratio of net investment income to average net assets 2.35%(c)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate 215%
_________________________________________________________________________________
=================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$4,059,180.
FS-95
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED) TO
JULY 31,
2002
-----------------
Net asset value, beginning of period $10.00
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a)
=================================================================================
Net gains on securities (both realized and unrealized) 0.22
=================================================================================
Total from investment operations 0.36
=================================================================================
Less dividends from net investment income (0.17)
=================================================================================
Net asset value, end of period $10.19
_________________________________________________________________________________
=================================================================================
Total return(b) 3.65%
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,045
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets:
With fee waivers and reimbursements 1.75%(c)
- ---------------------------------------------------------------------------------
Without fee waivers and reimbursements 3.86%(c)
=================================================================================
Ratio of net investment income to average net assets 2.35%(c)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate 215%
_________________________________________________________________________________
=================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,575,642.
FS-96
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
BONDS & NOTES-93.53%
ADVERTISING-0.26%
RH Donnelley Finance Corp. I, Sr. Notes,
8.88%, 12/15/10 (Acquired 11/26/02; Cost
$2,340,000)(a) $ 2,340,000 $ 2,503,800
=========================================================================
AEROSPACE & DEFENSE-0.38%
Dunlop Standard Aerospace Holdings PLC
(United Kingdom), Sr. Unsec. Sub. Yankee
Notes, 11.88%, 05/15/09 3,525,000 3,595,500
=========================================================================
AGRICULTURAL PRODUCTS-0.15%
Central Garden & Pet Co., Sr. Sub. Notes,
9.13%, 02/01/13 (Acquired 01/24/03; Cost
$1,345,000)(a)(b) 1,345,000 1,385,350
=========================================================================
AIRLINES-1.29%
Air Canada (Canada), Sr. Unsec. Global Notes,
10.25%, 03/15/11 8,130,000 3,943,050
- -------------------------------------------------------------------------
Northwest Airlines Inc.,
Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 7,780,000 5,173,700
- -------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04 3,760,000 3,064,400
=========================================================================
12,181,150
=========================================================================
ALTERNATIVE CARRIERS-0.16%
LCI International, Inc., Sr. Notes, 7.25%,
06/15/07 2,680,000 1,514,200
=========================================================================
APPAREL RETAIL-2.42%
Big 5 Corp.-Series B, Sr. Unsec. Notes,
10.88%, 11/15/07 7,579,000 7,920,055
- -------------------------------------------------------------------------
Gap, Inc. (The), Unsec. Unsub. Global Notes,
9.90%, 12/15/05 8,085,000 8,731,800
- -------------------------------------------------------------------------
Mothers Work, Inc., Sr. Unsec. Gtd. Notes,
11.25%, 08/01/10 5,790,000 6,195,300
=========================================================================
22,847,155
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.15%
Perry Ellis International Inc.-Series B, Sr.
Sec. Notes, 9.50%, 03/15/09 1,790,000 1,843,700
- -------------------------------------------------------------------------
Russell Corp., Sr. Unsec. Gtd. Global Notes,
9.25%, 05/01/10 4,400,000 4,708,000
- -------------------------------------------------------------------------
Samsonite Corp., Sr. Unsec. Sub Notes,
10.75%, 06/15/08 150,000 127,500
- -------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 10.88%, 08/15/11 3,805,000 4,214,037
=========================================================================
10,893,237
=========================================================================
AUTO PARTS & EQUIPMENT-0.30%
Dura Operating Corp.-Series B, Sr. Unsec.
Gtd. Global Notes, 8.63%, 04/15/12 425,000 425,000
- -------------------------------------------------------------------------
Intermet Corp., Sr. Unsec. Gtd. Global Notes,
9.75%, 06/15/09 2,670,000 2,362,950
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT-(CONTINUED)
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(b)(d) $23,770,000 $ 2
=========================================================================
2,787,952
=========================================================================
BANKS-0.65%
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12 6,300,000 6,174,000
=========================================================================
BROADCASTING & CABLE TV-15.09%
Acme Communications, Inc.-Series B, Sr.
Unsec. Unsub. Gtd. Notes, 10.88%, 09/30/04 14,105,000 14,492,887
- -------------------------------------------------------------------------
Adelphia Communications Corp.,
Series B, Sr. Unsec. Notes, 9.88%,
03/01/07(c) 4,220,000 1,888,450
- -------------------------------------------------------------------------
Sr. Unsec. Notes, 10.88%, 10/01/10(c) 9,595,000 4,293,762
- -------------------------------------------------------------------------
Allbritton Communications Co.,
Sr. Sub. Notes, 7.75%, 12/15/12
(Acquired 12/06/02-01/28/03;
Cost $7,891,862)(a)(b) 7,950,000 7,890,375
- -------------------------------------------------------------------------
Alliance Atlantis Communications Inc.
(Canada), Sr. Unsec. Sub. Yankee Notes,
13.00%, 12/15/09 7,045,000 7,925,625
- -------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Unsec. Sub. Disc. Notes, 9.92%,
04/01/11(e) 11,460,000 4,985,100
- -------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 11.13%,
01/15/11 4,610,000 2,328,050
- -------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Disc. Deb., 11.20%, 11/15/07 9,395,000 6,811,375
- -------------------------------------------------------------------------
CSC Holdings Inc.-Series B, Sr. Unsec. Unsub.
Notes, 7.63%, 04/01/11 9,895,000 9,548,675
- -------------------------------------------------------------------------
EchoStar DBS Corp., Sr. Unsec. Global Notes,
10.38%, 10/01/07 4,605,000 4,973,400
- -------------------------------------------------------------------------
Granite Broadcasting Corp., Sr. Sub. Notes,
10.38%, 05/15/05 1,778,000 1,626,870
- -------------------------------------------------------------------------
Gray Television Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 9.25%, 12/15/11 2,230,000 2,380,525
- -------------------------------------------------------------------------
Insight Midwest, L.P., Sr. Unsec. Global
Notes, 10.50%, 11/01/10 6,435,000 6,402,825
- -------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. Notes, 12.00%,
11/30/09 (Acquired 01/06/98-01/28/02; Cost
$18,371,219)(a) 10,698,000 6,445,545
- -------------------------------------------------------------------------
LBI Media Inc., Sr. Unsec. Gtd. Sub. Notes,
10.13%, 07/15/12 (Acquired 06/28/02; Cost
$5,340,000)(a) 5,340,000 5,633,700
- -------------------------------------------------------------------------
LIN Holdings Corp., Sr. Unsec. Disc. Notes,
10.00%, 03/01/08(e) 7,135,000 7,313,375
- -------------------------------------------------------------------------
Mediacomm LLC, Sr. Unsec. Notes, 9.50%,
01/15/13 8,140,000 7,855,100
- -------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11 4,515,000 4,853,625
- -------------------------------------------------------------------------
</Table>
FS-97
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Pegasus Communications Corp.
Series B, Sr. Notes, 9.63%, 10/15/05 $ 7,700,000 $ 5,582,500
- -------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 12.50%,
08/01/07 11,960,000 8,431,800
- -------------------------------------------------------------------------
Radio One, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 8.88%, 07/01/11 6,595,000 7,089,625
- -------------------------------------------------------------------------
Salem Communications Holding Corp.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 9.00%,
07/01/11 5,070,000 5,348,850
- -------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.63%, 11/01/09 6,114,000 6,327,990
- -------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee
Notes, 11.25%, 02/01/10(c) 12,385,000 1,300,425
- -------------------------------------------------------------------------
11.50%, 02/01/10(c) 8,200,000 861,000
=========================================================================
142,591,454
=========================================================================
BUILDING PRODUCTS-0.48%
Associated Materials Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.75%, 04/15/12 1,780,000 1,895,700
- -------------------------------------------------------------------------
Atrium Cos., Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.50%, 05/01/09 2,660,000 2,686,600
=========================================================================
4,582,300
=========================================================================
CASINOS & GAMBLING-4.02%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.75%, 02/15/09 2,320,000 2,470,800
- -------------------------------------------------------------------------
Boyd Gaming Corp.,
Sr. Unsec. Gtd. Global Notes, 9.25%,
08/01/09 4,705,000 5,128,450
- -------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 8.75%,
04/15/12 4,450,000 4,672,500
- -------------------------------------------------------------------------
Herbst Gaming, Inc.,
Series B, Sr. Sec. Global Notes, 10.75%,
09/01/08 4,450,000 4,705,875
- -------------------------------------------------------------------------
Sr. Sec. Notes, 10.75%, 09/01/08
(Acquired 01/24/03; Cost $966,625)(a)(b) 925,000 978,187
- -------------------------------------------------------------------------
Hollywood Casino Corp., Sr. Sec. Gtd.
Mortgage Notes, 11.25%, 05/01/07 6,410,000 6,906,775
- -------------------------------------------------------------------------
Hollywood Casino Corp./Shreveport Capital
Corp., Sr. Unsec. Gtd. Mortgage Notes,
13.00%, 08/01/06 2,960,000 2,619,600
- -------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 1,370,000 1,417,950
- -------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Global Notes, 7.50%, 09/01/09 5,235,000 5,365,875
- -------------------------------------------------------------------------
Venetian Casino Resort, LLC, Sec. Gtd.
Mortgage Global Notes, 11.00%, 06/15/10 3,565,000 3,707,600
=========================================================================
37,973,612
=========================================================================
COMMODITY CHEMICALS-0.65%
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.25%, 07/01/11 3,590,000 3,778,475
- -------------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes,
8.75%, 08/15/12 2,225,000 2,358,500
=========================================================================
6,136,975
=========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.05%
Seagate Technology, Sr. Unsec. Gtd. Global
Notes, 8.00%, 05/15/09 $ 480,000 $ 502,800
=========================================================================
CONSTRUCTION & ENGINEERING-0.77%
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes,
10.50%, 06/01/08 9,020,000 7,261,100
=========================================================================
CONSTRUCTION, FARM MACHINERY & HEAVY
TRUCKS-0.63%
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 07/15/11 6,380,000 5,965,300
=========================================================================
CONSTRUCTION MATERIALS-0.70%
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 7,720,000 6,600,600
=========================================================================
DEPARTMENT STORES-0.67%
JC Penney Co. Inc., Unsec. Notes, 7.60%,
04/01/07 6,240,000 6,372,600
=========================================================================
DISTILLERS & VINTNERS-0.46%
Constellation Brands, Inc.-Series B, Sr. Gtd.
Sub. Notes, 8.13%, 01/15/12 4,330,000 4,384,125
=========================================================================
DISTRIBUTORS-0.09%
AmeriGas Partners, L.P., Sr. Unsec. Global
Notes, 8.88%, 05/20/11 810,000 878,850
=========================================================================
DIVERSIFIED CHEMICALS-1.44%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 6,580,000 6,020,700
- -------------------------------------------------------------------------
FMC Corp., Sr. Sec. Notes, 10.25%, 11/01/09
(Acquired 10/09/02; Cost $1,975,440)(a) 2,000,000 2,140,000
- -------------------------------------------------------------------------
Huntsman International LLC, Sr. Unsec. Gtd.
Global Notes, 9.88%, 03/01/09 5,500,000 5,472,500
=========================================================================
13,633,200
=========================================================================
DIVERSIFIED FINANCIAL SERVICES-1.40%
Qwest Capital Funding, Inc., Unsec. Gtd.
Global Notes,
7.00%, 08/03/09 5,370,000 3,973,800
- -------------------------------------------------------------------------
7.25%, 02/15/11 4,475,000 3,266,750
- -------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10 6,170,000 5,954,050
=========================================================================
13,194,600
=========================================================================
DRUG RETAIL-0.64%
Rite Aid Corp., Sr. Unsec. Unsub. Notes,
7.13%, 01/15/07 7,070,000 6,062,525
=========================================================================
ELECTRIC UTILITIES-1.31%
AES Corp. (The), Sec. Notes, 10.00%, 07/15/05
(Acquired 12/13/02; Cost $3,400,826)(a) 3,608,000 3,589,960
- -------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 5,870,000 2,788,250
- -------------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 3,425,000 2,945,500
- -------------------------------------------------------------------------
</Table>
FS-98
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 $11,150,000 $ 3,066,250
=========================================================================
12,389,960
=========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.12%
Flextronics International Ltd. (Singapore),
Sr. Unsec. Sub. Yankee Notes, 9.88%,
07/01/10 5,530,000 5,972,400
- -------------------------------------------------------------------------
Sanmina-SCI Corp., Sr. Sec. Notes, 10.38%,
01/15/10 (Acquired 12/18/02-12/20/02; Cost
$4,478,394)(a) 4,475,000 4,654,000
=========================================================================
10,626,400
=========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-1.80%
Fisher Scientific International Inc.,
Sr. Sub. Global Notes, 8.13%, 05/01/12
(Acquired 01/09/03; Cost $3,764,800)(a)(b) 3,620,000 3,801,000
- -------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.13%, 05/01/12 4,395,000 4,625,737
- -------------------------------------------------------------------------
Knowles Electronics Inc., Sr. Unsec. Gtd.
Sub. Notes, 13.13%, 10/15/09 8,860,000 5,891,900
- -------------------------------------------------------------------------
Solectron Corp., Sr. Unsec. Notes, 9.63%,
02/15/09 2,645,000 2,697,900
=========================================================================
17,016,537
=========================================================================
EMPLOYMENT SERVICES-0.33%
MSX International, Inc., Sr. Unsec. Gtd. Sub.
Notes, 11.38%, 01/15/08 8,075,000 3,108,875
=========================================================================
ENVIRONMENTAL SERVICES-0.91%
Allied Waste North America Inc.,
Series B, Sr. Gtd. Sub. Global Notes,
8.50%, 12/01/08 4,365,000 4,430,475
- -------------------------------------------------------------------------
Sr. Sec. Gtd. Notes, 9.25%, 09/01/12
(Acquired 11/12/02; Cost $4,000,000)(a) 4,000,000 4,150,000
=========================================================================
8,580,475
=========================================================================
FOOD DISTRIBUTORS-0.59%
Fleming Cos., Inc.,
Series D, Sr. Unsec. Gtd. Sub. Global
Notes, 10.63%, 07/31/07 3,565,000 1,764,675
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.13%,
04/01/08 1,000,000 715,000
- -------------------------------------------------------------------------
Roundy's, Inc., Sr. Sub. Notes, 8.88%,
06/15/12 (Acquired 12/12/02; Cost
$3,109,375)(a) 3,125,000 3,062,594
=========================================================================
5,542,269
=========================================================================
FOREST PRODUCTS-1.94%
Georgia-Pacific Corp., Sr. Unsec. Notes,
8.88%, 02/01/10 (Acquired 01/23/03; Cost
$4,903,416)(a)(b) 4,935,000 4,910,325
- -------------------------------------------------------------------------
Louisiana-Pacific Corp.,
Sr. Unsec. Notes, 8.50%, 08/15/05 5,355,000 5,569,200
- -------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.88%, 11/15/08 2,610,000 2,831,850
- -------------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Yankee Notes, 9.88%, 05/15/08 5,180,000 5,050,500
=========================================================================
18,361,875
=========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.95%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 $ 9,500,000 $ 8,977,500
=========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-0.59%
AmerisourceBergen Corp., Sr. Notes, 7.25%,
11/15/12 (Acquired 11/12/02; Cost
$2,685,000)(a) 2,685,000 2,772,262
- -------------------------------------------------------------------------
NDCHealth Corp., Sr. Unsec. Sub. Notes,
10.50%, 12/01/12 (Acquired
11/18/02-11/21/02; Cost $2,698,750)(a) 2,710,000 2,791,300
=========================================================================
5,563,562
=========================================================================
HEALTH CARE EQUIPMENT-1.18%
CONMED Corp., Sr. Unsec. Gtd. Sub. Notes,
9.00%, 03/15/08 2,140,000 2,214,900
- -------------------------------------------------------------------------
Medquest Inc., Sr. Sub. Notes, 11.88%,
08/15/12 (Acquired 08/08/02; Cost
$2,593,582)(a) 2,650,000 2,544,000
- -------------------------------------------------------------------------
Radiologix, Inc.-Series B, Sr. Unsec. Gtd.
Global Notes, 10.50%, 12/15/08 3,540,000 2,672,700
- -------------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09 3,420,000 3,744,900
=========================================================================
11,176,500
=========================================================================
HEALTH CARE FACILITIES-2.32%
Hanger Orthopedic Group, Inc.,
Sr. Gtd. Sub. Notes, 11.25%, 06/15/09 4,750,000 4,987,500
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.38%,
02/15/09 840,000 890,400
- -------------------------------------------------------------------------
Select Medical Corp., Sr. Unsec. Sub. Global
Notes, 9.50%, 06/15/09 8,285,000 8,740,675
- -------------------------------------------------------------------------
Triad Hospitals, Inc.-Series B, Sr. Unsec.
Gtd. Global Notes, 8.75%, 05/01/09 2,665,000 2,864,875
- -------------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 10.00%,
12/15/11 4,275,000 4,467,375
=========================================================================
21,950,825
=========================================================================
HEALTH CARE SUPPLIES-0.56%
DJ Orthopedics LLC, Sr. Unsec. Gtd. Sub.
Notes, 12.63%, 06/15/09 5,275,000 5,248,625
=========================================================================
HOME FURNISHINGS-1.04%
Sealy Mattress Co.-Series B, Sr. Gtd. Sub.
Notes, 9.88%, 12/15/07 8,130,000 8,130,000
- -------------------------------------------------------------------------
Winsloew Furniture, Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 12.75%, 08/15/07 2,025,000 1,670,625
=========================================================================
9,800,625
=========================================================================
HOMEBUILDING-2.69%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Global Notes 8.38%, 04/15/12 3,515,000 3,664,388
- -------------------------------------------------------------------------
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 3,400,000 3,723,000
- -------------------------------------------------------------------------
KB HOME, Sr. Sub. Notes, 7.75%, 02/01/10 4,485,000 4,456,969
- -------------------------------------------------------------------------
</Table>
FS-99
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
HOMEBUILDING-(CONTINUED)
Schuler Homes, Inc.
Sr. Unsec. Gtd. Global Notes, 10.50%,
07/15/11 $ 3,017,000 $ 3,182,935
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 4,050,000 4,181,625
- -------------------------------------------------------------------------
WCI Communities Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 02/15/11 6,250,000 6,187,500
=========================================================================
25,396,417
=========================================================================
HOTELS, RESORTS & CRUISE LINES-2.81%
HMH Properties Inc., Sr. Sec. Gtd. Notes,
7.88%, 08/01/08 1,805,000 1,696,700
- -------------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Unsec. Gtd.
Global Notes, 10.50%, 02/01/10 5,990,000 6,319,450
- -------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., Sr. First
Mortgage Global Notes, 8.88%, 05/15/12 3,510,000 3,580,200
- -------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11 4,380,000 4,533,300
- -------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia), Sr.
Unsec. Unsub. Global Notes, 8.75%, 02/02/11 6,920,000 6,470,200
- -------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Notes, 7.88%, 05/01/12 (Acquired
04/11/02-09/13/02; Cost $4,003,296)(a) 4,025,000 3,994,813
=========================================================================
26,594,663
=========================================================================
HOUSEHOLD APPLIANCES-0.62%
Salton, Inc., Sr. Unsec. Gtd. Sub. Notes,
10.75%, 12/15/05 5,850,000 5,850,000
=========================================================================
INDUSTRIAL CONGLOMERATES-0.50%
Tyco International Group S.A. (Luxembourg),
Sr. Gtd. Conv. Putable Notes, 2.75%,
01/15/08
(Acquired 01/07/03; Cost $2,232,000)(a)(b) 2,232,000 2,243,160
- -------------------------------------------------------------------------
Sr. Gtd. Conv. Putable Notes, 3.13%,
01/15/15
(Acquired 01/07/03; Cost $2,477,000)(a)(b) 2,477,000 2,492,481
=========================================================================
4,735,641
=========================================================================
INDUSTRIAL GASES-0.65%
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12 6,255,000 6,129,900
=========================================================================
INDUSTRIAL MACHINERY-1.27%
Actuant Corp., Sr. Unsec. Gtd. Sub. Notes,
13.00%, 05/01/09 856,000 1,005,800
- -------------------------------------------------------------------------
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 8,000,000 8,120,000
- -------------------------------------------------------------------------
Manitowoc Co. Inc. (The), Sr. Sub. Notes,
10.50%, 08/01/12 (Acquired
08/02/02-11/04/02; Cost $2,692,250)(a) 2,690,000 2,837,950
=========================================================================
11,963,750
=========================================================================
INTEGRATED OIL & GAS-1.73%
El Paso CGP Co., Unsec. Notes, 7.75%,
06/15/10 4,560,000 3,807,600
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
INTEGRATED OIL & GAS-(CONTINUED)
El Paso Energy Partners, L.P.,
Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 8.50%, 06/01/11 $ 2,330,000 $ 2,283,400
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 8.50%, 06/01/11
(Acquired 05/14/02-10/11/02;
Cost $10,118,238)(a) 10,470,000 10,260,600
=========================================================================
16,351,600
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.71%
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 10,720,000 7,504,000
- -------------------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Sub. Yankee
Notes, 11.25%, 12/01/09 6,380,000 6,922,300
- -------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Unsub. Gtd.
Global Notes, 6.13%, 11/15/08 2,000,000 1,742,500
=========================================================================
16,168,800
=========================================================================
LEISURE FACILITIES-1.35%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 3,830,000 3,782,125
- -------------------------------------------------------------------------
Six Flags, Inc.,
Sr. Unsec. Global Notes, 8.88%, 02/01/10 4,750,000 4,441,250
- -------------------------------------------------------------------------
Sr. Unsec. Global Notes, 9.50%, 02/01/09 875,000 835,625
- -------------------------------------------------------------------------
Sr. Unsec. Notes, 9.75%, 06/15/07 3,835,000 3,719,950
=========================================================================
12,778,950
=========================================================================
MARINE-0.14%
Stena A.B. (Sweden), Sr. Notes, 9.63%,
12/01/12 (Acquired 11/22/02; Cost
$1,305,000)(a)(b) 1,305,000 1,363,725
=========================================================================
METAL & GLASS CONTAINERS-3.73%
AEP Industries Inc., Sr. Unsec. Sub. Notes,
9.88%, 11/15/07 1,900,000 1,700,500
- -------------------------------------------------------------------------
Anchor Glass Container Corp.,
Sr. Sec. Notes, 11.00%, 02/15/13
(Acquired 01/31/03; Cost
$6,245,000)(a)(b)(d) 6,245,000 6,245,000
- -------------------------------------------------------------------------
Sr. Sec. Sub. First Mortgage Notes,
11.25%, 04/01/05 5,800,000 5,785,500
- -------------------------------------------------------------------------
Ball Corp., Sr. Notes, 6.88%, 12/15/12
(Acquired 12/05/02; Cost $1,820,000)(a) 1,820,000 1,856,400
- -------------------------------------------------------------------------
Greif Brothers Corp., Sr. Unsec. Gtd. Sub.
Global Notes, 8.88%, 08/01/12 6,290,000 6,698,850
- -------------------------------------------------------------------------
Jarden Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.75%, 05/01/12 4,194,000 4,372,245
- -------------------------------------------------------------------------
Owens-Brockway, Sr. Sec. Notes, 8.75%,
11/15/12 (Acquired 11/05/02; Cost
$3,600,000)(a) 3,600,000 3,636,000
- -------------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 09/01/11 4,535,000 4,807,100
- -------------------------------------------------------------------------
Stone Container Corp., Sr. Unsec. Global
Notes, 8.38%, 07/01/12 150,000 156,000
=========================================================================
35,257,595
=========================================================================
</Table>
FS-100
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.06%
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.50%, 02/01/11 $10,330,000 $ 9,994,275
=========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.32%
Transcontinental Gas Pipe Line, Notes, 6.13%,
01/15/05 3,095,000 3,017,625
=========================================================================
OFFICE ELECTRONICS-0.20%
Xerox Corp., Sr. Notes, 9.75%, 01/15/09
(Acquired 01/08/03; Cost $1,800,950)(a)(b) 1,810,000 1,873,350
=========================================================================
OFFICE SERVICES & SUPPLIES-0.32%
Falcon Products, Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 11.38%, 06/15/09 4,230,000 2,982,150
=========================================================================
OIL & GAS DRILLING-1.01%
Pride International, Inc., Sr. Unsec. Notes,
10.00%, 06/01/09 8,765,000 9,510,025
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.43%
Grant Prideco Escrow Corp., Sr. Notes, 9.00%,
12/15/09 (Acquired 11/25/02; Cost
$1,805,000)(a) 1,805,000 1,877,200
- -------------------------------------------------------------------------
Hanover Equipment Trust-Series 2001-A, Sr.
Sec. Notes, 8.50%, 09/01/08 (Acquired
08/05/02-10/24/02; Cost $4,587,213)(a) 5,390,000 5,120,500
- -------------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11 6,335,000 6,556,725
=========================================================================
13,554,425
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.99%
Chesapeake Energy Corp.,
Sr. Notes, 7.75%, 01/15/15 (Acquired
12/13/02;
Cost $2,198,377)(a) 2,220,000 2,264,400
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 8.38%, 11/01/08 2,720,000 2,862,800
- -------------------------------------------------------------------------
Comstock Resources, Inc., Sr. Unsec. Gtd.
Notes, 11.25%, 05/01/07 3,060,000 3,304,800
- -------------------------------------------------------------------------
Pogo Producing Co.-Series B, Sr. Unsec. Sub.
Notes, 10.38%, 02/15/09 4,880,000 5,294,800
- -------------------------------------------------------------------------
Swift Energy Co., Sr. Unsec. Sub. Notes,
9.38%, 05/01/12 2,200,000 2,189,000
- -------------------------------------------------------------------------
Westport Resources Corp., Sr. Sub. Notes,
8.25%, 11/01/11 (Acquired 12/11/02; Cost
$2,791,300)(a) 2,710,000 2,872,600
=========================================================================
18,788,400
=========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-3.45%
Frontier Oil Corp., Sr. Unsec. Sub. Notes,
11.75%, 11/15/09 10,000,000 10,600,000
- -------------------------------------------------------------------------
Premco Refining Group Inc. (The),
Sr. Notes, 9.25%, 02/01/10 (Acquired
01/28/03;
Cost $2,680,000)(a)(b) 2,680,000 2,700,100
- -------------------------------------------------------------------------
Sr. Notes, 9.50%, 02/01/13 (Acquired
01/28/03;
Cost $3,600,000)(a)(b) 3,600,000 3,627,000
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING & TRANSPORTATION-(CONTINUED)
Tesoro Petroleum Corp., Sr. Unsec. Sub.
Global Notes, 9.63%, 04/01/12 $ 890,000 $ 582,950
- -------------------------------------------------------------------------
Texas Petrochemical Corp., Sr. Unsec. Sub.
Notes, 11.13%, 07/01/06 10,045,000 6,479,025
- -------------------------------------------------------------------------
Western Gas Resources, Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 06/15/09 8,000,000 8,600,000
=========================================================================
32,589,075
=========================================================================
PACKAGED FOODS & MEATS-0.35%
Dole Food Co., Inc., Sr. Unsec. Global Notes,
7.25%, 05/01/09 3,445,000 3,350,263
=========================================================================
PAPER PACKAGING-0.39%
Graphic Packaging Corp., Unsec. Gtd. Sub.
Global Notes, 8.63%, 02/15/12 3,425,000 3,647,625
=========================================================================
PAPER PRODUCTS-0.81%
Cascades Inc. (Canada), Sr. Notes, 7.25%,
02/15/13 (Acquired 01/31/03; Cost
$3,570,000)(a)(b)(d) 3,570,000 3,570,000
- -------------------------------------------------------------------------
Tembec Industries Inc. (Canada), Sr. Unsec.
Gtd. Global Notes, 7.75%, 03/15/12 4,255,000 4,042,250
=========================================================================
7,612,250
=========================================================================
PERSONAL PRODUCTS-1.76%
Armkel LLC, Sr. Sub. Global Notes, 9.50%,
08/15/09 3,160,000 3,444,400
- -------------------------------------------------------------------------
Elizabeth Arden, Inc., Sr. Sec. Global Notes,
11.75%, 02/01/11 8,045,000 8,447,250
- -------------------------------------------------------------------------
Herbalife International, Inc., Sr. Sub.
Notes, 11.75%, 07/15/10 (Acquired
06/21/02-12/06/02; Cost $4,466,790)(a) 4,520,000 4,723,400
=========================================================================
16,615,050
=========================================================================
PHARMACEUTICALS-1.89%
aaiPharma Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 11.00%, 04/01/10 10,240,000 10,596,498
- -------------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee
Notes, 7.88%, 04/01/10 7,010,000 7,220,300
=========================================================================
17,816,798
=========================================================================
PUBLISHING-1.29%
American Media Operations, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 10.25%,
05/01/09 4,350,000 4,654,500
- -------------------------------------------------------------------------
Dex Media East LLC, Sr. Notes, 9.88%,
11/15/09 (Acquired 10/30/02; Cost
$2,660,000)(a) 2,660,000 2,839,550
- -------------------------------------------------------------------------
PRIMEDIA Inc., Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11 4,910,000 4,689,050
=========================================================================
12,183,100
=========================================================================
RAILROADS-1.85%
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 9.50%, 10/01/08 5,739,000 6,341,595
- -------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 5,560,000 5,671,200
- -------------------------------------------------------------------------
</Table>
FS-101
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
RAILROADS-(CONTINUED)
TFM S.A. de C.V. (Mexico), Sr. Unsec. Gtd.
Yankee Deb., 11.75%, 06/15/09 $ 5,858,000 $ 5,477,230
=========================================================================
17,490,025
=========================================================================
REAL ESTATE-1.18%
Host Marriott L.P.,
Series E, Sr. Sec. Gtd. Notes, 8.38%,
02/15/06 300,000 295,500
- -------------------------------------------------------------------------
Series G, Sr. Gtd. Global Notes, 9.25%,
10/01/07 2,845,000 2,859,225
- -------------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes,
9.50%, 01/15/07 2,035,000 2,065,525
- -------------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 570,000 601,350
- -------------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Global Notes, 9.13%, 01/15/11 5,320,000 4,362,400
- -------------------------------------------------------------------------
RFS Partnership L.P., Sr. Unsec. Gtd. Global
Notes, 9.75%, 03/01/12 980,000 999,600
=========================================================================
11,183,600
=========================================================================
RESTAURANTS-0.09%
Perkins Family Restaurants, L.P.-Series B,
Sr. Unsec. Notes, 10.13%, 12/15/07 970,000 873,000
=========================================================================
SEMICONDUCTORS-0.38%
ON Semiconductor Corp., Sr. Sec. Gtd. Notes,
12.00%, 05/15/08 (Acquired
05/01/02-06/11/02; Cost $4,314,771)(a) 4,515,000 3,634,575
=========================================================================
SPECIALTY CHEMICALS-0.96%
Macdermid Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.13%, 07/15/11 830,000 900,550
- -------------------------------------------------------------------------
Millennium America, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.25%, 06/15/08 4,935,000 5,113,894
- -------------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 4,485,000 3,027,375
=========================================================================
9,041,819
=========================================================================
SPECIALTY STORES-2.65%
Advance Stores Co., Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 10.25%, 04/15/08 7,655,000 8,114,300
- -------------------------------------------------------------------------
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes,
12.00%, 06/15/06 3,100,000 3,301,500
- -------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 10.75%, 11/01/11 4,390,000 4,829,000
- -------------------------------------------------------------------------
Petro Stopping Centers L.P., Sr. Unsec.
Notes, 10.50%, 02/01/07 2,160,000 2,062,800
- -------------------------------------------------------------------------
United Rentals North America Inc.,
Series B, Sr. Unsec. Gtd. Global Notes,
10.75%, 04/15/08 4,085,000 4,064,575
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 10.75%, 04/15/08
(Acquired 12/17/02; Cost $2,629,920)(a) 2,710,000 2,696,450
=========================================================================
25,068,625
=========================================================================
TRUCKING-1.10%
Avis Group Holdings, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 11.00%, 05/01/09 3,005,000 3,358,088
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
TRUCKING-(CONTINUED)
North American Van Lines, Sr. Unsec. Gtd.
Sub. Global Notes, 13.38%, 12/01/09 $ 6,825,000 $ 6,995,625
=========================================================================
10,353,713
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.36%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(e)(f) 5,745,000 545,775
- -------------------------------------------------------------------------
Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc.
Notes, 12.88%, 02/15/10(e) 2,725,000 545,000
- -------------------------------------------------------------------------
American Tower Escrow Corp., Sr. Sub. Disc.
Notes, 12.26%, 08/01/08 (Acquired 01/22/03;
Cost $2,096,828)(a)(b)(f)(g) 4,035,000 2,400,825
- -------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Global Notes, 14.00%, 10/01/10(e) 4,865,000 267,575
- -------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10(e) 5,760,000 259,200
- -------------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Global
Notes, 14.00%, 01/15/11 10,020,000 1,853,700
- -------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Notes,
12.00%, 11/01/08 9,705,000 10,141,725
- -------------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
08/15/10 7,860,000 2,240,100
- -------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global
Notes, 10.25%, 02/01/09 5,105,000 3,190,625
- -------------------------------------------------------------------------
Spectrasite Holdings, Inc.,
Sr. Disc. Notes, 12.00%, 07/15/08(e) 8,555,000 3,229,513
- -------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%, 04/15/09(e) 1,490,000 521,500
- -------------------------------------------------------------------------
Tritel PCS Inc.,
Sr. Unsec. Gtd. Sub. Disc. Notes,
12.75%, 05/15/09(e) 2,690,000 2,595,850
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes, 10.38%,
01/15/11 2,679,000 2,980,388
- -------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd. Sub.
Disc. Notes, 14.00%, 04/15/10(e) 7,980,000 518,700
- -------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec. Gtd.
Sub. Disc. Notes, 13.38%, 11/01/09(e) 4,580,000 480,900
=========================================================================
31,771,376
=========================================================================
Total Bonds & Notes (Cost $1,006,027,567) 883,908,598
=========================================================================
<Caption>
SHARES
WARRANTS & OTHER EQUITY INTERESTS-2.57%
BROADCASTING & CABLE TV-1.14%
Cablevision Systems New York Group
Series H, 11.75% Pfd. 35,680 3,478,800
- -------------------------------------------------------------------------
Series M, 11.13% PIK Pfd. 69,120 6,808,320
- -------------------------------------------------------------------------
Knology Inc.
Series D, Conv. Pfd. (Acquired 11/07/02;
Cost $0)(a)(b)(i) 605,183 453,887
- -------------------------------------------------------------------------
Wts., expiring 10/22/07 (Acquired 03/12/98-
02/01/00; Cost $270)(a)(b)(d)(h) 47,295 0
- -------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Rts., expiring 02/14/03(d)(i) 6,593 0
=========================================================================
10,741,007
=========================================================================
</Table>
FS-102
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
CONSTRUCTION MATERIALS-0.00%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00-01/30/01; Cost
$10,000)(a)(b)(h) 9,580 $ 4,790
=========================================================================
GENERAL MERCHANDISE STORES-0.01%
Travelcenters of America Inc.-Wts., expiring
05/01/09 (Acquired 01/29/01; Cost
$0)(a)(b)(h) 13,500 138,375
=========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.
Series B, Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(a)(b)(h) 20,195 202
- -------------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(a)(b)(h) 20,195 202
- -------------------------------------------------------------------------
Winsloew Escrow Corp.-Wts., expiring 08/15/07
(Acquired 12/06/99; Cost $0)(a)(b)(h) 2,025 21,263
=========================================================================
21,667
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
KMC Telecom Holdings, Inc.-Wts., expiring
4/15/08(h) 35 9
=========================================================================
RAILROADS-0.00%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(b)(h) 14,375 17,969
=========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.00%
Loral Space & Communications, Ltd.-Wts.,
expiring 12/26/06(h) 68,302 4,098
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-1.42%
Celcaribe S.A., Ordinary Trust Ctfs.
(Acquired 05/17/94-01/23/97; Cost
$0)(a)(b)(d)(i) 2,276,400 $ 22,764
- -------------------------------------------------------------------------
Dobson Communications Corp.-12.25% PIK Pfd. 22,658 13,368,220
- -------------------------------------------------------------------------
Horizon PCS, Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(a)(b)(h) 27,480 27
- -------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(a)(b)(h) 5,880 1,470
- -------------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(a)(b)(h) 13,320 3,330
- -------------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(b)(h) 15,155 152
- -------------------------------------------------------------------------
Ubiquitel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(a)(b)(h) 25,910 9,716
=========================================================================
13,405,679
=========================================================================
Total Warrants and Other Equity Interests
(Cost $29,599,237) 24,333,594
=========================================================================
MONEY MARKET FUNDS-2.82%
STIC Liquid Assets Portfolio(j) 13,333,553 13,333,553
- -------------------------------------------------------------------------
STIC Prime Portfolio(j) 13,333,553 13,333,553
=========================================================================
Total Money Market Funds (Cost
$26,667,106) 26,667,106
=========================================================================
TOTAL INVESTMENTS-98.92% (Cost
$1,062,293,910) 934,909,298
=========================================================================
OTHER ASSETS LESS LIABILITIES-1.08% 10,183,863
=========================================================================
NET ASSETS-100.00% $945,093,161
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
Rts. - Rights
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/03 was $135,056,624,
which represented 14.29% of the Fund's net assets.
(b) Security considered to be illiquid. The aggregate market value of securities
considered illiquid at 01/31/03 was $46,155,027, which represented 4.88% of
the Fund's net assets.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(e) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(f) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit includes warrants to purchase
common or preferred shares of the issuer.
(g) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(h) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(i) Non-income producing security.
(j) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-103
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$1,062,293,910) $934,909,298
- -----------------------------------------------------------
Receivables for:
Investments sold 19,349,196
- -----------------------------------------------------------
Fund shares sold 2,253,462
- -----------------------------------------------------------
Dividends and interest 22,248,268
- -----------------------------------------------------------
Investment for deferred compensation plan 74,498
- -----------------------------------------------------------
Other assets 52,118
===========================================================
Total assets 978,886,840
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 25,768,337
- -----------------------------------------------------------
Fund shares reacquired 3,177,663
- -----------------------------------------------------------
Dividends 3,578,939
- -----------------------------------------------------------
Deferred compensation plan 74,498
- -----------------------------------------------------------
Accrued distribution fees 538,783
- -----------------------------------------------------------
Accrued trustees' fees 1,083
- -----------------------------------------------------------
Accrued transfer agent fees 394,583
- -----------------------------------------------------------
Accrued operating expenses 259,793
===========================================================
Total liabilities 33,793,679
===========================================================
Net assets applicable to shares outstanding $945,093,161
___________________________________________________________
===========================================================
NET ASSETS:
Class A $449,581,469
___________________________________________________________
===========================================================
Class B $444,139,531
___________________________________________________________
===========================================================
Class C $ 51,372,161
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 119,512,104
___________________________________________________________
===========================================================
Class B 117,727,154
___________________________________________________________
===========================================================
Class C 13,665,008
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 3.76
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $3.76 divided by
95.25%) $ 3.95
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 3.77
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 3.76
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 54,420,152
- ------------------------------------------------------------
Dividends 1,034,898
- ------------------------------------------------------------
Dividends from affiliated money market funds 358,153
============================================================
Total investment income 55,813,203
============================================================
EXPENSES:
Advisory fees 2,546,326
- ------------------------------------------------------------
Administrative services fees 106,370
- ------------------------------------------------------------
Custodian fees 63,413
- ------------------------------------------------------------
Distribution fees -- Class A 549,470
- ------------------------------------------------------------
Distribution fees -- Class B 2,247,046
- ------------------------------------------------------------
Distribution fees -- Class C 244,437
- ------------------------------------------------------------
Transfer agent fees 1,436,424
- ------------------------------------------------------------
Trustees' fees 6,535
- ------------------------------------------------------------
Other 203,796
============================================================
Total expenses 7,403,817
============================================================
Less: Fees waived (2,389)
- ------------------------------------------------------------
Expenses paid indirectly (35,777)
============================================================
Net expenses 7,365,651
============================================================
Net investment income 48,447,552
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (165,436,865)
- ------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 185,290,851
============================================================
Net gain from investment securities 19,853,986
============================================================
Net increase in net assets resulting from
operations $ 68,301,538
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-104
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 48,447,552 $ 141,056,268
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (165,436,865) (486,124,409)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 185,290,851 148,209,888
================================================================================================
Net increase (decrease) in net assets resulting from
operations 68,301,538 (196,858,253)
================================================================================================
Distributions to shareholders from net investment income:
Class A (24,346,702) (69,550,001)
- ------------------------------------------------------------------------------------------------
Class B (23,269,658) (71,741,714)
- ------------------------------------------------------------------------------------------------
Class C (2,535,096) (7,514,536)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 21,326,981 (111,693,259)
- ------------------------------------------------------------------------------------------------
Class B (32,351,433) (114,155,181)
- ------------------------------------------------------------------------------------------------
Class C 525,245 (13,464,843)
================================================================================================
Net increase (decrease) in net assets 7,650,875 (584,977,787)
================================================================================================
NET ASSETS:
Beginning of period 937,442,286 1,522,420,073
================================================================================================
End of period $ 945,093,161 $ 937,442,286
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,978,470,026 $ 2,988,969,233
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (14,129,350) (12,425,446)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (1,891,862,903) (1,726,426,038)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (127,384,612) (312,675,463)
================================================================================================
$ 945,093,161 $ 937,442,286
________________________________________________________________________________________________
================================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be 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 the Fund.
The Fund's investment objective is to achieve a high level of current
income. In the Schedule of Investments each company is organized in the United
States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
FS-105
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. 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. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
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 the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
FS-106
G. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.625% on the first
$200 million of the Fund's average daily net assets, plus 0.55% on the next $300
million of the Fund's average daily net assets, plus 0.50% on the next $500
million of the Fund's average daily net assets, plus 0.45% on the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market funds in which the Fund has invested. For the
six months ended January 31, 2003, AIM waived fees of $2,389.
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. For the six months ended January 31, 2003, AIM
was paid $106,370 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 and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $763,810 for such services.
The Trust has entered into a master distribution agreement 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 Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C 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 under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges, that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the six months ended January 31, 2003, the Class A, Class B and Class
C shares paid $549,470, $2,247,046 and $244,437, respectively.
Front-end sales commissions and CDSCs are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
six months ended January 31, 2003, AIM Distributors retained $36,575 in
front-end sales commissions from the sale of Class A shares and $18,627, $3,560
and $6,289 for Class A, Class B and Class C shares, respectively, for CDSCs
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended January 31, 2003, the Fund paid legal fees of
$2,987 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $7,399 and reductions in
custodian fees of $28,378 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $35,777.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the six months ended January
31, 2003, the Fund did not borrow under the line of credit agreement. The funds
which are party 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
the funds based on their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
FS-107
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------
July 31, 2003 $ 3,132,878
- ------------------------------------------------------------
July 31, 2006 115,531,161
- ------------------------------------------------------------
July 31, 2007 297,433,797
- ------------------------------------------------------------
July 31, 2008 297,100,942
- ------------------------------------------------------------
July 31, 2009 131,908,743
- ------------------------------------------------------------
July 31, 2010 469,417,120
============================================================
Total capital loss carryforward $1,314,524,641
____________________________________________________________
============================================================
</Table>
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $348,573,483 and $374,889,657, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 33,879,933
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (162,993,819)
============================================================
Net unrealized appreciation (depreciation) of
investment securities $(129,113,886)
____________________________________________________________
============================================================
Cost of investments for tax purposes is $1,064,023,184.
</Table>
NOTE 8--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a contingent
deferred sales charge ("CDSC"). Under some circumstances, Class A shares are
subject to CDSC charges. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2003 JULY 31, 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 57,332,671 $ 207,622,814 61,671,459 $ 274,866,210
- --------------------------------------------------------------------------------------------------------------------------
Class B 12,801,289 46,208,170 28,855,909 131,251,628
- --------------------------------------------------------------------------------------------------------------------------
Class C 4,547,860 16,547,589 7,361,669 32,891,393
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 3,933,527 14,353,816 9,782,026 43,420,316
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,934,200 10,732,400 7,389,848 32,867,780
- --------------------------------------------------------------------------------------------------------------------------
Class C 399,034 1,456,498 918,849 4,077,812
==========================================================================================================================
Conversion of Class B to Class A shares:*
Class A 2,474,003 9,059,337 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class B (2,457,944) (9,059,337) -- --
==========================================================================================================================
Reacquired:
Class A (57,168,991) (209,708,986) (97,447,190) (429,979,785)
- --------------------------------------------------------------------------------------------------------------------------
Class B (21,958,872) (80,232,666) (63,245,842) (278,274,589)
- --------------------------------------------------------------------------------------------------------------------------
Class C (4,798,788) (17,478,842) (11,408,493) (50,434,048)
==========================================================================================================================
(1,962,011) $ (10,499,207) (56,121,765) $(239,313,283)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Prior to the six months ended January 31, 2003, conversion of Class B shares
to Class A shares were included in Class A shares sold and Class B shares
reacquired.
FS-108
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, --------------------- JULY 31, ------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77 $ 10.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.49(a) 0.68 0.47 0.85 0.92
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.06 (1.19) (2.03) (1.03) (0.66) (1.40)
=================================================================================================================================
Total from investment operations 0.26 (0.70) (1.35) (0.56) 0.19 (0.48)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.20) (0.52) (0.69) (0.49) (0.87) (0.91)
- ---------------------------------------------------------------------------------------------------------------------------------
Returns of capital -- -- (0.03) (0.02) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment
income -- -- (0.01) -- -- --
=================================================================================================================================
Total distributions (0.20) (0.52) (0.73) (0.51) (0.89) (0.91)
=================================================================================================================================
Net asset value, end of period $ 3.76 $ 3.70 $ 4.92 $ 7.00 $ 8.07 $ 8.77
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.44% (15.36)% (19.98)% (7.12)% 2.21% (5.10)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $449,581 $417,974 $683,845 $1,056,453 $1,364,502 $1,670,863
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.18%(c) 1.07% 0.99% 0.93%(d) 0.92% 0.85%
=================================================================================================================================
Ratio of net investment income to average
net assets 10.73%(c) 11.15%(a) 11.98% 10.79%(d) 10.06% 9.45%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 40% 59% 55% 23% 79% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have remained the same and the ratio of net investment
income to average net assets would have been 11.22%. In accordance with
the AICPA Audit and Accounting Guide for Investment Companies, per share
and ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$435,992,654.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-109
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, --------------------- JULY 31, ------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76 $ 10.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.45(a) 0.64 0.44 0.79 0.84
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.07 (1.18) (2.03) (1.03) (0.66) (1.40)
=================================================================================================================================
Total from investment operations 0.25 (0.73) (1.39) (0.59) 0.13 (0.56)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.49) (0.65) (0.45) (0.80) (0.84)
- ---------------------------------------------------------------------------------------------------------------------------------
Returns of capital -- -- (0.03) (0.02) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment
income -- -- (0.01) -- -- --
=================================================================================================================================
Total distributions (0.19) (0.49) (0.69) (0.47) (0.82) (0.84)
=================================================================================================================================
Net asset value, end of period $ 3.77 $ 3.71 $ 4.93 $ 7.01 $ 8.07 $ 8.76
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.02% (15.99)% (20.60)% (7.49)% 1.46% (5.90)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $444,140 $469,408 $756,704 $1,206,737 $1,559,864 $1,820,899
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.93%(c) 1.82% 1.75% 1.69%(d) 1.68% 1.61%
=================================================================================================================================
Ratio of net investment income to average
net assets 9.98%(c) 10.40%(a) 11.22% 10.03%(d) 9.30% 8.69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 40% 59% 55% 23% 79% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$445,745,533.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-110
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74 $ 10.14
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.45(a) 0.65 0.44 0.78 0.82(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.07 (1.18) (2.03) (1.03) (0.65) (1.38)
=================================================================================================================================
Total from investment operations 0.25 (0.73) (1.38) (0.59) 0.13 (0.56)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.49) (0.65) (0.45) (0.80) (0.84)
- ---------------------------------------------------------------------------------------------------------------------------------
Returns of capital -- -- (0.03) (0.02) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01) -- -- --
=================================================================================================================================
Total distributions (0.19) (0.49) (0.69) (0.47) (0.82) (0.84)
=================================================================================================================================
Net asset value, end of period $ 3.76 $ 3.70 $ 4.92 $ 6.99 $ 8.05 $ 8.74
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 7.04% (16.02)% (20.52)% (7.51)% 1.46% (5.92)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $51,372 $50,060 $81,871 $110,297 $129,675 $113,246
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.93%(d) 1.82% 1.75% 1.69%(e) 1.68% 1.61%
=================================================================================================================================
Ratio of net investment income to average net
assets 9.98%(d) 10.40%(a) 11.22% 10.03%(e) 9.30% 8.69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 40% 59% 55% 23% 79% 76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.46 and the ratio of net investment income to
average net assets would have been 10.47%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(d) Ratios are annualized and based on average daily net assets of
$48,488,832.
(e) Annualized.
(f) Not annualized for period less than one year.
NOTE 10--SUBSEQUENT EVENT
The Board of Trustees unanimously approved, on February 6, 2003, an Agreement
and Plan of Reorganization ("Plan") pursuant to which AIM High Yield Fund II
("High Yield Fund II"), a series of AIM Investment Securities Funds ("AIS"),
would transfer substantially all of its assets to AIM High Yield Fund ("High
Yield Fund"), a series of AIS. As a result of the transaction, shareholders of
High Yield Fund II would receive shares of High Yield Fund in exchange for their
shares of High Yield Fund II, and High Yield II Fund would cease operations.
The Plan requires approval of High Yield Fund II shareholders and will be
submitted to the shareholders for their consideration at a meeting to be held on
June 4, 2003. If the Plan is approved by shareholders of High Yield Fund II and
certain conditions required by the Plan are satisfied, the transaction is
expected to become effective shortly thereafter.
FS-111
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-74.70%
ADVERTISING-0.71%
Interpublic Group of Cos., Inc. (The), Unsec.
Sub. Conv. Disc. Notes, 1.87%, 06/01/06(a) $4,900,000 $ 3,797,500
========================================================================
AEROSPACE & DEFENSE-0.73%
Lockheed Martin Corp., Unsec. Gtd. Unsub.
Notes, 7.25%, 05/15/06 1,800,000 2,025,486
- ------------------------------------------------------------------------
Raytheon Co., Notes, 6.75%, 08/15/07 1,700,000 1,860,327
========================================================================
3,885,813
========================================================================
AGRICULTURAL PRODUCTS-0.36%
Archer-Daniels-Midland Co., Unsec. Unsub.
Deb., 6.95%, 12/15/97 1,750,000 1,904,227
========================================================================
APPAREL RETAIL-0.38%
Big 5 Corp.-Series B, Sr. Unsec. Notes,
10.88%, 11/15/07 1,377,000 1,438,965
- ------------------------------------------------------------------------
Gap, Inc. (The), Unsec. Unsub. Notes, 9.90%,
12/15/05 565,000 610,200
========================================================================
2,049,165
========================================================================
AUTO PARTS & EQUIPMENT-0.00%
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 10.25%,
03/15/07(b)(c) 1,325,000 0
========================================================================
AUTOMOBILE MANUFACTURERS-1.08%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 1,500,000 1,512,690
- ------------------------------------------------------------------------
General Motors Corp., Unsec. Deb., 8.80%,
03/01/21 4,000,000 4,273,000
========================================================================
5,785,690
========================================================================
BANKS-9.95%
African Development Bank (Luxembourg), Sr.
Unsec. Unsub. Global Notes, 3.25%, 07/29/05 1,700,000 1,742,075
- ------------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 1,950,000 2,184,253
- ------------------------------------------------------------------------
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 2,500,000 2,892,825
- ------------------------------------------------------------------------
Barclays O/S Investment Co. (Netherlands),
Unsec. Gtd. Unsub. Floating Rate Euro
Notes, 1.63%, 05/14/03 4,000,000 3,400,428
- ------------------------------------------------------------------------
BB&T Corp., RAPS, Sub. Notes, 6.38%, 06/30/05 1,930,000 2,090,132
- ------------------------------------------------------------------------
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 250,000 282,687
- ------------------------------------------------------------------------
Citicorp,
Jr. Unsec. Sub. Notes, 6.38%, 01/15/06 1,500,000 1,618,080
- ------------------------------------------------------------------------
Sub. Global Notes, 6.75%, 08/15/05 2,900,000 3,190,435
- ------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
$912,441)(d)(e) 850,000 910,027
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
BANKS-(CONTINUED)
Dresdner Funding Trust I, Bonds, 8.15%,
06/30/31 (Acquired 05/09/02; Cost
$3,182,910)(d)(e) $3,000,000 $ 3,040,110
- ------------------------------------------------------------------------
European Investment Bank (Luxembourg), Global
Notes, 4.63%, 03/01/07 1,000,000 1,064,520
- ------------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 1,760,000 2,109,659
- ------------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 1,600,000 1,655,280
- ------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom), Unsec. Sub.
Floating Rate Euro Notes, 1.69%,
06/29/49(f) 1,350,000 1,086,022
- ------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 2,500,000 3,164,625
- ------------------------------------------------------------------------
Santander Financial Issuances (Spain), Unsec.
Gtd. Sub. Yankee Notes, 7.00%, 04/01/06 900,000 978,210
- ------------------------------------------------------------------------
St. Paul Bancorp. Inc., Sr. Unsec. Unsub.
Notes, 7.13%, 02/15/04 1,500,000 1,571,175
- ------------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%, 10/29/49 1,750,000 2,082,500
- ------------------------------------------------------------------------
U.S. Bank N.A., Sub. Global Notes, 6.30%,
02/04/14 3,000,000 3,346,980
- ------------------------------------------------------------------------
Union Planters Bank N.A., Unsec. Putable Sub.
Notes, 6.50%, 03/15/08 2,650,000 2,951,437
- ------------------------------------------------------------------------
Wachovia Corp.,
Unsec. Putable Sub. Deb.,
6.55%, 10/15/05 660,000 725,485
- ------------------------------------------------------------------------
7.50%, 04/15/05 5,000,000 6,075,600
- ------------------------------------------------------------------------
Unsec. Sub. Notes, 6.80%, 06/01/05 1,850,000 2,035,055
- ------------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%, 04/01/10 2,500,000 2,955,750
========================================================================
53,153,350
========================================================================
BREWERS-0.36%
Anheuser-Busch Cos., Inc., Sr. Unsec. Deb.,
6.50%, 02/01/43 1,705,000 1,908,628
========================================================================
BROADCASTING & CABLE TV-9.38%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(b) 2,350,000 1,051,625
- ------------------------------------------------------------------------
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Yankee Notes, 7.30%,
10/15/06 3,000,000 3,086,670
- ------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp., Sr.
Unsec. Sub. Notes, 10.75%, 10/01/09 995,000 487,550
- ------------------------------------------------------------------------
Comcast Cable Communications, Inc., Unsec.
Unsub. Notes, 8.88%, 05/01/17 1,135,000 1,348,732
- ------------------------------------------------------------------------
Comcast Corp., Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 01/15/15 2,100,000 2,103,213
- ------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (United
Kingdom), Sr. Unsec. Yankee Disc. Deb.,
11.20%, 11/15/07(a) 500,000 362,500
- ------------------------------------------------------------------------
</Table>
FS-112
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
CSC Holdings Inc.,
Sr. Unsec. Deb., 7.88%, 02/15/18 $1,000,000 $ 910,000
- ------------------------------------------------------------------------
Sr. Unsec. Notes,
7.25%, 07/15/08 5,760,000 5,457,600
- ------------------------------------------------------------------------
7.88%, 12/15/07 6,680,000 6,513,000
- ------------------------------------------------------------------------
Jones Intercable, Inc., Sr. Unsec. Notes,
8.88%, 04/01/07 1,000,000 1,063,910
- ------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. Notes, 12.00%,
11/30/09 (Acquired 01/06/98; Cost
$1,928,480)(e) 1,123,000 676,607
- ------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec. Sub.
Notes, 8.25%, 02/15/08 5,000,000 5,237,500
- ------------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 1,500,000 1,623,872
- ------------------------------------------------------------------------
Sr. Notes, 8.65%, 09/15/04 2,060,000 2,206,775
- ------------------------------------------------------------------------
Sr. Unsec. Deb.,
7.88%, 02/15/26 1,100,000 1,142,856
- ------------------------------------------------------------------------
8.75%, 08/01/15 4,750,000 5,571,418
- ------------------------------------------------------------------------
Time Warner Inc.,
Unsec. Deb., 9.15%, 02/01/23 5,800,000 6,725,100
- ------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 1,200,000 1,280,004
- ------------------------------------------------------------------------
Turner Broadcasting System, Inc.-Class A, Sr.
Notes, 8.38%, 07/01/13 2,825,000 3,275,192
========================================================================
50,124,124
========================================================================
CASINOS & GAMBLING-0.65%
Boyd Gaming Corp., Sr. Unsec. Sub. Global
Notes, 8.75%, 04/15/12 1,175,000 1,233,750
- ------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Notes, 8.00%, 04/01/12 1,500,000 1,552,500
- ------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Global Notes, 7.50%, 09/01/09 665,000 681,625
========================================================================
3,467,875
========================================================================
COMPUTER HARDWARE-0.37%
Candescent Technologies Corp., Sr. Conv.
Unsec. Gtd. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/20/98; Cost
$2,000,000)(b)(c)(d)(e) 2,000,000 106,000
- ------------------------------------------------------------------------
International Business Machines Corp., Deb.,
8.38%, 11/01/19 1,500,000 1,895,040
========================================================================
2,001,040
========================================================================
CONSTRUCTION MATERIALS-0.26%
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 1,600,000 1,368,000
========================================================================
CONSUMER FINANCE-4.86%
CitiFinancial Credit Co.,
Notes, 6.63%, 06/01/15 4,068,000 4,567,794
- ------------------------------------------------------------------------
Unsec. Notes, 6.75%, 07/01/07 1,000,000 1,117,190
- ------------------------------------------------------------------------
Countrywide Home Loans, Inc.
Series K, Medium Term
Global Notes, 3.50%, 12/19/05 900,000 907,569
- ------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 6.85%, 06/15/04 750,000 793,073
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Ford Motor Credit Co.,
Global Notes, 7.88%, 06/15/10 $2,000,000 $ 1,991,100
- ------------------------------------------------------------------------
Unsec. Floating Rate Notes, 1.60%,
03/17/03(g) 1,500,000 1,497,631
- ------------------------------------------------------------------------
Unsec. Global Notes,
6.88%, 02/01/06 1,800,000 1,816,416
- ------------------------------------------------------------------------
7.38%, 10/28/09 1,600,000 1,571,024
- ------------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Bonds,
6.15%, 04/05/07 3,000,000 3,050,250
- ------------------------------------------------------------------------
6.85%, 06/17/04 1,760,000 1,840,872
- ------------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 2,200,000 2,235,442
- ------------------------------------------------------------------------
Unsec. Unsub. Notes, 7.63%, 06/15/04 975,000 1,028,781
- ------------------------------------------------------------------------
Household Finance Corp.,
Sr. Unsec. Global Notes,
6.50%, 01/24/06 1,000,000 1,074,090
- ------------------------------------------------------------------------
8.00%, 05/09/05 2,235,000 2,449,985
========================================================================
25,941,217
========================================================================
DISTILLERS & VINTNERS-0.59%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12 1,000,000 1,012,500
- ------------------------------------------------------------------------
Diageo PLC, Sr. Unsec. Gtd. Putable Notes,
7.45%, 04/15/05 1,750,000 2,128,560
========================================================================
3,141,060
========================================================================
DIVERSIFIED CHEMICALS-0.12%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 680,000 622,200
========================================================================
DIVERSIFIED FINANCIAL SERVICES-10.60%
American General Finance Corp., Sr. Notes,
6.75%, 11/15/04 1,370,000 1,470,353
- ------------------------------------------------------------------------
ASIF Global Financing XIX, Sec. Notes, 4.90%,
01/17/13 (Acquired 01/08/03; Cost
$1,594,992)(d)(e) 1,600,000 1,595,712
- ------------------------------------------------------------------------
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03; Cost
$998,420)(d)(e) 1,000,000 998,820
- ------------------------------------------------------------------------
Associates Corp. of North America, Sr. Global
Notes, 5.80%, 04/20/04 1,100,000 1,152,844
- ------------------------------------------------------------------------
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%,
05/01/20 3,250,000 4,937,888
- ------------------------------------------------------------------------
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes,
2.60%, 11/25/03(h) 1,000,000 1,000,630
- ------------------------------------------------------------------------
Sr. Global Notes, 7.13%, 10/15/04 600,000 636,804
- ------------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 3,000,000 3,337,530
- ------------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Notes, 6.63%,
06/15/32 3,400,000 3,748,126
- ------------------------------------------------------------------------
Fidelity Investments, Bonds, 7.57%, 06/15/29
(Acquired 04/10/01-05/01/02; Cost
$4,177,488)(d)(e) 3,835,000 4,576,421
- ------------------------------------------------------------------------
</Table>
FS-113
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
General Electric Capital Corp.
Series A, Medium Term Global Notes,
5.00%, 06/15/07 $1,000,000 $ 1,057,260
- ------------------------------------------------------------------------
6.80%, 11/01/05 500,000 555,060
- ------------------------------------------------------------------------
Heller Financial, Inc.,
Sr. Unsec. Global Notes, 6.38%, 03/15/06 2,985,000 3,267,500
- ------------------------------------------------------------------------
Unsec. Global Notes, 7.38%, 11/01/09 1,500,000 1,743,840
- ------------------------------------------------------------------------
John Hancock Funds, Notes, 6.50%, 03/01/11
(Acquired 07/24/02; Cost $1,687,104)(d)(e) 1,600,000 1,707,648
- ------------------------------------------------------------------------
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$1,699,065)(d)(e) 1,700,000 1,764,668
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc.
Series E, Medium Term Disc. Notes, 9.94%,
02/10/28(i) 8,700,000 1,238,097
- ------------------------------------------------------------------------
Sr. Notes, 8.75%, 03/15/05 700,000 786,310
- ------------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%,
05/15/05 500,000 590,835
- ------------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 1,538,000 1,661,686
- ------------------------------------------------------------------------
NiSource Finance Corp., Sr. Unsec. Gtd.
Notes, 5.75%, 04/15/03 9,800,000 9,849,490
- ------------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$1,801,163)(d)(e) 1,605,257 1,855,805
- ------------------------------------------------------------------------
Salomon Smith Barney Holdings Inc., Unsec.
Notes, 7.13%, 10/01/06 2,325,000 2,602,396
- ------------------------------------------------------------------------
Swiss Bank Corp.-NY, Sub. Notes, 7.38%,
06/15/17 1,300,000 1,552,798
- ------------------------------------------------------------------------
USL Capital Corp., Sr. Global Notes, 5.95%,
10/15/03 1,300,000 1,331,668
- ------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 900,000 1,015,587
- ------------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 525,000 568,717
========================================================================
56,604,493
========================================================================
DIVERSIFIED METALS & MINING-0.70%
Rio Algom Ltd. (Canada), Unsec. Yankee Deb.,
7.05%, 11/01/05 3,500,000 3,751,440
========================================================================
ELECTRIC UTILITIES-7.80%
AES Corp. (The), Sec. Notes, 10.00%, 07/15/05
(Acquired 12/13/02; Cost $1,789,016)(e) 1,898,000 1,888,510
- ------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Yankee Notes, 8.50%,
05/01/08 1,680,000 798,000
- ------------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds, 6.86%, 10/01/08 1,700,000 1,855,635
- ------------------------------------------------------------------------
Duke Energy Corp., Bonds, 6.45%, 10/15/32 1,100,000 1,074,271
- ------------------------------------------------------------------------
El Paso Electric Co.-Series E, Sr. Sec. First
Mortgage Bonds, 9.40%, 05/01/11 3,000,000 3,131,010
- ------------------------------------------------------------------------
Hydro-Quebec (Canada),
Gtd. Euro Notes, 1.94%, 09/29/49 2,500,000 2,216,903
- ------------------------------------------------------------------------
Gtd. Yankee Bonds, 9.40%, 02/01/21(j) 2,000,000 2,842,720
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
Kincaid Generation LLC, Sr. Sec. Bonds,
7.33%, 06/15/20 (Acquired 04/30/98; Cost
$1,887,026)(d)(e) $1,856,765 $ 1,756,091
- ------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 1,130,000 310,750
- ------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes, 7.75%, 05/15/06(j) 4,300,000 4,883,209
- ------------------------------------------------------------------------
Series H, Sr. Unsec. Notes, 8.50%, 07/01/10 6,700,000 6,739,262
- ------------------------------------------------------------------------
Public Service Company of New Mexico-Series
A, Sr. Unsec. Notes, 7.10%, 08/01/05 1,200,000 1,232,628
- ------------------------------------------------------------------------
RGS (I&M) Funding Corp.-Series F, Sec. Lease
Obligation Bonds, 9.82%, 12/07/22 4,962,416 5,128,260
- ------------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 9.00%, 07/15/06 1,550,000 1,700,769
- ------------------------------------------------------------------------
Texas-New Mexico Power Co., Sr. Unsec. Notes,
6.25%, 01/15/09 4,800,000 4,598,880
- ------------------------------------------------------------------------
Wisconsin Public Service Corp., Sr. Sec.
Notes, 4.88%, 12/01/12 1,500,000 1,519,215
========================================================================
41,676,113
========================================================================
ENVIRONMENTAL SERVICES-0.45%
Browning-Ferris Industries, Inc., Deb.,
9.25%, 05/01/21 2,570,000 2,377,250
========================================================================
FOOD DISTRIBUTORS-0.19%
Roundy's, Inc.-Series B, Sr. Sub. Notes,
8.88%, 06/15/12 (Acquired 12/12/02; Cost
$1,039,775)(e) 1,045,000 1,024,131
========================================================================
FOREST PRODUCTS-0.12%
Louisiana-Pacific Corp., Sr. Unsec. Notes,
8.50%, 08/15/05 635,000 660,400
========================================================================
GAS UTILITIES-0.71%
Kinder Morgan, Inc., Sr. Notes, 6.80%,
03/01/08 2,725,000 2,951,175
- ------------------------------------------------------------------------
Tennessee Gas Pipeline Co., Unsec. Deb.,
7.63%, 04/01/37 1,000,000 845,000
========================================================================
3,796,175
========================================================================
GENERAL MERCHANDISE STORES-0.21%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 1,000,000 1,128,710
========================================================================
HEALTH CARE FACILITIES-0.36%
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Global Notes, 10.38%, 02/15/09 1,820,000 1,929,200
========================================================================
HOMEBUILDING-0.55%
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 1,750,000 1,916,250
- ------------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 9.13%, 05/01/12 1,150,000 1,040,750
========================================================================
2,957,000
========================================================================
INDUSTRIAL MACHINERY-0.23%
Pall Corp., Notes, 6.00%, 08/01/12 (Acquired
08/01/02; Cost $1,174,401)(d)(e) 1,175,000 1,235,583
========================================================================
</Table>
FS-114
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
INTEGRATED OIL & GAS-2.90%
Conoco Inc., Sr. Unsec. Global Notes, 5.90%,
04/15/04 $1,025,000 $ 1,074,672
- ------------------------------------------------------------------------
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes, 7.13%, 11/15/06 3,000,000 3,303,000
- ------------------------------------------------------------------------
Yankee Bonds, 8.90%, 08/15/28 2,645,000 2,906,614
- ------------------------------------------------------------------------
Occidental Petroleum Corp.,
Sr. Putable Deb., 9.25%, 08/01/04 4,375,000 5,714,056
- ------------------------------------------------------------------------
Sr. Unsec. Notes,
6.50%, 04/01/05 400,000 430,424
- ------------------------------------------------------------------------
7.38%, 11/15/08 1,800,000 2,074,140
========================================================================
15,502,906
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.07%
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 700,000 760,214
- ------------------------------------------------------------------------
Sprint Capital Corp.,
Gtd. Global Notes, 5.88%, 05/01/04 1,065,000 1,045,031
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
5.70%, 11/15/03 2,500,000 2,490,625
- ------------------------------------------------------------------------
6.00%, 01/15/07 1,300,000 1,184,625
- ------------------------------------------------------------------------
Sr. Unsec. Unsub. Gtd. Global Notes,
6.13%, 11/15/08 2,500,000 2,178,125
- ------------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 2,500,000 2,334,375
- ------------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 1,000,000 1,045,010
========================================================================
11,038,005
========================================================================
LEISURE FACILITIES-0.08%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 430,000 424,625
========================================================================
LIFE & HEALTH INSURANCE-0.78%
Americo Life, Inc., Sr. Sub. Notes, 9.25%,
06/01/05 1,000,000 955,000
- ------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 835,000 956,543
- ------------------------------------------------------------------------
Sun Canada Financial Co., Gtd. Sub. Bonds,
6.63%, 12/15/07 (Acquired 10/14/99; Cost
$654,311)(d)(e) 700,000 756,539
- ------------------------------------------------------------------------
Torchmark Corp., Notes, 7.88%, 05/15/23 1,325,000 1,480,476
========================================================================
4,148,558
========================================================================
MOVIES & ENTERTAINMENT-0.19%
AOL Time Warner Inc., Sr. Gtd. Unsub. Global
Notes, 6.13%, 04/15/06 585,000 607,388
- ------------------------------------------------------------------------
Walt Disney Co. (The), Medium Term Notes,
5.25%, 11/10/03 400,000 409,600
========================================================================
1,016,988
========================================================================
OIL & GAS DRILLING-0.90%
Transocean Inc., Unsec. Notes, 6.95%,
04/15/08 4,300,000 4,811,399
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-0.79%
National-Oilwell, Inc.-Series B, Sr. Unsec.
Notes, 6.50%, 03/15/11 $4,000,000 $ 4,221,560
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-5.73%
Amerada Hess Corp.,
Unsec. Notes,
5.30%, 08/15/04 1,050,000 1,095,381
- ------------------------------------------------------------------------
7.30%, 08/15/31 1,000,000 1,055,920
- ------------------------------------------------------------------------
Anadarko Petroleum Corp., Unsec. Putable
Deb., 7.73%, 09/15/26 1,200,000 1,438,932
- ------------------------------------------------------------------------
Burlington Resources Finance Co. (Canada),
Sr. Unsec. Gtd. Yankee Notes, 7.40%,
12/01/31 1,400,000 1,640,002
- ------------------------------------------------------------------------
Canadian Oil Sands Ltd. (Canada), Sr. Yankee
Notes, 7.90%, 09/01/21 (Acquired 08/17/01-
07/31/02; Cost $3,220,956)(d)(e) 3,200,000 3,579,936
- ------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.38%, 11/01/08 1,250,000 1,315,625
- ------------------------------------------------------------------------
Devon Energy Corp., Sr. Unsec. Deb., 7.95%,
04/15/32 795,000 951,392
- ------------------------------------------------------------------------
Devon Financing Corp. ULC, Unsec. Gtd. Unsub.
Global Deb., 7.88%, 09/30/31 2,155,000 2,558,524
- ------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec.
Notes, 6.88%, 12/01/07 3,500,000 3,921,855
- ------------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec. Unsub.
Notes, 7.63%, 03/01/11 5,500,000 5,912,500
- ------------------------------------------------------------------------
Noble Energy, Inc.,
Sr. Unsec. Deb., 7.25%, 08/01/97 3,000,000 2,747,280
- ------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 04/01/27 2,800,000 3,169,796
- ------------------------------------------------------------------------
Union Pacific Resources Group Inc., Unsec.
Notes, 6.75%, 05/15/08 1,050,000 1,195,572
========================================================================
30,582,715
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.50%
Petroleos Mexicanos (Mexico),
Sr. Unsec. Gtd. Yankee Bonds, 9.38%,
12/02/08 2,500,000 2,859,375
- ------------------------------------------------------------------------
Series P, Sr. Unsec. Putable Unsub. Yankee
Bonds, 9.50%, 03/15/06 3,100,000 3,589,490
- ------------------------------------------------------------------------
Premco Refining Group Inc. (The), Sr. Notes,
9.25%, 02/01/10 (Acquired 01/28/03; Cost
$1,560,000)(d)(e) 1,560,000 1,571,700
========================================================================
8,020,565
========================================================================
PACKAGED FOODS & MEATS-0.12%
Dole Food Co., Inc., Sr. Unsec. Global Notes,
7.25%, 05/01/09 640,000 622,400
========================================================================
PHARMACEUTICALS-0.48%
Johnson & Johnson, Unsec. Deb., 8.72%,
11/01/24 2,200,000 2,580,556
========================================================================
PROPERTY & CASUALTY INSURANCE-0.35%
Allstate Financial Global Funding, Notes,
6.50%, 06/14/11 (Acquired 06/07/01; Cost
$2,246,558)(d)(e) 1,680,000 1,858,920
========================================================================
</Table>
FS-115
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
PUBLISHING-1.48%
News America Holdings, Sr. Unsec. Gtd. Deb.,
8.00%, 10/17/16 $5,000,000 $ 5,703,200
- ------------------------------------------------------------------------
News America Inc., Putable Deb., 6.75%,
01/09/10 1,100,000 1,136,113
- ------------------------------------------------------------------------
Tribune Co., Putable Notes, 6.61%, 09/15/04 1,000,000 1,069,600
========================================================================
7,908,913
========================================================================
RAILROADS-1.74%
CSX Corp., Sr. Unsec. Putable Deb., 7.25%,
05/01/05 7,250,000 7,993,270
- ------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 1,300,000 1,326,000
========================================================================
9,319,270
========================================================================
REAL ESTATE-2.45%
EOP Operating L.P.,
Sr. Unsec. Notes,
6.50%, 06/15/04 1,805,000 1,880,442
- ------------------------------------------------------------------------
7.25%, 02/15/18 600,000 653,664
- ------------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 600,000 642,150
- ------------------------------------------------------------------------
Unsec. Notes, 6.50%, 01/15/04 800,000 827,216
- ------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec. Notes,
7.50%, 08/15/07 3,500,000 3,649,800
- ------------------------------------------------------------------------
Host Marriott L.P.
Series E, Sr. Sec. Gtd. Notes, 8.38%,
02/15/06 920,000 906,200
- ------------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes, 9.50%,
01/15/07 1,500,000 1,522,500
- ------------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 755,000 796,525
- ------------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub. Deb.,
7.35%, 12/01/17 2,000,000 2,196,280
========================================================================
13,074,777
========================================================================
SOVEREIGN DEBT-0.70%
Export Development Canada (Canada), Yankee
Bonds, 4.00%, 08/01/07 1,100,000 1,138,863
- ------------------------------------------------------------------------
Region of Lombardy (Italy), Unsec. Global
Bonds, 5.80%, 10/25/32 1,000,000 1,034,120
- ------------------------------------------------------------------------
United Mexican States (Mexico)-Series A,
Medium Term Global Notes, 6.38%, 01/16/13 1,600,000 1,564,000
========================================================================
3,736,983
========================================================================
SPECIALTY STORES-0.43%
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes,
12.00%, 06/15/06 990,000 1,054,350
- ------------------------------------------------------------------------
United Rentals North America Inc., Sr. Unsec.
Gtd. Notes, 10.75%, 04/15/08 1,240,000 1,233,800
========================================================================
2,288,150
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.29%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 8.75%, 03/01/31 1,500,000 1,550,625
========================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $392,559,311) 398,998,299
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-9.28%
CANADA-0.82%
Bell Mobility Cellular Inc. (Wireless
Telecommunication Services), Unsec. Deb.,
6.55%, 06/02/08 CAD 2,250,000 $ 1,555,817
- ------------------------------------------------------------------------
Rogers Cablesystems Ltd. (Broadcasting &
Cable TV), Sr. Sec. Second Priority Deb.,
9.65%, 01/15/14 CAD 3,300,000 2,152,929
- ------------------------------------------------------------------------
Westcoast Energy Inc. (Gas Utilities)-Series
V, Unsec. Deb., 6.45%, 12/18/06 CAD 1,000,000 689,483
========================================================================
4,398,229
========================================================================
GERMANY-5.18%
Bundesrepublik Deutschland (Sovereign Debt)-
Series 2002, Euro Bonds, 5.00%, 07/04/12EUR 9,700,000 11,208,420
- ------------------------------------------------------------------------
Eurohypo AG (Banks)-Series 2212, Sec. Euro
Bonds, 4.50%, 01/21/13 EUR 8,000,000 8,731,591
- ------------------------------------------------------------------------
Kreditanstalt fuer Wiederaufbau (Banks),
Sr. Unsec. Gtd. Unsub. Global Notes, 3.50%,
11/15/05 EUR 3,600,000 3,941,618
- ------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes.,
5.25%, 07/04/12 EUR 3,250,000 3,796,323
========================================================================
27,677,952
========================================================================
LUXEMBOURG-0.79%
International Bank for Reconstruction &
Development (Banks), Sr. Unsec. Global
Notes, 5.61%, 08/20/07(i) NZD 10,000,000 4,196,728
========================================================================
NETHERLANDS-0.42%
Olivetti International Finance N.V.
(Integrated Telecommunication
Services)-Series E, Gtd. Medium Term Euro
Notes, 6.58%, 07/30/09 EUR 2,050,000 2,231,450
========================================================================
UNITED KINGDOM-2.07%
British Sky Broadcasting Group PLC
(Broadcasting & Cable TV), Sr. Unsec. Gtd.
Unsub. Euro Bonds, 7.75%, 07/09/09 GBP 1,750,000 2,976,385
- ------------------------------------------------------------------------
Sutton Bridge Financing Ltd. (Electric
Utilities), Gtd. Euro Bonds, 8.63%,
06/30/22 GBP 1,885,780 3,423,243
- ------------------------------------------------------------------------
United Kingdom (Treasury of) (Sovereign
Debt), Bonds, 7.25%, 12/07/07 GBP 2,475,000 4,646,908
========================================================================
11,046,536
========================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $45,451,019) 49,550,895
========================================================================
<Caption>
SHARES
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-1.03%
BROADCASTING & CABLE TV-0.01%
Knology Inc.
Wts., expiring 10/22/07 (Acquired 03/12/98;
Cost $0)(c)(d)(l) 4,100 0
- ------------------------------------------------------------------------
Series D, Conv. Pfd. (Acquired 11/07/02;
Cost $0)(d)(e)(l) 63,537 47,653
========================================================================
47,653
========================================================================
</Table>
FS-116
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-0.22%
Cendant Corp.(m) 105,409 $ 1,167,931
========================================================================
HOME FURNISHINGS-0.00%
O'Sullivan Industries, Inc.
Series B, Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(d)(e)(l) 2,885 29
- ------------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(d)(e)(l) 2,885 29
========================================================================
58
========================================================================
RAILROADS-0.00%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(d)(e)(l) 1,300 1,625
========================================================================
REAL ESTATE-0.62%
First Republic Capital Corp.-Series A, Pfd.
(Acquired 05/26/99; Cost $3,500,000)(d)(e) 3,150 3,307,500
========================================================================
SYSTEMS SOFTWARE-0.18%
Microsoft Corp. 20,291 963,011
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(d)(e)(l) 1,775 18
========================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $8,020,114) 5,487,796
========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-6.34%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.14%
Pass Through Ctfs.,
7.00%, 06/01/15 to 06/01/32 $ 321,666 $ 340,945
- ------------------------------------------------------------------------
6.00%, 04/01/17 to 06/01/17 949,125 992,016
- ------------------------------------------------------------------------
6.50%, 04/01/17 to 08/01/32 3,330,564 3,475,938
- ------------------------------------------------------------------------
7.50%, 06/01/30 77,674 82,868
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 02/01/33(n) 1,150,000 1,190,398
========================================================================
6,082,165
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-4.48%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 2,680,121 2,854,103
- ------------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32 2,525,475 2,665,100
- ------------------------------------------------------------------------
6.50%, 09/01/16 to 11/01/31 2,573,596 2,697,056
- ------------------------------------------------------------------------
6.00%, 07/01/17 417,019 436,460
- ------------------------------------------------------------------------
8.00%, 10/01/30 to 04/01/32 2,521,570 2,723,258
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 02/01/33(n) 1,693,000 1,752,644
- ------------------------------------------------------------------------
Unsec. Notes,
6.20%, 06/13/17 2,500,000 2,660,625
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
Unsec. Sub. Notes,
4.75%, 01/02/07 $1,500,000 $ 1,580,670
- ------------------------------------------------------------------------
6.25%, 02/01/11 3,625,000 4,011,135
- ------------------------------------------------------------------------
5.25%, 08/01/12 2,500,000 2,580,825
========================================================================
23,961,876
========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.72%
Pass Through Ctfs.,
7.50%, 06/15/23 to 01/15/32 1,053,151 1,134,675
- ------------------------------------------------------------------------
8.50%, 11/15/24 435,664 479,121
- ------------------------------------------------------------------------
6.50%, 03/15/31 to 07/15/32 1,202,396 1,263,561
- ------------------------------------------------------------------------
7.00%, 04/15/31 to 08/15/31 369,415 392,415
- ------------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32 552,811 576,048
========================================================================
3,845,820
========================================================================
Total U.S. Government Agency Securities
(Cost $32,866,994) 33,889,861
========================================================================
U.S. TREASURY SECURITIES-3.12%
U.S. TREASURY NOTES-1.70%
3.25%, 12/31/03 to 08/15/07 2,145,000 2,182,826
- ------------------------------------------------------------------------
2.88%, 06/30/04 4,150,000 4,232,336
- ------------------------------------------------------------------------
4.63%, 05/15/06 1,425,000 1,526,303
- ------------------------------------------------------------------------
3.50%, 11/15/06 300,000 309,798
- ------------------------------------------------------------------------
6.13%, 08/15/07 750,000 853,710
========================================================================
9,104,973
========================================================================
U.S. TREASURY BONDS-1.42%
7.25%, 05/15/16 2,900,000 3,679,375
- ------------------------------------------------------------------------
7.50%, 11/15/16 1,750,000 2,268,157
- ------------------------------------------------------------------------
6.25%, 08/15/23 1,400,000 1,629,908
========================================================================
7,577,440
========================================================================
Total U.S. Treasury Securities (Cost
$16,658,680) 16,682,413
========================================================================
ASSET-BACKED SECURITIES-4.65%
AIRLINES-2.28%
Air 2 US-Series C, Equipment Trust Ctfs.,
10.13%, 10/01/20 (Acquired 10/28/99; Cost
$3,000,000)(d)(e) 2,924,118 453,238
- ------------------------------------------------------------------------
Continental Airlines, Inc.
Series 2000-1, Class A-1, Sr. Pass Through
Ctfs., 8.05%, 11/01/20 1,613,306 1,423,742
- ------------------------------------------------------------------------
Series 2000-2, Class A-1, Sr. Sec. Pass
Through Ctfs., 7.71%, 04/02/21 1,257,120 1,128,266
- ------------------------------------------------------------------------
Series 974A, Pass Through Ctfs., 6.90%,
01/02/18 2,886,122 2,571,188
- ------------------------------------------------------------------------
Delta Air Lines, Inc.-Series 93A2, Equipment
Trust Ctfs., 10.50%, 04/30/16 5,000,000 3,268,750
- ------------------------------------------------------------------------
United Air Lines, Inc.-Series 2000-1, Class
A-2, Pass Through Ctfs., 7.73%, 07/01/10 4,100,000 3,331,250
========================================================================
12,176,434
========================================================================
</Table>
FS-117
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-2.06%
Citicorp Lease
Series 1999-1, Class A1, Pass Through
Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-06/19/02; Cost $2,768,495)(d)(e) $2,470,661 $ 2,703,792
- ------------------------------------------------------------------------
Series 1999-1, Class A2, Pass Through
Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-01/25/01; Cost $3,603,676)(d)(e) 3,600,000 4,161,096
- ------------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp., Sr. Sec. Global Notes, 6.00%,
05/15/06 1,800,000 1,950,084
- ------------------------------------------------------------------------
Premium Asset Trust-Series 2001-6, Sec.
Notes, 5.25%, 07/19/04 (Acquired 07/11/01;
Cost $2,097,228)(d)(e) 2,100,000 2,185,115
========================================================================
11,000,087
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
ELECTRIC UTILITIES-0.31%
Beaver Valley II Funding Corp., Sec. Lease
Obligation Bonds, 9.00%, 06/01/17 $1,500,000 $ 1,650,585
========================================================================
Total Asset-Backed Securities (Cost
$29,053,246) 24,827,106
========================================================================
MARKET
SHARES VALUE
MONEY MARKET FUNDS-0.90%
STIC Liquid Assets Portfolio(o) 2,405,660 $ 2,405,660
- ------------------------------------------------------------------------
STIC Prime Portfolio(o) 2,405,660 2,405,660
========================================================================
Total Money Market Funds (Cost
$4,811,320) 4,811,320
========================================================================
TOTAL INVESTMENTS-100.02% (Cost $529,420,684) 534,247,690
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.02%) (111,949)
========================================================================
NET ASSETS-100.00% $534,135,741
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
CAD - Canadian Dollars
Conv. - Convertible
Ctfs - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
Jr. - Junior
NZD - New Zealand Dollar
Pfd. - Preferred
RAPS - Redeemable and Putable Securities
REIT - Real Estate Investment Trust
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(b) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Security considered to be illiquid. The aggregate market value of securities
considered illiquid at 01/31/03 was $40,174,075 which represented 7.52% of
the Fund's net assets.
(e) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/03 was $41,874,813,
which represented 7.84% of the Fund's net assets.
(f) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 01/31/03.
(g) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/03.
(h) Interest rates are redetermined monthly. Rates shown are rates in effect on
01/31/03.
(i) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(j) Principal and interest are secured by bond insurance provided by one of the
following companies: Ambac Assurance Corp., Financial Guaranty Insurance
Co., Financial Security Assurance, or MBIA Insurance Co.
(k) Foreign denominated security. Par value is denominated in currency
indicated.
(l) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(m) Non-income producing security.
(n) Security purchased on a forward commitment basis. These securities are
subject to dollar roll transactions. See Note 1 Section C.
(o) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-118
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$529,420,684) $534,247,690
- -----------------------------------------------------------
Foreign currencies, at value (cost $156,081) 157,638
- -----------------------------------------------------------
Receivables for:
Investments sold 2,372,601
- -----------------------------------------------------------
Fund shares sold 1,380,166
- -----------------------------------------------------------
Dividends and interest 9,207,407
- -----------------------------------------------------------
Investment for deferred compensation plan 54,895
- -----------------------------------------------------------
Other assets 40,434
===========================================================
Total assets 547,460,831
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 9,939,803
- -----------------------------------------------------------
Fund shares reacquired 2,194,400
- -----------------------------------------------------------
Dividends 574,900
- -----------------------------------------------------------
Deferred compensation plan 54,895
- -----------------------------------------------------------
Accrued distribution fees 285,315
- -----------------------------------------------------------
Accrued trustees' fees 1,055
- -----------------------------------------------------------
Accrued transfer agent fees 168,681
- -----------------------------------------------------------
Accrued operating expenses 106,041
===========================================================
Total liabilities 13,325,090
===========================================================
Net assets applicable to shares outstanding $534,135,741
___________________________________________________________
===========================================================
NET ASSETS:
Class A $283,759,064
___________________________________________________________
===========================================================
Class B $212,723,398
___________________________________________________________
===========================================================
Class C $ 36,565,670
___________________________________________________________
===========================================================
Class R $ 1,087,609
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 44,044,808
___________________________________________________________
===========================================================
Class B 32,972,431
___________________________________________________________
===========================================================
Class C 5,681,106
___________________________________________________________
===========================================================
Class R 168,753
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 6.44
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $6.44 divided by
95.25%) $ 6.76
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 6.45
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 6.44
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 6.44
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $17,766,407
- -----------------------------------------------------------
Dividends 165,375
- -----------------------------------------------------------
Dividends from affiliated money market funds 70,320
===========================================================
Total investment income 18,002,102
===========================================================
EXPENSES:
Advisory fees 1,163,382
- -----------------------------------------------------------
Administrative services fees 69,995
- -----------------------------------------------------------
Custodian fees 45,978
- -----------------------------------------------------------
Distribution fees -- Class A 352,658
- -----------------------------------------------------------
Distribution fees -- Class B 1,080,036
- -----------------------------------------------------------
Distribution fees -- Class C 184,406
- -----------------------------------------------------------
Distribution fees -- Class R 368
- -----------------------------------------------------------
Transfer agent fees 680,812
- -----------------------------------------------------------
Trustees' fees 5,934
- -----------------------------------------------------------
Other 139,847
===========================================================
Total expenses 3,723,416
===========================================================
Less: Fees waived (719)
- -----------------------------------------------------------
Expenses paid indirectly (5,645)
===========================================================
Net expenses 3,717,052
===========================================================
Net investment income 14,285,050
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FOREIGN CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (7,647,601)
- -----------------------------------------------------------
Foreign currencies (12,672)
===========================================================
(7,660,273)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 29,105,153
- -----------------------------------------------------------
Foreign currencies 11,461
- -----------------------------------------------------------
Foreign currency contracts (23,106)
===========================================================
29,093,508
===========================================================
Net gain from investment securities, foreign
currencies and foreign currency contracts 21,433,235
===========================================================
Net increase in net assets resulting from
operations $35,718,285
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-119
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 14,285,050 $ 37,242,079
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and foreign currency contracts (7,660,273) (55,544,970)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and foreign
currency contracts 29,093,508 (7,100,770)
============================================================================================
Net increase (decrease) in net assets resulting from
operations 35,718,285 (25,403,661)
============================================================================================
Distributions to shareholders from net investment income:
Class A (8,817,880) (20,406,662)
- --------------------------------------------------------------------------------------------
Class B (5,935,761) (13,291,002)
- --------------------------------------------------------------------------------------------
Class C (1,015,980) (2,453,982)
- --------------------------------------------------------------------------------------------
Class R (4,063) (74)
- --------------------------------------------------------------------------------------------
Return of Capital:
Class A -- (994,212)
- --------------------------------------------------------------------------------------------
Class B -- (736,149)
- --------------------------------------------------------------------------------------------
Class C -- (134,853)
- --------------------------------------------------------------------------------------------
Class R -- (32)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A (8,629,062) (31,273,225)
- --------------------------------------------------------------------------------------------
Class B (12,134,972) 4,755,275
- --------------------------------------------------------------------------------------------
Class C (2,573,909) (1,919,177)
- --------------------------------------------------------------------------------------------
Class R 1,074,542 10,118
============================================================================================
Net increase (decrease) in net assets (2,318,800) (91,847,636)
============================================================================================
NET ASSETS:
Beginning of period 536,454,541 628,302,177
============================================================================================
End of period $534,135,741 $ 536,454,541
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $677,484,184 $ 699,747,585
- --------------------------------------------------------------------------------------------
Undistributed net investment income (3,023,221) (1,534,587)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and foreign currency
contracts (145,200,605) (137,540,332)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and foreign currency
contracts 4,875,383 (24,218,125)
============================================================================================
$534,135,741 $ 536,454,541
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-120
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Investment Securities
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers multiple classes of shares. Matters affecting each portfolio or
class will be 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 the Fund.
The Fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal. Companies are listed
in the Schedule of Investments based on the country in which they are organized.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. 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. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
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 the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage-backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any
additional fee income received on
FS-121
the sale, could generate income for the Fund exceeding the yield on the
security sold. The Fund will segregate assets to cover its obligations
under dollar roll transactions. The difference between the selling price
and the future repurchase price is recorded as an adjustment to interest
income.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
E. 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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market funds in which the Fund has invested. For the
six months ended January 31, 2003, AIM waived fees of $719.
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. For the six months ended January 31, 2003, AIM
was paid $69,995 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 and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $349,263 for such services.
The Trust 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, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.25% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and C shares and 0.50%
of the average daily net assets of Class R 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, Class C or Class R 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 under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the six months ended January 31,
2003, the Class A, Class B, Class C and Class R shares paid $352,658,
$1,080,036, $184,406 and $368, respectively.
Front-end sales commissions and CDSCs are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
six months ended January 31, 2003, AIM Distributors retained $36,623 in
front-end sales commissions from the sale of Class A shares and $4,275, $3,081
and $5,325 for Class A, Class B and Class C shares, respectively, for CDSCs
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
FS-122
During the six months ended January 31, 2003, the Fund paid legal fees of
$2,446 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $4,192 and reductions in
custodian fees of $1,453 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $5,645.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the six months ended January
31, 2003, the Fund did not borrow under the line of credit agreement. The funds
which are party 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
the funds based on their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
July 31, 2006 $ 1,419,489
- ----------------------------------------------------------
July 31, 2007 13,740,010
- ----------------------------------------------------------
July 31, 2008 26,912,929
- ----------------------------------------------------------
July 31, 2009 2,702,340
- ----------------------------------------------------------
July 31, 2010 48,306,201
==========================================================
Total capital loss carryforward $93,080,969
__________________________________________________________
==========================================================
</Table>
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $285,700,694 and $293,187,057, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 23,534,248
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (20,339,599)
===========================================================
Net unrealized appreciation of investment
securities $ 3,194,649
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $531,053,041.
</Table>
FS-123
NOTE 8--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge ("CDSC"). Under some circumstances, Class A
shares and Class R shares are subject to CDSC charges. Class R shares are sold
at net asset value. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 14,858,231 $ 93,950,282 19,535,050 $ 129,985,397
- --------------------------------------------------------------------------------------------------------------------------
Class B 3,033,223 19,133,307 10,824,126 72,286,011
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,207,940 7,626,756 2,329,978 15,549,708
- --------------------------------------------------------------------------------------------------------------------------
Class R* 166,577 1,070,515 1,531 10,012
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,092,871 6,913,825 2,547,835 16,937,345
- --------------------------------------------------------------------------------------------------------------------------
Class B 671,831 4,255,072 1,516,843 10,088,147
- --------------------------------------------------------------------------------------------------------------------------
Class C 122,534 774,786 294,792 1,957,101
- --------------------------------------------------------------------------------------------------------------------------
Class R* 628 4,027 17 106
==========================================================================================================================
Conversion of Class B shares to Class A shares:**
Class A 380,568 2,403,705 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class B (379,175) (2,403,705) -- --
==========================================================================================================================
Reacquired:
Class A (17,757,264) (111,896,874) (26,805,775) (178,195,967)
- --------------------------------------------------------------------------------------------------------------------------
Class B (5,254,372) (33,119,646) (11,702,242) (77,618,883)
- --------------------------------------------------------------------------------------------------------------------------
Class C (1,746,204) (10,975,451) (2,930,754) (19,425,986)
==========================================================================================================================
(3,602,612) $ (22,263,401) (4,388,599) $ (28,427,009)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Prior to the six months ended January 31, 2003, conversion of Class B shares
to Class A shares were included in Class A shares sold and Class B shares
reaquired.
FS-124
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
JANUARY 31, ------------------------ JULY 31, --------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.20 $ 6.91 $ 7.14 $ 7.59 $ 8.38 $ 8.57
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.44(a)(b) 0.53 0.34 0.57 0.57
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.26 (0.70) (0.23) (0.47) (0.81) (0.16)
=================================================================================================================================
Total from investment operations 0.44 (0.26) 0.30 (0.13) (0.24) 0.41
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.20) (0.43) (0.51) (0.25) (0.55) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- --
=================================================================================================================================
Total distributions (0.20) (0.45) (0.53) (0.32) (0.55) (0.60)
=================================================================================================================================
Net asset value, end of period $ 6.44 $ 6.20 $ 6.91 $ 7.14 $ 7.59 $ 8.38
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 7.17% (4.05)% 4.42% (1.70)% (2.92)% 4.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $283,759 $281,966 $346,967 $346,482 $393,414 $399,701
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.04%(d) 0.96% 0.95% 0.97%(e) 0.91% 0.91%
=================================================================================================================================
Ratio of net investment income to average
net assets 5.69%(d) 6.57%(b) 7.57% 8.03%(e) 7.11% 6.69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 55% 70% 83% 43% 78% 41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.45 and the ratio of net investment income to average
net assets would have been 6.76%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$279,826,101.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-125
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, YEAR ENDED
ENDED SEVEN MONTHS DECEMBER 31,
JANUARY 31, ------------------------- ENDED JULY --------------------
2003 2002 2001 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37 $ 8.55
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16(a) 0.39(a)(b) 0.48 0.31 0.50 0.50
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.25 (0.70) (0.23) (0.47) (0.80) (0.15)
=================================================================================================================================
Total from investment operations 0.41 (0.31) 0.25 (0.16) (0.30) 0.35
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.38) (0.45) (0.21) (0.49) (0.48)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- --
=================================================================================================================================
Total distributions (0.17) (0.40) (0.47) (0.28) (0.49) (0.53)
=================================================================================================================================
Net asset value, end of period $ 6.45 $ 6.21 $ 6.92 $ 7.14 $ 7.58 $ 8.37
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.76% (4.76)% 3.67% (2.09)% (3.72)% 4.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $212,723 $216,710 $237,118 $213,926 $244,713 $219,033
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.79%(d) 1.71% 1.71% 1.73%(e) 1.66% 1.66%
=================================================================================================================================
Ratio of net investment income to average
net assets 4.94%(d) 5.82%(b) 6.81% 7.28%(e) 6.36% 5.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 55% 70% 83% 43% 78% 41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(d) Ratios are annualized and based on average daily net assets of
$214,246,245.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-126
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
JANUARY 31, ----------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36 $ 8.54
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16(a) 0.39(a)(b) 0.48 0.31 0.50 0.50
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.26 (0.71) (0.23) (0.47) (0.80) (0.15)
=================================================================================================================================
Total from investment operations 0.42 (0.32) 0.25 (0.16) (0.30) 0.35
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.38) (0.45) (0.21) (0.49) (0.48)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (0.02) (0.02) (0.07) -- --
=================================================================================================================================
Total distributions (0.17) (0.40) (0.47) (0.28) (0.49) (0.53)
=================================================================================================================================
Net asset value, end of period $ 6.44 $ 6.19 $ 6.91 $ 7.13 $ 7.57 $ 8.36
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.95% (4.92)% 3.68% (2.09)% (3.71)% 4.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,566 $37,769 $44,216 $26,821 $28,202 $19,332
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.79%(d) 1.71% 1.71% 1.73%(e) 1.66% 1.66%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.94%(d) 5.82%(b) 6.81% 7.28%(e) 6.36% 5.94%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 55% 70% 83% 43% 78% 41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.40 and the ratio of net investment income to average
net assets would have been 6.01%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(d) Ratios are annualized and based on average daily net assets of
$36,580,634.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-127
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.20 $ 6.53
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.06(a)(b)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.25 (0.32)
=============================================================================================
Total from investment operations 0.43 (0.26)
=============================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.05)
- ---------------------------------------------------------------------------------------------
Return of capital -- (0.02)
=============================================================================================
Total distributions (0.19) (0.07)
=============================================================================================
Net asset value, end of period $ 6.44 $ 6.20
_____________________________________________________________________________________________
=============================================================================================
Total return(c) 7.02% (4.01)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,088 $ 10
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.29%(d) 1.21%(e)
=============================================================================================
Ratio of net investment income to average net assets 5.44%(d) 6.32%(b)(e)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(f) 55% 70%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydown gains
and losses as adjustments to interest income. Had the Fund not amortized
premiums on debt securities or recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.07 and the ratio of net investment income to average
net assets would have been 6.51%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
August 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $146,037.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 10--SUBSEQUENT EVENT
The Board of Trustees unanimously approved, on February 6, 2003, an Agreement
and Plan of Reorganization ("Plan") pursuant to which AIM Strategic Income Fund
("Strategic Income Fund"), a series of AIM Investment Funds ("AIF"), and AIM
Global Income Fund ("Global Income Fund"), a series of AIM International Funds,
Inc. ("AIFI"), would transfer substantially all of their assets to AIM Income
Fund ("Income Fund"), a series of AIM Investment Securities Funds ("AIS"). As a
result of the transaction, shareholders of Strategic Income Fund and Global
Income Fund would receive shares of Income Fund in exchange for their shares of
Strategic Income Fund and Global Income Fund, respectively, and Strategic Income
Fund and Global Income Fund would cease operations.
The Plan requires approval of Strategic Income Fund shareholders and Global
Income Fund shareholders and will be submitted to the shareholders for their
consideration at a meeting to be held on June 4, 2003. If the Plan is approved
by shareholders of Strategic Income Fund and shareholders of Global Income Fund
and certain conditions required by the Plan are satisfied, the transaction is
expected to become effective shortly thereafter.
FS-128
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-86.49%
FEDERAL FARM CREDIT BANK-3.13%
Bonds,
3.88%, 12/15/04 $ 7,410,000 $ 7,689,728
- ----------------------------------------------------------------------------
4.38%, 04/15/05 7,670,000 8,068,303
- ----------------------------------------------------------------------------
6.00%, 06/11/08 to 03/07/11 19,000,000 21,314,290
- ----------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28 10,000,000 10,368,100
============================================================================
47,440,421
============================================================================
FEDERAL HOME LOAN BANK-4.39%
Unsec. Bonds,
7.36%, 07/01/04 2,800,000 3,024,756
- ----------------------------------------------------------------------------
6.50%, 11/15/05 2,000,000 2,224,320
- ----------------------------------------------------------------------------
7.25%, 02/15/07 5,500,000 6,390,065
- ----------------------------------------------------------------------------
4.88%, 05/15/07 16,000,000 17,121,600
- ----------------------------------------------------------------------------
5.48%, 01/08/09 1,000,000 1,095,370
- ----------------------------------------------------------------------------
5.75%, 05/15/12 33,210,000 36,525,022
============================================================================
66,381,133
============================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-28.06%
Pass Through Ctfs.,
9.00%, 12/01/05 to 04/01/25 1,065,813 1,166,028
- ----------------------------------------------------------------------------
8.00%, 07/01/06 to 10/01/23 3,982,891 4,348,024
- ----------------------------------------------------------------------------
8.50%, 07/01/07 to 10/01/29 7,973,090 8,624,346
- ----------------------------------------------------------------------------
7.00%, 11/01/10 to 05/01/32 74,747,180 78,872,099
- ----------------------------------------------------------------------------
6.50%, 02/01/11 to 09/01/32 122,387,162 127,872,947
- ----------------------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 2,744,416 3,139,147
- ----------------------------------------------------------------------------
12.00%, 02/01/13 4,125 4,784
- ----------------------------------------------------------------------------
10.50%, 08/01/19 to 01/01/21 479,747 548,273
- ----------------------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 2,405,259 2,678,826
- ----------------------------------------------------------------------------
7.50%, 09/01/30 1,544,325 1,647,609
- ----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 02/01/33(a) 24,000,000 24,843,080
- ----------------------------------------------------------------------------
Series 1, Unsec. Medium Term Notes,
3.75%, 12/26/07 10,000,000 10,015,300
- ----------------------------------------------------------------------------
Unsec. Medium Term Notes,
4.50%, 02/27/06 30,000,000 30,063,600
- ----------------------------------------------------------------------------
6.00%, 05/25/12 to 06/27/17 36,300,000 37,851,990
- ----------------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 30,000,000 32,182,800
- ----------------------------------------------------------------------------
5.13%, 10/15/08 to 07/15/12 27,000,000 28,864,770
- ----------------------------------------------------------------------------
5.00%, 07/30/09 31,200,000 31,962,216
============================================================================
424,685,839
============================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-38.81%
Pass Through Ctfs.,
8.50%, 01/01/07 to 04/01/30 $ 26,109,943 $ 28,518,998
- ----------------------------------------------------------------------------
7.50%, 06/01/10 to 05/01/32 29,427,595 31,381,587
- ----------------------------------------------------------------------------
7.00%, 05/01/11 to 05/01/32 32,429,194 34,484,708
- ----------------------------------------------------------------------------
8.00%, 02/01/12 to 06/01/32 110,428,658 119,286,913
- ----------------------------------------------------------------------------
6.50%, 05/01/13 to 08/01/32 122,728,360 128,793,509
- ----------------------------------------------------------------------------
6.00%, 10/01/13 to 04/01/24 21,502,620 22,505,090
- ----------------------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 496,238 553,982
- ----------------------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 2,987,411 3,418,718
- ----------------------------------------------------------------------------
10.30%, 04/20/25 915,460 1,042,436
- ----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 02/01/33(a) 113,500,000 117,498,595
- ----------------------------------------------------------------------------
Series B, Unsec. Medium Term Notes,
6.88%, 09/10/12 to 09/24/12 24,765,000 27,611,310
- ----------------------------------------------------------------------------
6.47%, 09/25/12 10,550,000 12,181,769
- ----------------------------------------------------------------------------
Unsec. Notes,
3.25%, 08/26/05 36,000,000 36,047,520
- ----------------------------------------------------------------------------
4.25%, 07/15/07 23,000,000 24,049,030
============================================================================
587,374,165
============================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-7.18%
Pass Through Ctfs.,
6.00%, 10/15/08 to 11/15/08 220,419 235,123
- ----------------------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 416,786 463,026
- ----------------------------------------------------------------------------
7.00%, 10/15/08 to 06/15/32 8,774,236 9,334,921
- ----------------------------------------------------------------------------
6.50%, 10/15/08 to 09/15/32 34,172,180 35,914,982
- ----------------------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 1,616,761 1,820,501
- ----------------------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 3,493,560 4,007,476
- ----------------------------------------------------------------------------
11.00%, 12/15/09 to 12/15/15 31,848 36,572
- ----------------------------------------------------------------------------
12.50%, 11/15/10 43,564 51,107
- ----------------------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 150,356 180,794
- ----------------------------------------------------------------------------
13.50%, 04/15/11 to 04/15/15 138,229 166,402
- ----------------------------------------------------------------------------
12.00%, 02/15/13 to 07/15/15 143,896 170,156
- ----------------------------------------------------------------------------
10.50%, 02/15/16 22,325 25,888
- ----------------------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 8,552,410 9,336,371
- ----------------------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 2,090,922 2,241,059
- ----------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.50%, 01/01/33 15,300,000 16,050,656
- ----------------------------------------------------------------------------
6.00%, 02/01/33(a) 27,500,000 28,621,280
============================================================================
108,656,314
============================================================================
</Table>
FS-129
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY-1.71%
Series G, Sec. Gtd. Notes,
6.67%, 09/15/09 $ 7,700,000 $ 8,946,322
- ----------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06 7,000,000 8,097,180
- ----------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
7.95%, 11/01/06 8,000,000 8,779,520
============================================================================
25,823,022
============================================================================
TENNESSEE VALLEY AUTHORITY-3.21%
Putable Bonds,
4.88%, 12/15/06 10,000,000 10,669,100
- ----------------------------------------------------------------------------
Series A, Bonds,
5.63%, 01/18/11 28,517,000 30,763,569
- ----------------------------------------------------------------------------
Series G, Bonds,
5.38%, 11/13/08 6,600,000 7,189,710
============================================================================
48,622,379
============================================================================
Total U.S. Government Agency Securities
(Cost $1,279,440,990) 1,308,983,273
============================================================================
U.S. TREASURY SECURITIES-22.14%
U.S. TREASURY NOTES-16.86%
6.75%, 05/15/05 21,500,000 23,838,125
- ----------------------------------------------------------------------------
4.63%, 05/15/06 29,800,000 31,918,482
- ----------------------------------------------------------------------------
4.38%, 05/15/07 66,000,000 70,227,960
- ----------------------------------------------------------------------------
3.25%, 08/15/07 40,700,000 41,342,246
- ----------------------------------------------------------------------------
4.88%, 02/15/12 25,800,000 27,710,748
- ----------------------------------------------------------------------------
4.00%, 11/15/12 60,000,000 60,121,800
============================================================================
255,159,361
============================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------
U.S. TREASURY BONDS--4.57%
7.50%, 11/15/16 to 11/15/24 $ 14,950,000 $ 19,763,428
- ----------------------------------------------------------------------------
6.25%, 05/15/30 18,890,000 22,431,875
- ----------------------------------------------------------------------------
5.38%, 02/15/31 25,000,000 27,004,000
============================================================================
69,199,303
============================================================================
U.S. TREASURY STRIPS-0.71%(B)
5.38%, 05/15/06 8,000,000 7,388,720
- ----------------------------------------------------------------------------
6.79%, 11/15/18 7,750,000 3,436,660
============================================================================
10,825,380
============================================================================
Total U.S. Treasury Securities (Cost
$326,702,351) 335,184,044
============================================================================
<Caption>
SHARES
MONEY MARKET FUND-1.98%
STIT Government & Agency Portfolio (Cost
$29,950,295)(c) 29,950,295 29,950,295
============================================================================
TOTAL INVESTMENTS-110.61% (Cost
$1,636,093,636) 1,674,117,612
============================================================================
OTHER ASSETS LESS LIABILITIES-(10.61%) (160,619,639)
============================================================================
NET ASSETS-100.00% $1,513,497,973
____________________________________________________________________________
============================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Gtd. - Guaranteed
Sec. - Secured
STRIPS - Separately Traded Registered Interest and Principal Security
TBA - To be announced
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security purchased on forward commitment basis. These securities are subject
to dollar roll transactions. See Note 1 Section C.
(b) STRIPS are 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.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-130
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$1,636,093,636) $1,674,117,612
- ------------------------------------------------------------
Receivables for:
Fund shares sold 12,901,072
- ------------------------------------------------------------
Dividends and interest 13,590,536
- ------------------------------------------------------------
Principal paydowns 145,897
- ------------------------------------------------------------
Investment for deferred compensation plan 44,761
- ------------------------------------------------------------
Other assets 671,505
============================================================
Total assets 1,701,471,383
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 170,254,427
- ------------------------------------------------------------
Fund shares reacquired 15,553,814
- ------------------------------------------------------------
Dividends 697,640
- ------------------------------------------------------------
Deferred compensation plan 44,761
- ------------------------------------------------------------
Accrued interest expense 1,966
- ------------------------------------------------------------
Accrued distribution fees 967,424
- ------------------------------------------------------------
Accrued trustees' fees 1,384
- ------------------------------------------------------------
Accrued transfer agent fees 343,709
- ------------------------------------------------------------
Accrued operating expenses 108,285
============================================================
Total liabilities 187,973,410
============================================================
Net assets applicable to shares outstanding $1,513,497,973
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 635,390,383
____________________________________________________________
============================================================
Class B $ 721,806,373
____________________________________________________________
============================================================
Class C $ 155,195,034
____________________________________________________________
============================================================
Class R $ 1,106,183
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 67,180,777
____________________________________________________________
============================================================
Class B 76,086,385
____________________________________________________________
============================================================
Class C 16,419,131
____________________________________________________________
============================================================
Class R 116,935
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.46
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.46 divided by
95.25%) $ 9.93
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.49
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.45
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.46
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $32,592,365
- -----------------------------------------------------------
Dividends from affiliated money market funds 588,801
===========================================================
Total investment income 33,181,166
===========================================================
EXPENSES:
Advisory fees 2,591,356
- -----------------------------------------------------------
Administrative services fees 159,747
- -----------------------------------------------------------
Custodian fees 79,508
- -----------------------------------------------------------
Distribution fees -- Class A 702,630
- -----------------------------------------------------------
Distribution fees -- Class B 3,497,201
- -----------------------------------------------------------
Distribution fees -- Class C 732,208
- -----------------------------------------------------------
Distribution fees -- Class R 789
- -----------------------------------------------------------
Interest 69,082
- -----------------------------------------------------------
Transfer agent fees 1,336,221
- -----------------------------------------------------------
Trustees' fees 7,968
- -----------------------------------------------------------
Other 315,503
===========================================================
Total expenses 9,492,213
===========================================================
Less: Fees waived (13,569)
- -----------------------------------------------------------
Expenses paid indirectly (10,710)
===========================================================
Net expenses 9,467,934
===========================================================
Net investment income 23,713,232
===========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 10,660,306
- -----------------------------------------------------------
Change in net unrealized appreciation of
investment securities 14,814,241
===========================================================
Net gain from investment securities 25,474,547
===========================================================
Net increase in net assets resulting from
operations $49,187,779
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-131
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 23,713,232 $ 34,206,957
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities 10,660,306 7,060,161
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 14,814,241 13,327,043
==============================================================================================
Net increase in net assets resulting from operations 49,187,779 54,594,161
==============================================================================================
Distributions to shareholders from net investment income:
Class A (11,700,603) (18,042,169)
- ----------------------------------------------------------------------------------------------
Class B (12,181,668) (15,743,394)
- ----------------------------------------------------------------------------------------------
Class C (2,552,130) (3,470,538)
- ----------------------------------------------------------------------------------------------
Class R (5,433) (135)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 153,350,245 162,667,870
- ----------------------------------------------------------------------------------------------
Class B 96,975,551 336,030,816
- ----------------------------------------------------------------------------------------------
Class C 25,799,680 65,503,763
- ----------------------------------------------------------------------------------------------
Class R 1,066,998 33,308
==============================================================================================
Net increase in net assets 299,940,419 581,573,682
==============================================================================================
NET ASSETS:
Beginning of period 1,213,557,554 631,983,872
==============================================================================================
End of period $1,513,497,973 $1,213,557,554
______________________________________________________________________________________________
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,505,988,592 $1,228,796,118
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (2,859,997) (133,395)
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (27,654,598) (38,314,904)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 38,023,976 23,209,735
==============================================================================================
$1,513,497,973 $1,213,557,554
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be 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 the Fund.
The Fund's investment objective is to achieve a high level of current income
consistent with reasonable concern for safety of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
FS-132
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. 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. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage-backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for the
Fund exceeding the yield on the security sold. The Fund will segregate
assets to cover its obligations under dollar roll transactions. The
difference between the selling price and the future repurchase price is
recorded as an adjustment to interest income.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
E. 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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
F. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market funds in which the Fund has invested. For the
six months ended January 31, 2003, AIM waived fees of $13,569.
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. For the six months ended January 31, 2003, AIM
was paid $159,747 for such services.
FS-133
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 and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $654,322 for such services.
The Trust 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, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.25% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and C shares and 0.50%
of the average daily net assets of Class R 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, Class C or Class R 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 under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the six months ended January 31,
2003, the Class A, Class B, Class C and Class R shares paid $702,630,
$3,497,201, $732,208 and $789, respectively.
Front-end sales commissions and CDSCs are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
the six months ended January 31, 2003, AIM Distributors retained $190,026 in
front-end sales commissions from the sale of Class A shares and $156,065,
$16,644, $47,115 and $0 for Class A, Class B, Class C and Class R shares,
respectively, for CDSCs imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors. During the six months ended January 31, 2003,
the Fund paid legal fees of $3,181 for services rendered by Kramer, Levin,
Naftalis & Frankel LLP as counsel to the Board of Trustees. A member of that
firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $10,668 and reductions in
custodian fees of $42 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $10,710.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed
upon price and date. The Fund will use the proceeds of a reverse repurchase
agreement (which are considered to be borrowings under the 1940 Act) to purchase
other permitted securities either maturing, or under an agreement to resell, at
a date simultaneous with or prior to the expiration of the reverse repurchase
agreement. The agreements are collateralized by the underlying securities and
are carried at the amount at which the securities subsequently will be
repurchased as specified in the agreements.
The maximum amount outstanding during the six months ended January 31, 2003
was $89,705,000, while borrowings averaged $13,650,761 per day with a weighted
average interest rate of 1.00%.
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. The funds which are party 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 the funds based on
their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
July 31, 2003 $ 219,350
- ----------------------------------------------------------
July 31, 2004 3,466,244
- ----------------------------------------------------------
July 31, 2005 4,686
- ----------------------------------------------------------
July 31, 2007 25,224,263
- ----------------------------------------------------------
July 31, 2008 9,400,360
==========================================================
Total capital loss carryforward $38,314,903
__________________________________________________________
==========================================================
</Table>
FS-134
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $1,774,063,977 and $1,374,162,731, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $39,246,560
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,222,584)
===========================================================================
Net unrealized appreciation of investment securities $38,023,976
___________________________________________________________________________
===========================================================================
Cost of investments is the same for tax and financial reporting purposes.
</Table>
NOTE 8--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge ("CDSC"). Under some circumstances, Class A
shares and Class R shares are subject to CDSC charges. Class R shares are sold
at net asset value. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED
JANUARY 31, YEAR ENDED JULY 31,
2003 2002
---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 100,527,532 $ 947,626,930 141,358,670 $ 1,293,194,070
- -----------------------------------------------------------------------------------------------------------------------------
Class B 25,672,270 242,962,463 54,984,125 507,221,308
- -----------------------------------------------------------------------------------------------------------------------------
Class C 10,226,615 96,423,839 17,930,155 164,422,350
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 192,564 1,814,199 4,773 43,973
=============================================================================================================================
Issued as reinvestment of dividends:
Class A 1,033,689 9,765,067 1,556,614 14,273,598
- -----------------------------------------------------------------------------------------------------------------------------
Class B 1,036,975 9,826,322 1,318,829 12,129,999
- -----------------------------------------------------------------------------------------------------------------------------
Class C 216,132 2,040,953 303,088 2,777,727
- -----------------------------------------------------------------------------------------------------------------------------
Class R* 507 4,795 15 135
=============================================================================================================================
Conversion of Class B shares to Class A shares:**
Class A 846,311 7,978,931 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Class B (842,645) (7,978,931) -- --
=============================================================================================================================
Reacquired:
Class A (86,218,652) (812,020,683) (125,208,629) (1,144,799,798)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (15,681,304) (147,834,303) (20,005,120) (183,320,491)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (7,730,183) (72,665,112) (11,125,287) (101,696,314)
- -----------------------------------------------------------------------------------------------------------------------------
Class R* (79,761) (751,996) (1,163) (10,800)
=============================================================================================================================
29,200,050 $ 277,192,474 61,116,070 $ 564,235,757
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Prior to the six months ended January 31, 2003, conversion of Class B shares
to Class A shares were included in Class A shares sold and Class B shares
reacquired.
FS-135
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED YEAR ENDED
ENDED JULY 31, SEVEN MONTHS DECEMBER 31,
JANUARY 31, ----------------------- ENDED --------------------
2003 2002 2001 JULY 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58 $ 9.46
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.43(b) 0.50(a) 0.34 0.60 0.62
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.20 0.23 0.35 (0.03) (0.78) 0.13
=================================================================================================================================
Total from investment operations 0.38 0.66 0.85 0.31 (0.18) 0.75
=================================================================================================================================
Less dividends from net investment income (0.20) (0.46) (0.54) (0.34) (0.60) (0.63)
=================================================================================================================================
Net asset value, end of period $ 9.46 $ 9.28 $ 9.08 $ 8.77 $ 8.80 $ 9.58
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 4.11% 7.39% 9.91% 3.55% (1.87)% 8.17%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $635,390 $473,104 $302,391 $221,636 $238,957 $245,613
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 0.90%(d) 0.94% 1.32% 1.25%(e) 1.08% 1.20%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 0.89%(d) 0.90% 0.93% 0.98%(e) 0.89% 0.96%
=================================================================================================================================
Ratio of net investment income to average net
assets 3.82%(d) 4.58%(b) 5.61% 6.61%(e) 6.60% 6.43%
=================================================================================================================================
Ratio of interest expense to average net
assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 103% 146% 194% 65% 141% 147%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been $0.47 and the ratio of net
investment income to average net assets would have been 5.09%. In
accordance with the AICPA Audit and Accounting Guide for investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$557,521,567.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-136
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ----------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59 $ 9.46
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(a) 0.37(b) 0.44(a) 0.30 0.53 0.55
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.20 0.22 0.35 (0.04) (0.77) 0.13
=================================================================================================================================
Total from investment operations 0.35 0.59 0.79 0.26 (0.24) 0.68
=================================================================================================================================
Less dividends from net investment income (0.17) (0.39) (0.47) (0.29) (0.53) (0.55)
=================================================================================================================================
Net asset value, end of period $ 9.49 $ 9.31 $ 9.11 $ 8.79 $ 8.82 $ 9.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.74% 6.58% 9.17% 3.05% (2.56)% 7.40%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $721,806 $613,306 $269,677 $177,032 $228,832 $237,919
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets
(including interest expense) 1.65%(d) 1.69% 2.08% 2.01%(e) 1.85% 1.96%
=================================================================================================================================
Ratio of expenses to average net assets
(excluding interest expense) 1.64%(d) 1.65% 1.69% 1.74%(e) 1.66% 1.72%
=================================================================================================================================
Ratio of net investment income to average net
assets 3.07%(d) 3.83%(b) 4.85% 5.85%(e) 5.83% 5.68%
=================================================================================================================================
Ratio of interest expense to average net
assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 103% 146% 194% 65% 141% 147%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been $0.40 and the ratio of net
investment income to average net assets would have been 4.35%. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect the change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(d) Ratios are annualized and based on average daily net assets of
$693,738,301.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-137
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56 $ 9.44
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(a) 0.37(b) 0.44(a) 0.30 0.53 0.56
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.20 0.21 0.34 (0.03) (0.77) 0.11
=================================================================================================================================
Total from investment operations 0.35 0.58 0.78 0.27 (0.24) 0.67
=================================================================================================================================
Less dividends from net investment income (0.17) (0.39) (0.47) (0.29) (0.53) (0.55)
=================================================================================================================================
Net asset value, end of period $ 9.45 $ 9.27 $ 9.08 $ 8.77 $ 8.79 $ 9.56
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.75% 6.48% 9.08% 3.18% (2.57)% 7.31%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $155,195 $127,114 $59,915 $34,206 $39,011 $38,026
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets (including
interest expense) 1.65%(d) 1.69% 2.08% 2.01%(e) 1.85% 1.96%
=================================================================================================================================
Ratio of expenses to average net assets (excluding
interest expense) 1.64%(d) 1.65% 1.69% 1.74%(e) 1.66% 1.72%
=================================================================================================================================
Ratio of net investment income to average net
assets 3.07%(d) 3.83%(b) 4.85% 5.85%(e) 5.83% 5.68%
=================================================================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.04% 0.39% 0.27%(e) 0.19% 0.24%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 103% 146% 194% 65% 141% 147%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have been $0.40 and the ratio of net
investment income to average net assets would have been 4.35%. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(d) Ratios are annualized and based on average daily net assets of
$145,247,773.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-138
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED)
JANUARY 31, TO JULY 31,
2003 2002
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.27 $ 9.13
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17(a) 0.07(b)
- --------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.21 0.14
============================================================================================
Total from investment operations 0.38 0.21
============================================================================================
Less distributions from net investment income (0.19) (0.07)
============================================================================================
Net asset value, end of period $ 9.46 $ 9.27
____________________________________________________________________________________________
============================================================================================
Total return(c) 4.09% 2.34%
____________________________________________________________________________________________
============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,106 $ 34
____________________________________________________________________________________________
============================================================================================
Ratio of expenses to average net assets (including interest
expense) 1.15%(d) 1.19%(e)
============================================================================================
Ratio of expenses to average net assets (excluding interest
expense) 1.14%(d) 1.15%(e)
============================================================================================
Ratio of net investment income to average net assets 3.57%(d) 4.33%(b)(e)
============================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.04%(e)
____________________________________________________________________________________________
============================================================================================
Portfolio turnover rate(f) 103% 146%
____________________________________________________________________________________________
============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective August 31, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities and recording paydowns
gains and losses on asset-backed securities as adjustments to net
investment income. Had the Fund not amortized on debt securities or
recorded paydowns gains and losses adjustments to investment income, the
investment income per share would have remained the same and the ratio
of net investment income to average net assets would have been 4.85%. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to August 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $312,930.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-139
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(unaudited)
<Table>
<Caption>
PAR MARKET
MATURITY (000S) VALUE
- -----------------------------------------------------------------------------------------------
U.S. TREASURY NOTES--99.50%
3.00% 02/29/04 $ 60,000 $ 61,040,400
- -----------------------------------------------------------------------------------------------
3.63% 03/31/04 60,500 62,088,125
- -----------------------------------------------------------------------------------------------
3.38% 04/30/04 60,500 61,984,065
- -----------------------------------------------------------------------------------------------
3.25% 05/31/04 60,500 61,946,555
- -----------------------------------------------------------------------------------------------
2.88% 06/30/04 60,500 61,700,320
- -----------------------------------------------------------------------------------------------
2.25% 07/31/04 60,500 61,180,625
- -----------------------------------------------------------------------------------------------
2.13% 08/31/04 60,500 61,076,565
- -----------------------------------------------------------------------------------------------
1.88% 09/30/04 60,500 60,830,935
- -----------------------------------------------------------------------------------------------
2.13% 10/31/04 60,500 61,057,810
- -----------------------------------------------------------------------------------------------
2.00% 11/30/04 60,300 60,705,216
- -----------------------------------------------------------------------------------------------
1.75% 12/31/04 60,000 60,084,600
- -----------------------------------------------------------------------------------------------
1.63% 01/31/05 59,900 59,796,972
===============================================================================================
Total U.S. Treasury Notes (Cost $724,808,390) 733,492,188
===============================================================================================
TOTAL INVESTMENTS--99.50% 733,492,188
===============================================================================================
OTHER ASSETS LESS LIABILITIES--0.50% 3,677,548
===============================================================================================
NET ASSETS--100.00% $737,169,736
_______________________________________________________________________________________________
===============================================================================================
</Table>
See Notes to Financial Statements.
FS-140
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$724,808,390) $733,492,188
- -----------------------------------------------------------
Cash 93,582
- -----------------------------------------------------------
Receivables for:
Fund shares sold 2,473,578
- -----------------------------------------------------------
Interest 4,103,135
- -----------------------------------------------------------
Investment for deferred compensation plan 41,646
- -----------------------------------------------------------
Other assets 80,499
===========================================================
Total assets 740,284,628
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 2,662,571
- -----------------------------------------------------------
Dividends 194,602
- -----------------------------------------------------------
Deferred compensation plan 41,646
- -----------------------------------------------------------
Accrued distribution fees 128,814
- -----------------------------------------------------------
Accrued trustees' fees 863
- -----------------------------------------------------------
Accrued transfer agent fees 82,682
- -----------------------------------------------------------
Accrued operating expenses 3,714
===========================================================
Total liabilities 3,114,892
===========================================================
Net assets applicable to shares outstanding $737,169,736
___________________________________________________________
===========================================================
NET ASSETS:
Class A $700,247,785
___________________________________________________________
===========================================================
Class A3 $ 34,478,355
___________________________________________________________
===========================================================
Institutional Class $ 2,443,596
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 66,823,706
___________________________________________________________
===========================================================
Class A3 3,290,865
___________________________________________________________
===========================================================
Institutional Class 233,231
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.48
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.48 divided by
99.00%) $ 10.59
___________________________________________________________
===========================================================
Class A3:
Net asset value and offering price per
share $ 10.48
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.48
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 9,940,681
===========================================================
EXPENSES:
Advisory fees 710,967
- -----------------------------------------------------------
Administrative services fees 83,520
- -----------------------------------------------------------
Custodian fees 8,060
- -----------------------------------------------------------
Distribution fees -- Class A 547,253
- -----------------------------------------------------------
Distribution fees -- Class A3 14,042
- -----------------------------------------------------------
Transfer agent fees 451,785
- -----------------------------------------------------------
Transfer agent fees -- Institutional Class 852
- -----------------------------------------------------------
Trustees' fees 6,262
- -----------------------------------------------------------
Other 101,486
===========================================================
Total expenses 1,924,227
===========================================================
Less: Expenses paid indirectly (5,555)
===========================================================
Net expenses 1,918,672
===========================================================
Net investment income 8,022,009
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities 5,099,203
- -----------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (1,832,003)
===========================================================
Net gain from investment securities 3,267,200
===========================================================
Net increase in net assets resulting from
operations $11,289,209
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-141
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,022,009 $ 19,243,725
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities 5,099,203 12,398,048
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,832,003) 4,356,374
================================================================================================
Net increase in net assets resulting from operations 11,289,209 35,998,147
================================================================================================
Distributions to shareholders from net investment income:
Class A (7,917,527) (19,170,139)
- ------------------------------------------------------------------------------------------------
Class A3 (70,759) --
- ------------------------------------------------------------------------------------------------
Institutional Class (33,723) (70,078)
- ------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (7,010,173) --
- ------------------------------------------------------------------------------------------------
Class A3 (129,528) --
- ------------------------------------------------------------------------------------------------
Institutional Class (24,193) --
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 7,764,904 171,767,941
- ------------------------------------------------------------------------------------------------
Class A3 34,586,739 --
- ------------------------------------------------------------------------------------------------
Institutional Class (513,376) 1,091,152
================================================================================================
Net increase in net assets 37,941,573 189,617,023
================================================================================================
NET ASSETS:
Beginning of period 699,228,163 509,611,140
================================================================================================
End of period $737,169,736 $699,228,163
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $723,426,740 $681,588,473
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 5,059,198 7,123,889
- ------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 8,683,798 10,515,801
================================================================================================
$737,169,736 $699,228,163
________________________________________________________________________________________________
================================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Limited Maturity Treasury Fund (the "Fund") is a series portfolio of AIM
Investment Securities Funds (the "Trust"). The Trust is a Delaware statutory
trust registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management company consisting of nine separate
series portfolios each having an unlimited number of shares of beneficial
interest. The Fund currently consists of multiple classes of shares. 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 the Fund.
The Fund's investment objective is to seek liquidity with minimum
fluctuation in principal value and, consistent with this objective, the highest
total return achievable.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
FS-142
A. SECURITY VALUATIONS -- Debt obligations that are issued or guaranteed by
the U.S. Treasury are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by the above
method are valued based upon quotes furnished by independent sources and
are valued at the mean between the last bid and asked prices. 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. Short-term obligations having 60 days or less to
maturity and commercial paper are valued at amortized cost which
approximates market value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gains, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.20% on
the first $500 million of the Fund's average daily net assets, plus 0.175% on
the Fund's average daily net assets in excess of $500 million.
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. For the six months ended January 31, 2003, AIM
was paid $83,520 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 and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $193,966 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares, Class A3 shares and the Institutional Class shares of the Fund.
The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A shares and Class A3 shares (collectively the
"Plans"). The Fund, pursuant to the Plan, pays AIM Distributors compensation at
the annual rates of 0.15% of the Fund's average daily net assets of Class A
shares and 0.35% of the average daily net assets of Class A3 shares. Of these
amounts, the Fund may pay a service fee of 0.15% of the average daily net assets
of Class A shares and 0.25% of the average daily net assets of Class A3 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 under the
Plan would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the six months
ended January 31, 2003, Class A and Class A3 shares paid $547,253 and $14,042,
respectively.
Front-end sales commissions and CDSCs are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
the six months ended January 31, 2003, AIM Distributors retained $77,275 in
front-end sales commissions from the sale of Class A shares and $14,472 and $0
for Class A and Class A3 shares, respectively, for CDSCs imposed upon
redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS, and/or AIM Distributors.
During the six months ended January 31, 2003, the Fund paid legal fees of
$2,615 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $5,555 under an expense
offset arrangement which resulted in a reduction of the Fund's net expenses of
$5,555.
FS-143
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the six months ended January
31, 2003, the Fund did not borrow under the line of credit agreement. The funds
which are party 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
the funds based on their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $504,132,490 and $466,059,571, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 was as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $8,713,105
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (89,206)
===========================================================
Net unrealized appreciation of investment
securities $8,623,899
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $724,868,289.
</Table>
NOTE 8--SHARE INFORMATION
The Fund currently consists of three different classes of shares: Class A
shares, Class A3 shares and Institutional Class shares. Class A shares were sold
with a front-end sales charge. Under some circumstances, Class A shares are
subject to contingent deferred sales charge ("CDSC"). Class A3 shares and
Institutional Class shares are sold at net asset value. As of the close of
business on October 30, 2002, Class A shares were closed to new investors.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 22,321,810 $ 235,370,318 75,803,443 $ 786,911,782
- --------------------------------------------------------------------------------------------------------------------------
Class A3* 3,638,776 38,246,673 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 6,127 64,610 184,259 1,912,257
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,224,852 12,869,334 1,557,231 16,184,908
- --------------------------------------------------------------------------------------------------------------------------
Class A3* 17,442 182,638 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 240 2,518 238 2,477
==========================================================================================================================
Reacquired:
Class A (22,819,431) (240,474,748) (60,767,295) (631,328,749)
- --------------------------------------------------------------------------------------------------------------------------
Class A3* (365,353) (3,842,572) -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (55,092) (580,504) (79,249) (823,582)
==========================================================================================================================
3,969,371 $ 41,838,267 16,698,627 $ 172,859,093
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class A3 shares commenced sales on October 31, 2002.
FS-144
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, --------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.53 $ 10.26 $ 9.96 $ 10.03 $ 10.07 $ 10.07
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12 0.33(a) 0.52(b) 0.51 0.47 0.53
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.05 0.27 0.31 (0.07) (0.04) --
=================================================================================================================================
Total from investment operations 0.17 0.60 0.83 0.44 0.43 0.53
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.12) (0.33) (0.53) (0.51) (0.47) (0.53)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- -- -- -- --
=================================================================================================================================
Total distributions (0.22) (0.33) (0.53) (0.51) (0.47) (0.53)
=================================================================================================================================
Net asset value, end of period $ 10.48 $ 10.53 $ 10.26 $ 9.96 $ 10.03 $ 10.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.61% 5.89% 8.53% 4.50% 4.32% 5.42%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $700,248 $696,259 $507,799 $300,058 $390,018 $345,355
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.52%(d) 0.48% 0.56% 0.54% 0.54% 0.54%
=================================================================================================================================
Ratio of net investment income to average net
assets 2.17%(d) 3.12%(a) 5.15% 5.07% 4.61% 5.29%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 64% 149% 137% 122% 184% 133%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.34 and the ratio of net investment income to
average net assets would have been 3.29%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to August 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$723,722,536.
(e) Not annualized for periods less than one year.
FS-145
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS A3
--------------------
OCTOBER 31,
2002
(DATE SALES
COMMENCED) TO
JANUARY 31,
2003
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.59
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05
- ----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01)
==================================================================================
Total from investment operations 0.04
==================================================================================
Less distributions:
Dividends from net investment income (0.05)
- ----------------------------------------------------------------------------------
Distributions from net realized gains (0.10)
==================================================================================
Total distributions (0.15)
==================================================================================
Net asset value, end of period $ 10.48
__________________________________________________________________________________
==================================================================================
Total return(a) 0.41%
__________________________________________________________________________________
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,478
__________________________________________________________________________________
==================================================================================
Ratio of expenses to average net assets 0.72%(b)
==================================================================================
Ratio of net investment income to average net assets 1.97%(b)
__________________________________________________________________________________
==================================================================================
Portfolio turnover rate(c) 64%
__________________________________________________________________________________
==================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of
$15,745,569.
(c) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, ------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.53 $10.26 $ 9.96 $10.03 $ 10.07 $ 10.07
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13 0.34(a) 0.54(b) 0.54 0.49 0.56
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.05 0.27 0.31 (0.07) (0.04) --
=================================================================================================================================
Total from investment operations 0.18 0.61 0.85 0.47 0.45 0.56
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.13) (0.34) (0.55) (0.54) (0.49) (0.56)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- -- -- -- --
=================================================================================================================================
Total distributions (0.23) (0.34) (0.55) (0.54) (0.49) (0.56)
=================================================================================================================================
Net asset value, end of period $10.48 $10.53 $10.26 $ 9.96 $ 10.03 $ 10.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.72% 6.05% 8.80% 4.78% 4.55% 5.66%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,444 $2,970 $1,812 $2,455 $17,131 $50,609
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.31%(d) 0.34% 0.33%(e) 0.29% 0.31% 0.32%
=================================================================================================================================
Ratio of net investment income to average net assets 2.38%(d) 3.26%(a) 5.38% 5.31% 4.84% 5.51%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 64% 149% 137% 122% 184% 133%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and the Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.35 and the ratio of net investment income to
average assets would have been 3.43%. In accordance with the AICPA Audit
and Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$2,800,291.
(e) Includes expense reimbursement. Ratio of expenses to average net assets
excluding reimbursement is 0.41%.
(f) Not annualized for periods less than one year.
FS-146
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- -----------------------------------------------------------------------------------
COMMERCIAL PAPER-25.73%(a)
ASSET-BACKED SECURITIES-COMMERCIAL
LOANS/LEASES-4.52%
Atlantis One Funding Corp. (Rabobank-ABS
Program Sponsor)
(Acquired 10/01/02; Cost $19,852,483)
1.59%(b) 03/17/03 $ 20,000 $ 19,961,133
- -----------------------------------------------------------------------------------
(Acquired 01/02/03; Cost $69,792,722)
1.30%(b) 03/25/03 70,000 69,868,555
===================================================================================
89,829,688
===================================================================================
ASSET-BACKED SECURITIES-CONSUMER
RECEIVABLES-2.11%
Thunder Bay Funding Inc. (Royal Bank of
Canada-ABS Program Sponsor)(Acquired
01/21/03; Cost $42,006,149)
1.28%(b) 04/21/03 42,141 42,022,631
===================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE-5.74%
Edison Asset Securitization, LLC (GE Capital
Corp.-ABS Program Sponsor)(Acquired
10/01/02; Cost $31,814,444)
1.67%(b) 02/03/03 32,000 31,997,031
- -----------------------------------------------------------------------------------
Falcon Asset Securitization Corp. (Bank One
N.A.-ABS Program Sponsor)
(Acquired 01/24/03; Cost $37,958,443)
1.27%(b) 02/24/03 38,000 37,969,167
- -----------------------------------------------------------------------------------
Preferred Receivables Funding Corp. (Bank One
N.A.-ABS Program Sponsor)
(Acquired 12/11/02; Cost $19,105,552)
1.33%(b) 03/12/03 19,170 19,142,379
- -----------------------------------------------------------------------------------
Windmill Funding Corp. (ABN AMRO Bank,
N.V.-ABS Program Sponsor)
(Acquired 10/28/02; Cost $24,821,736)
1.70%(b) 03/28/03 25,000 24,935,069
===================================================================================
114,043,646
===================================================================================
ASSET-BACKED SECURITIES-TRADE
RECEIVABLES-9.38%
Bills Securitisation Ltd. (Germany) (Deutsche
Bank A.G.-ABS Program Sponsor) (Acquired
01/22/03; Cost $49,729,778)
1.28%(b) 06/23/03 50,000 49,747,556
- -----------------------------------------------------------------------------------
Blue Ridge Asset Funding Corp. (Wachovia Bank
N.A.-ABS Program Sponsor)
(Acquired 01/07/03; Cost $62,212,248)
1.30%(b) 02/19/03 62,309 62,268,499
- -----------------------------------------------------------------------------------
Eureka Securitization, Inc. (Citibank
N.A.-ABS Program Sponsor) (Acquired
01/22/03; Cost $29,454,898)
1.28%(b) 03/06/03 29,500 29,465,387
- -----------------------------------------------------------------------------------
</Table>
<Table>
PAR
MATURITY (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
ASSET-BACKED SECURITIES-TRADE RECEIVABLES-(CONTINUED)
FCAR Owner Trust-Series II (Ford Motor Credit
Co.-ABS Program Sponsor) (Acquired
11/05/02; Cost $24,819,500)
1.52%(b) 04/25/03 $ 25,000 $ 24,912,389
- -----------------------------------------------------------------------------------
New Center Asset Trust (General Motors
Acceptance Corp.-ABS Program Sponsor)
(Acquired 10/30/02; Cost $19,863,083)
1.59%(b) 04/03/03 20,000 19,946,117
===================================================================================
186,339,948
===================================================================================
DIVERSIFIED FINANCIAL SERVICES-3.98%
General Electric Capital Corp.
1.58% 04/03/03 40,000 39,892,911
- -----------------------------------------------------------------------------------
Morgan Stanley, Floating Rate,
1.39%(c) 02/21/03 14,200 14,200,000
- -----------------------------------------------------------------------------------
National Australia Funding (Delaware) Inc.
2.09% 02/07/03 25,000 24,991,292
===================================================================================
79,084,203
===================================================================================
Total Commercial Paper (Cost
$511,320,116) 511,320,116
===================================================================================
U.S. GOVERNMENT AGENCY SECURITIES-12.02%
FEDERAL HOME LOAN BANK-4.45%
Unsec. Bonds,
1.61% 12/08/03 40,000 40,000,000
- -----------------------------------------------------------------------------------
1.70% 12/08/03 30,000 30,000,000
- -----------------------------------------------------------------------------------
3.75% 02/13/04 18,000 18,433,882
===================================================================================
88,433,882
===================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-3.76%
Disc. Notes,
1.29%(a) 04/25/03 75,000 74,776,938
===================================================================================
OVERSEAS PRIVATE INVESTMENT CORP.-3.81%(d)(e)
Gtd. Floating Rate Participation Ctfs.,
1.36% 07/15/03 18,000 18,000,000
- -----------------------------------------------------------------------------------
1.24% 01/15/15 3,700 3,700,000
- -----------------------------------------------------------------------------------
1.24% 05/15/15 53,900 53,900,000
===================================================================================
75,600,000
===================================================================================
Total U.S. Government Agency Securities
(Cost $238,810,820) 238,810,820
===================================================================================
MASTER NOTE AGREEMENTS-7.55%(f)
Merrill Lynch Mortgage Capital, Inc.
1.47%(g) 08/18/03 70,000 70,000,000
- -----------------------------------------------------------------------------------
</Table>
FS-147
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- -----------------------------------------------------------------------------------
MASTER NOTE AGREEMENTS-(CONTINUED)
Morgan Stanley
1.38%(d)(h) 03/17/03 $ 80,000 $ 80,000,000
===================================================================================
Total Master Note Agreements (Cost
$150,000,000) 150,000,000
===================================================================================
VARIABLE RATE DEMAND NOTES-5.96%
CORPORATE GUARANTEED-0.50%
Mississippi (State of) Business Finance Corp.
(GE Plastics Project); IDR,
1.36%(d)(i)(j) 02/01/23 10,000 10,000,000
===================================================================================
INSURED-0.32%
Michigan (State of) Housing Development
Authority; Series C RB,
1.34%(d)(k) 12/01/20 6,405 6,405,000
===================================================================================
LETTER OF CREDIT GUARANTEED-5.14%(D)(E)(L)
Capital One Funding Corp., Floating Rate
Notes (LOC-Bank One N.A.),
1.40% 05/01/26 7,600 7,600,000
- -----------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (National Benevolent
Association); Series E RB (LOC-KBC Bank
N.V.),
1.40% 03/01/30 9,650 9,650,000
- -----------------------------------------------------------------------------------
Family Express Corp., LLC-Series A, Loan
Program Notes (LOC-First of America Bank
N.A.),
1.39% 04/01/28 9,070 9,070,000
- -----------------------------------------------------------------------------------
Health Midwest Ventures-Series 94-A, Floating
Rate Notes (LOC-Bank of America N.A.),
2.08% 08/01/19 16,330 16,330,000
- -----------------------------------------------------------------------------------
KBL Capital Fund Inc.-Series A, Loan Program
Notes (LOC-National City Bank),
1.39% 05/01/27 16,730 16,730,000
- -----------------------------------------------------------------------------------
Miami-Dade (County of) Industrial Development
Authority (Dolphins Stadium); IDR
(LOC-Societe Generale),
1.40% 07/01/22 100 100,000
- -----------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Telepak Inc. Project); IDR (LOC-Wachovia
Bank N.A.),
1.34% 09/01/15 20,000 20,000,000
- -----------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Viking Range Corp. Project); IDR (LOC-Bank
of America N.A.),
1.41% 06/01/15 15,230 15,230,000
- -----------------------------------------------------------------------------------
Port Blakely Communities; Series C RB
(LOC-Bank of America N.A.),
1.35% 02/15/21 7,500 7,500,000
===================================================================================
102,210,000
===================================================================================
Total Variable Rate Demand Notes (Cost
$118,615,000) 118,615,000
===================================================================================
</Table>
<Table>
PAR
MATURITY (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
ASSET-BACKED NOTES-5.80%
FULLY BACKED-0.82%
Capital One Auto Finance Trust- Series
2002-B, Class A1
1.76%(k) 09/15/03 $ 16,247 $ 16,247,429
===================================================================================
STRUCTURED INVESTMENT VEHICLES-4.78%
Beta Finance Inc., Floating Rate
(Citibank International PLC-ABS Program
Sponsor)(b)(c)
(Acquired 10/24/02; Cost $50,000,000)
1.37% 10/07/03 50,000 50,000,000
- -----------------------------------------------------------------------------------
(Acquired 10/03/02; Cost $45,000,000)
1.37% 10/14/03 45,000 45,000,000
===================================================================================
95,000,000
===================================================================================
TRADE RECEIVABLES-0.20%
World Omni Auto Receivables Trust- Series
2002-A, Class A1
1.87% 07/15/03 4,018 4,017,971
===================================================================================
Total Asset-Backed Notes (Cost
$115,265,400) 115,265,400
===================================================================================
PROMISSORY NOTES-4.93%
Goldman Sachs Group, Inc. (The)(c)
1.50% 03/05/03 48,000 48,000,000
- -----------------------------------------------------------------------------------
1.53% 03/21/03 50,000 50,000,000
===================================================================================
Total Promissory Notes (Cost $98,000,000) 98,000,000
===================================================================================
CERTIFICATES OF DEPOSIT-4.23%
Danske Bank A/S (Denmark)
2.00% 08/01/03 11,000 11,000,000
- -----------------------------------------------------------------------------------
Lloyds Bank TSB Bank PLC-New York (United
Kingdom)
2.15% 02/10/03 32,000 32,000,000
- -----------------------------------------------------------------------------------
Svenska Handelsbanken A.G. (Sweden)
1.77% 02/28/03 41,000 41,000,000
===================================================================================
Total Certificates of Deposit (Cost
$84,000,000) 84,000,000
===================================================================================
MEDIUM TERM NOTES-2.52%
M-Market Trust Lilly-Series 2002B, Floating
Rate Notes, (Acquired 12/03/02; Cost
$50,000,000)
1.43% (Cost $50,000,000)(b)(i) 12/03/03 50,000 50,000,000
===================================================================================
Total Investments (excluding Repurchase
Agreements) (Cost $1,366,011,336) 1,366,011,336
===================================================================================
</Table>
FS-148
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- -----------------------------------------------------------------------------------
REPURCHASE AGREEMENTS-33.34%(m)
BNP Paribas Securities Corp. (France)
1.34%(n) 02/03/03 $312,640 $ 312,639,950
- -----------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.
1.34%(o) 02/03/03 87,000 87,000,000
- -----------------------------------------------------------------------------------
Morgan Stanley
1.33%(p) 02/03/03 175,000 175,000,000
- -----------------------------------------------------------------------------------
</Table>
<Table>
PAR
MATURITY (000) VALUE
- -----------------------------------------------------------------------------------
<Caption>
REPURCHASE AGREEMENTS-(CONTINUED)
Salomon Smith Barney Inc.
1.34%(q) 02/03/03 $ 88,000 $ 88,000,000
===================================================================================
Total Repurchase Agreements (Cost
$662,639,950) 662,639,950
===================================================================================
TOTAL INVESTMENTS-102.08% (Cost
$2,028,651,286)(r) 2,028,651,286
===================================================================================
OTHER ASSETS LESS LIABILITIES-(2.08%) (41,315,549)
===================================================================================
NET ASSETS-100.00% $1,987,335,737
___________________________________________________________________________________
===================================================================================
</Table>
Investment Abbreviations:
<Table>
ABS - Asset Backed Security
Ctfs. - Certificates
Disc. - Discounted
Gtd. - Guaranteed
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
RB - Revenue Bonds
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security is traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/03 was $577,235,913,
which represented 29.05% of the Fund's net assets.
(c) Interest rates are redetermined daily. Rate shown is the rate in effect on
01/31/03.
(d) Demand securities; payable upon demand by the Fund with usually no more than
seven calendar days' notice.
(e) Interest rates are redetermined weekly. Rates shown are rates in effect on
01/31/03.
(f) The investments in master note 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.
(g) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one or two business day's notice based on the timing
of the demand. Interest rates on master notes are redetermined periodically.
Rate shown is the rate in effect on 01/31/03.
(h) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business day's oral notice for up to 10% of
outstanding amount, otherwise, upon seven business day's notice for more
than 10% outstanding balance. Interest rates on master notes are
redetermined periodically. Rate shown is the rate in effect on 01/31/03.
(i) Interest rates are redetermined monthly. Rates shown are rates in effect on
01/31/03.
(j) Principal and interest payments are guaranteed by the corporate guarantor.
(k) Principal and interest payments are secured by bond insurance provided by
MBIA Insurance Co.
(l) Principal and interest payments are guaranteed by letter of credit
agreement.
(m) 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 value 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.
(n) Joint repurchase agreement entered into 01/31/03 with a maturing value of
$1,500,167,500. Collateralized by $1,435,763,000 U.S. Government
obligations, 0% to 9.80% due 02/03/03 to 07/15/32 with an aggregate market
value at 01/31/03 of $1,530,001,170.
(o) Joint repurchase agreement entered into 01/31/03 with a maturing value of
$500,055,833. Collateralized by $522,946,566 U.S. Government obligations, 0%
to 9.38% due 04/15/03 to 02/01/33 with an aggregate market value at 01/31/03
of $510,005,577.
(p) Joint repurchase agreement entered into 01/31/03 with a maturing value of
$500,055,417. Collateralized by $488,214,008 U.S. Government obligations,
5.50% to 6.50% due 05/01/16 to 01/01/33 with an aggregate market value at
01/31/03 of $510,000,000.
(q) Joint repurchase agreement entered into 01/31/03 with a maturing value of
$500,055,833. Collateralized by $501,936,317 U.S. Government obligations,
5.00% to 7.50% due 01/01/16 to 08/01/32 with an aggregate market value at
01/31/03 of $523,699,154.
(r) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-149
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, excluding repurchase agreements
at value (amortized cost) $1,366,011,336
- ------------------------------------------------------------
Repurchase agreements 662,639,950
- ------------------------------------------------------------
Receivables for:
Fund shares sold 13,995,045
- ------------------------------------------------------------
Interest 1,951,751
- ------------------------------------------------------------
Investment for deferred compensation plan 71,741
- ------------------------------------------------------------
Other assets 472,611
============================================================
Total assets 2,045,142,434
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 56,009,944
- ------------------------------------------------------------
Dividends 31,925
- ------------------------------------------------------------
Deferred compensation plan 71,741
- ------------------------------------------------------------
Accrued distribution fees 897,336
- ------------------------------------------------------------
Accrued trustees' fees 1,371
- ------------------------------------------------------------
Accrued transfer agent fees 322,411
- ------------------------------------------------------------
Accrued operating expenses 471,969
============================================================
Total liabilities 57,806,697
============================================================
Net assets applicable to shares outstanding $1,987,335,737
____________________________________________________________
============================================================
NET ASSETS:
AIM Cash Reserve Shares $1,188,726,767
____________________________________________________________
============================================================
Class B $ 673,939,447
____________________________________________________________
============================================================
Class C $ 117,100,349
____________________________________________________________
============================================================
Class R $ 7,569,174
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
AIM Cash Reserve Shares 1,188,740,482
____________________________________________________________
============================================================
Class B 673,899,311
____________________________________________________________
============================================================
Class C 117,100,755
____________________________________________________________
============================================================
Class R 7,569,398
____________________________________________________________
============================================================
Net asset value and offering price per share
for each class $ 1.00
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $16,966,409
===========================================================
EXPENSES:
Advisory fees 5,175,262
- -----------------------------------------------------------
Administrative services fees 194,095
- -----------------------------------------------------------
Custodian fees 40,514
- -----------------------------------------------------------
Distribution fees -- AIM Cash Reserve Shares 1,435,959
- -----------------------------------------------------------
Distribution fees -- Class B 3,487,305
- -----------------------------------------------------------
Distribution fees -- Class C 607,946
- -----------------------------------------------------------
Distribution fees -- Class R 3,665
- -----------------------------------------------------------
Transfer agent fees 1,857,123
- -----------------------------------------------------------
Trustees' fees 9,731
- -----------------------------------------------------------
Other 370,484
===========================================================
Total expenses 13,182,084
===========================================================
Less: Fees waived and expenses reimbursed (698,562)
- -----------------------------------------------------------
Expenses paid indirectly (15,304)
===========================================================
Net expenses 12,468,218
===========================================================
Net investment income 4,498,191
===========================================================
Net realized gain from investment securities 39,947
===========================================================
Net increase in net assets resulting from
operations $ 4,538,138
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-150
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,498,191 $ 19,419,288
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities 39,947 1,145
==============================================================================================
Net increase in net assets resulting from operations 4,538,138 19,420,433
==============================================================================================
Distributions to shareholders from net investment income:
AIM Cash Reserve Shares (4,172,856) (15,341,349)
- ----------------------------------------------------------------------------------------------
Class B (273,250) (3,410,961)
- ----------------------------------------------------------------------------------------------
Class C (49,529) (666,967)
- ----------------------------------------------------------------------------------------------
Class R (2,556) (11)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
AIM Cash Reserve Shares (35,589) --
- ----------------------------------------------------------------------------------------------
Class B (20,896) --
- ----------------------------------------------------------------------------------------------
Class C (3,549) --
- ----------------------------------------------------------------------------------------------
Class R (38) --
- ----------------------------------------------------------------------------------------------
Share transactions-net:
AIM Cash Reserve Shares 66,887,801 184,349,260
- ----------------------------------------------------------------------------------------------
Class B (44,050,664) 278,519,026
- ----------------------------------------------------------------------------------------------
Class C (1,844,105) 32,062,975
- ----------------------------------------------------------------------------------------------
Class R 7,559,388 10,010
==============================================================================================
Net increase in net assets 28,532,295 494,942,416
==============================================================================================
NET ASSETS:
Beginning of period 1,958,803,442 1,463,861,026
==============================================================================================
End of period $1,987,335,737 $1,958,803,442
______________________________________________________________________________________________
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,987,291,126 $1,958,738,706
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 44,611 64,736
==============================================================================================
$1,987,335,737 $1,958,803,442
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be 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 the Fund.
The Fund's investment objective is to provide as high a level of current
income as is consistent with the preservation of capital and liquidity. In the
Schedule of Investments each company is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
FS-151
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 as permitted under Rule 2a-7
of the 1940 Act. This method values a security at its cost on the date of
purchase and, thereafter, assumes a constant amortization to maturity of
any premiums or accretion of discount.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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, adjusted for amortization of premiums and accretion
of discounts on investments, is recorded on the accrual basis from
settlement date.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. DISTRIBUTIONS -- It is the policy of the Fund to declare dividends from net
investment income daily and pay dividends monthly. Distributions from net
realized capital gains, if any, are generally paid annually and recorded on
ex-dividend date.
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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.55% on the first $1
billion of the Fund's average daily net assets, plus 0.50% on the Fund's average
daily net assets in excess of $1 billion. AIM and/or A I M Distributors, Inc.
("AIM Distributors") voluntarily waived fees and/or reimbursed expenses in order
to maintain a minimum yield. The minimum yield may be changed from time to time.
During periods of voluntarily fee waivers or reimbursements, AIM and AIM
Distributors will retain their ability to be reimbursed for such fee waivers and
reimbursements prior to the end of the fiscal year. During the six months ended
January 31, 2003, AIM waived advisory fees of $260,906 and AIM Distributors
reimbursed $437,656 of Class B and Class C Rule 12b-1 Plan fees.
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. For the six months ended January 31, 2003, AIM
was paid $194,095 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 and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $1,117,743 for such services.
The Trust has entered into master distribution agreements with AIM
Distributors to serve as the distributor for the AIM Cash Reserve Shares, Class
B, Class C and Class R shares of the Fund. The Trust has adopted plans pursuant
to Rule 12b-1 under the 1940 Act with respect to the Fund's AIM Cash Reserve
Shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.25% of the Fund's average daily net assets of AIM Cash
Reserve shares, 1.00% of the average daily net assets of Class B and C shares
and 0.50% of the average daily net assets of Class R shares. Of these amounts,
the Fund may pay a service fee of 0.25% of the average daily net assets of the
AIM Cash Reserve Shares, Class B, Class C or Class R 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 under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the six months ended January 31,
2003, the AIM Cash Reserve Shares, Class B, Class C and Class R shares paid
$1,435,959, $3,112,353, $545,242, and $3,665, respectively, after
reimbursements.
Front-end sales commissions and CDSCs are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
six months ended January 31, 2003, AIM Distributors retained $1,877,527,
$22,968, $187,696 and $0 for AIM Cash Reserve Shares, Class B, Class C and Class
R shares, respectively, for CDSCs imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended January 31, 2003, the Fund paid legal fees of
$3,973 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
FS-152
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $15,304 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$15,304.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
NOTE 7--SHARE INFORMATION
The Fund currently offers four different classes of shares: AIM Cash Reserve
Shares, Class B shares, Class C shares and Class R shares. AIM Cash Reserve
shares and Class R shares are sold at net asset value. Class B shares and Class
C shares are sold with a contingent deferred sales charge ("CDSC"). Under some
circumstances, Class R shares are subject to CDSC charges. Generally, Class B
shares will automatically convert to Cash Reserve shares eight years after the
end of the calendar month of purchase.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
2003 2002
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
Sold:
AIM Cash Reserve Shares 2,616,220,492 $ 2,616,220,492 7,239,176,762 $ 7,239,176,762
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 298,049,710 298,049,710 920,671,959 920,671,959
- ---------------------------------------------------------------------------------------------------------------------------------
Class C 260,928,048 260,928,048 492,311,444 492,311,444
- ---------------------------------------------------------------------------------------------------------------------------------
Class R* 14,602,505 14,602,505 14,201 14,201
=================================================================================================================================
Issued as reinvestment of dividends:
AIM Cash Reserve Shares 3,628,401 3,628,401 12,953,250 12,953,250
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 265,378 265,378 3,021,507 3,021,507
- ---------------------------------------------------------------------------------------------------------------------------------
Class C 44,861 44,861 550,550 550,550
- ---------------------------------------------------------------------------------------------------------------------------------
Class R* 2,457 2,457 5 5
=================================================================================================================================
Conversion of Class B Shares to AIM Cash Reserve
Shares**:
AIM Cash Reserve Shares 10,178,608 10,178,608 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Class B (10,178,608) (10,178,608) -- --
=================================================================================================================================
Reacquired:
AIM Cash Reserve Shares (2,563,139,700) (2,563,139,700) (7,067,780,752) (7,067,780,752)
- ---------------------------------------------------------------------------------------------------------------------------------
Class B (332,187,144) (332,187,144) (645,174,440) (645,174,440)
- ---------------------------------------------------------------------------------------------------------------------------------
Class C (262,817,014) (262,817,014) (460,799,019) (460,799,019)
- ---------------------------------------------------------------------------------------------------------------------------------
Class R* (7,045,574) (7,045,574) (4,196) (4,196)
=================================================================================================================================
28,552,420 $ 28,552,420 494,941,271 $ 494,941,271
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Prior to the six months ended January 31, 2003, conversion of Class B shares
to AIM Cash Reserve shares were included in AIM Cash Reserve shares sold and
Class B shares reacquired.
FS-153
NOTE 8--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CASH RESERVE
----------------------------------------------------------------------------------
SIX MONTHS SEVEN MONTHS YEAR ENDED DECEMBER
ENDED YEAR ENDED JULY 31, ENDED 31,
JANUARY 31, ---------------------- JULY 31, ----------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
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 (loss) 0.0036 0.0141 0.0467 0.0300(a) 0.0414 0.0453
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.0036) (0.0141) (0.0467) (0.0300) (0.0414) (0.0453)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.37% 1.42% 4.77% 3.03% 4.22% 4.62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,188,727 $1,121,879 $937,532 $912,042 $989,478 $1,179,072
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 1.00%(d) 1.01% 1.06% 1.07%(e) 1.04% 0.99%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net
assets 0.72%(d) 1.40% 4.61% 5.15%(e) 4.16% 4.53%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.03% for the six months ended January 31, 2003.
(d) Ratios are annualized and based on average net assets of $1,139,401,811.
(e) Annualized.
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ----------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.0004 0.0065 0.0392 0.0256(a) 0.0339 0.0371
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment
income (0.0004) (0.0065) (0.0392) (0.0256) (0.0339) (0.0371)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.04% 0.66% 3.99% 2.59% 3.45% 3.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $673,939 $717,967 $439,445 $289,327 $404,911 $310,534
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 1.65%(d) 1.76% 1.81% 1.82%(e) 1.79% 1.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average
net assets() 0.08%(d) 0.65% 3.86% 4.40%(e) 3.41% 3.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.78% for the six months ended January 31, 2003.
(d) Ratios are annualized and based on average net assets of $691,775,145.
(e) Annualized.
FS-154
NOTE 8--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, -------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
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 0.0004 0.0065 0.0393 0.0256(a) 0.0339 0.0371
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.0004) (0.0065) (0.0393) (0.0256) (0.0339) (0.0371)
=================================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.04% 0.66% 4.00% 2.59% 3.44% 3.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $117,100 $118,947 $ 86,884 $ 45,457 $ 56,636 $ 27,391
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets(c) 1.65%(d) 1.76% 1.81% 1.82%(e) 1.79% 1.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income to average net
assets 0.08%(d) 0.65% 3.86% 4.40%(e) 3.41% 3.71%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or expense reimbursements was 1.78%
for the six months ended January 31, 2003.
(d) Ratios are annualized and based on average net assets of $120,598,012.
(e) Annualized.
<Table>
<Caption>
CLASS R
-------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2003 2002
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0023 0.0010
- ---------------------------------------------------------------------------------------------
Less distributions from net investment income (0.0023) (0.0010)
=============================================================================================
Net asset value, end of period $ 1.00 $ 1.00
_____________________________________________________________________________________________
=============================================================================================
Total return(a) 0.23% 0.10%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 7,569 $ 10
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets(b) 1.25%(c) 1.26%(d)
_____________________________________________________________________________________________
=============================================================================================
Ratio of net investment income to average net assets 0.47%(c) 1.15%(d)
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% for the six months ended January 31, 2003.
(c) Ratios are annualized and based on average net assets of $1,454,153.
(d) Annualized.
FS-155
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
ALABAMA-1.37%
Alabama (State of) Public School & College
Authority; Capital Improvement Series 1999
C RB
5.75%, 07/01/17 AA Aa3 $1,400 $ 1,561,897
- ---------------------------------------------------------------------------------------
Birmingham (City of) Special Care Facilities
Financing Authority (Children's Hospital of
Alabama); Health Care Facility Series 2002
RB
5.38%, 06/01/23(b) AAA Aaa 1,500 1,562,955
- ---------------------------------------------------------------------------------------
Courtland (City of) Industrial Development
Board (Champion International Corp.
Project); Refunding Environmental
Improvement Series 1996 RB
6.40%, 11/01/26(c) -- Baa2 2,315 2,396,557
- ---------------------------------------------------------------------------------------
Jefferson (County of); Capital Improvement
Sewer Series 2001 A RB Wts.
5.00%, 02/01/41(b) AAA Aaa 1,000 988,250
=======================================================================================
6,509,659
=======================================================================================
ALASKA-0.23%
Alaska (State of) Housing Finance Corp.;
Collateralized First Veterans' Home
Mortgage Series 1992 A-2 RB
6.75%, 12/01/24(c) AAA Aaa 1,065 1,076,683
=======================================================================================
AMERICAN SAMOA-0.30%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO
6.00%, 09/01/08(b) A -- 1,280 1,436,557
=======================================================================================
ARIZONA-0.97%
Pima (County of) Industrial Development
Authority (Radisson City Center Project);
Refunding Development Series 2002 RB
6.50%, 12/01/09(d) -- -- 365 365,197
- ---------------------------------------------------------------------------------------
6.70%, 12/01/10(d) -- -- 390 390,304
- ---------------------------------------------------------------------------------------
6.70%, 12/01/11(d) -- -- 415 415,440
- ---------------------------------------------------------------------------------------
Pima (County of) Unified School District No.
10; Unlimited Tax School Improvement Series
1992 E GO
6.50%, 07/01/05 A+ A2 3,100 3,445,619
=======================================================================================
4,616,560
=======================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
ARKANSAS-0.58%
Jefferson (County of) (Regional Medical
Center Project); Refunding & Improvement
Hospital Series 2001 RB
5.85%, 06/01/26 A -- $ 500 $ 516,570
- ---------------------------------------------------------------------------------------
University of Arkansas (Fayetteville Campus
Facilities); University Series 2002 RB
5.00%, 12/01/27(b) -- Aaa 1,155 1,162,045
- ---------------------------------------------------------------------------------------
Van Buren (County of); Refunding &
Construction Sales & Use Tax Series 2000 RB
5.60%, 12/01/25(b) -- Aaa 1,000 1,061,630
=======================================================================================
2,740,245
=======================================================================================
CALIFORNIA-2.09%
Abag Financing Authority for Non-Profit
Corps. (Lincoln Glen Manor for Sr.
Citizens); Series 2000 COP 6.10%, 02/15/25 A -- 1,000 1,079,260
- ---------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Lytton Gardens Inc.); Series 1999
COP
6.00%, 02/15/19 A -- 2,085 2,183,454
- ---------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit
Corps. (Old Fellows Home of California);
Series 1999 COP 6.00%, 08/15/24 A -- 1,000 1,080,500
- ---------------------------------------------------------------------------------------
California (State of) Department of Water
Resources; Power Supply Series 2002 A RB
5.38%, 05/01/22 BBB+ A3 1,000 1,018,440
- ---------------------------------------------------------------------------------------
California (State of) Educational Facilities
Authority (Fresno Pacific University);
Series 2000 A RB
6.05%, 03/01/11 -- Baa3 1,350 1,500,957
- ---------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency (California
Toll Road Project); Sr. Lien Series 1995 A
RB
6.00%, 01/01/10(e)(f) AAA Aaa 400 469,700
- ---------------------------------------------------------------------------------------
Los Angeles (County of); Series 2001 RB
5.15%, 02/12/06
(Acquired 03/29/01;
Cost $329,954)(d)(g) -- -- 328 347,558
- ---------------------------------------------------------------------------------------
Sacramento (City of) Cogeneration Authority
(Proctor & Gamble Project); Series 1995 RB
7.00%, 07/01/04 BBB -- 500 536,860
- ---------------------------------------------------------------------------------------
</Table>
FS-156
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
CALIFORNIA-(CONTINUED)
Sacramento City Financing Authority
(Convention Center Hotel); Sr. Series 1999
A RB
6.25%, 01/01/30(d) -- -- $ 750 $ 735,030
- ---------------------------------------------------------------------------------------
Whittier (City of) Utility Authority; Water
Series 2003 RB
5.00%, 06/01/33(b) AAA Aaa 1,000 1,001,130
=======================================================================================
9,952,889
=======================================================================================
COLORADO-3.26%
Aurora (City of); Public Improvement Series
2000 COP
5.50%, 12/01/30(b) AAA Aaa 3,230 3,382,198
- ---------------------------------------------------------------------------------------
Broomfield (City of); Refunding & Improvement
Sales & Use Tax Series 2002 A RB
5.00%, 12/01/31(b) -- Aaa 1,000 1,009,210
- ---------------------------------------------------------------------------------------
Colorado (State of) E-470 Public Highway
Authority; Sr. Series 2000 A RB
5.75%, 09/01/35(b) AAA Aaa 1,000 1,090,330
- ---------------------------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Student
Housing-University of Colorado Foundation
Project); Series 2002 RB
5.00%, 07/01/22(b) AAA Aaa 1,000 1,035,290
- ---------------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Exempla Inc.); Series 2002 A RB
5.50%, 01/01/23 A A1 3,500 3,507,735
- ---------------------------------------------------------------------------------------
5.63%, 01/01/33 A A1 2,000 2,008,180
- ---------------------------------------------------------------------------------------
El Paso (County of) School District No. 2
(Harrison); Unlimited Tax Series 2001 GO
5.25%, 12/01/26(b) -- Aaa 1,435 1,477,777
- ---------------------------------------------------------------------------------------
Meridian Metropolitan District; Refunding &
Improvement Unlimited Tax Series 2001 B GO
5.00%, 12/01/25 AA -- 1,000 993,200
- ---------------------------------------------------------------------------------------
Northwest Parkway Public Highway Authority;
Sr. Series 2001 A RB
5.25%, 06/15/41(b) AAA Aaa 1,000 1,021,580
=======================================================================================
15,525,500
=======================================================================================
CONNECTICUT-5.10%
Brooklyn (City of); Unlimited Tax Series 1995
GO
5.50%, 05/01/05(e)(f) AAA Aaa 250 277,650
- ---------------------------------------------------------------------------------------
5.70%, 05/01/05(e)(f) AAA Aaa 250 278,750
- ---------------------------------------------------------------------------------------
Connecticut (State of) (Bradley International
Airport); Special Obligation Parking Series
2000 A RB
6.60%, 07/01/24(b)(c) A -- 1,250 1,309,162
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
CONNECTICUT-(CONTINUED)
Connecticut (State of) (Transportation
Infrastructure); Special Obligation Tax
Series 1991 B RB
6.50%, 10/01/10 AA- Aa3 $ 530 $ 641,088
- ---------------------------------------------------------------------------------------
6.50%, 10/01/12 AA- Aa3 1,500 1,828,770
- ---------------------------------------------------------------------------------------
Connecticut (State of) Area Cooperative
Educational Services (Staff
Development/Administration Facilities);
Unlimited Tax Series 1999 GO
5.63%, 07/15/19(b) A -- 1,060 1,117,558
- ---------------------------------------------------------------------------------------
Connecticut (State of) Clean Water Fund;
Series 1991 RB
7.00%, 01/01/11(e)(f) AAA Aaa 25 25,175
- ---------------------------------------------------------------------------------------
Connecticut (State of) Development Authority
(Pfizer Inc. Project); Series 1982 PCR
6.55%, 02/15/13 AAA Aaa 250 263,032
- ---------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Bridgeport Hospital);
Series 1992 A RB
6.63%, 07/01/18(b) AAA Aaa 500 510,800
- ---------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Danbury Hospital);
Series 1999 G RB
5.63%, 07/01/25(b) AAA Aaa 250 265,647
- ---------------------------------------------------------------------------------------
Unrefunded Series 1991 E RB
6.50%, 07/01/14(b) AAA Aaa 110 111,807
- ---------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Loomis Chaffee
School); Series 2001 D RB
5.25%, 07/01/31 -- A2 1,500 1,528,920
- ---------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Stamford Hospital);
Series 1996 F RB
5.40%, 07/01/09(b) AAA Aaa 1,000 1,102,060
- ---------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (William W. Backus
Hospital); Series 1997 D RB
5.75%, 07/01/27(b) AAA Aaa 1,000 1,071,660
- ---------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Windham Community
Memorial Hospital); Series 1996 C RB
5.75%, 07/01/11(b) A Baa3 740 790,564
- ---------------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Group Home Mortgage); Special
Obligation
Series 2000 GH-5 RB
5.85%, 06/15/30(b) AAA Aaa 500 525,615
- ---------------------------------------------------------------------------------------
</Table>
FS-157
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
CONNECTICUT-(CONTINUED)
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance
Program);
Series 1993 E-1 RB
6.00%, 05/15/17 AAA Aaa $ 675 $ 675,837
- ---------------------------------------------------------------------------------------
Series 1996 C-1 RB
6.30%, 11/15/17 AAA Aaa 1,270 1,344,003
- ---------------------------------------------------------------------------------------
Series 1996 C-2 RB
6.25%, 11/15/18 AAA Aaa 750 792,577
- ---------------------------------------------------------------------------------------
Series 1996 G RB
6.00%, 11/15/27(c) AAA Aaa 1,000 1,037,370
- ---------------------------------------------------------------------------------------
Series 1998 C RB
5.50%, 11/15/35(c) AAA Aaa 1,775 1,808,175
- ---------------------------------------------------------------------------------------
Series 1998 D-2 RB
5.45%, 11/15/24(c) AAA Aaa 250 255,242
- ---------------------------------------------------------------------------------------
Series 2001 A-1 RB
5.25%, 11/15/28 AAA Aaa 550 554,119
- ---------------------------------------------------------------------------------------
Sub-Series 1996 E-1 RB
5.95%, 05/15/17 AAA Aaa 500 522,770
- ---------------------------------------------------------------------------------------
Sub-Series 1997 C-2 RB
5.85%, 11/15/28(c) AAA Aaa 400 412,352
- ---------------------------------------------------------------------------------------
Sub-Series 1998 E-1 RB
5.13%, 05/15/21 AAA Aaa 445 448,640
- ---------------------------------------------------------------------------------------
Sub-Series 2000 B-2 RB
5.85%, 05/15/31(c) AAA Aaa 860 882,618
- ---------------------------------------------------------------------------------------
Manchester (City of) Eighth Utilities
District; Unlimited Tax Series 1991 GO
6.75%, 08/15/06 -- Aa3 180 209,450
- ---------------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax Series
1990 GO
6.00%, 06/15/07 -- Aa3 100 115,446
- ---------------------------------------------------------------------------------------
6.00%, 06/15/08 -- Aa3 100 116,256
- ---------------------------------------------------------------------------------------
6.00%, 06/15/09 -- Aa3 100 116,936
- ---------------------------------------------------------------------------------------
New Britain (City of); Unlimited Tax Series
1992 GO
6.00%, 02/01/11(b) AAA Aaa 400 467,044
- ---------------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax Series
1991 GO
6.50%, 01/15/08 -- A3 125 146,404
- ---------------------------------------------------------------------------------------
6.50%, 01/15/09 -- A3 125 147,760
- ---------------------------------------------------------------------------------------
6.50%, 01/15/10 -- A3 125 148,871
- ---------------------------------------------------------------------------------------
6.50%, 01/15/11 -- A3 125 150,137
- ---------------------------------------------------------------------------------------
Somers (City of); Unlimited Tax Series 1990
GO
6.00%, 12/01/10 -- A1 190 224,099
- ---------------------------------------------------------------------------------------
University of Connecticut; Student Fee Series
2000 A RB
6.00%, 11/15/10(e)(f) AA- Aa3 1,325 1,576,829
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
CONNECTICUT-(CONTINUED)
Westbrook (City of); Unlimited Tax Series
1992 GO
6.40%, 03/15/10(b) AAA Aaa $ 380 $ 453,576
=======================================================================================
24,254,769
=======================================================================================
DELAWARE-0.06%
Delaware (State of) Economic Development
Authority (Osteopathic Hospital
Association); Series 1993 A RB
6.75%, 01/01/13(e)(f) NRR Aaa 250 305,975
=======================================================================================
DISTRICT OF COLUMBIA-0.45%
District of Columbia (George Washington
University); Series 2001 A RB
5.13%, 09/15/31(b) AAA Aaa 1,000 1,010,000
- ---------------------------------------------------------------------------------------
District of Columbia (Gonzaga College High
School); Series 1999 RB
5.38%, 07/01/19(b) AAA Aaa 1,055 1,121,032
=======================================================================================
2,131,032
=======================================================================================
FLORIDA-2.22%
Crossings at Fleming Island Community
Development District; Refunding Special
Assessment Series 2000 B RB
5.80%, 05/01/16(b) AAA Aaa 1,000 1,126,320
- ---------------------------------------------------------------------------------------
Escambia (County of) (Champion International
Corp. Project); Series 1994 PCR
6.90%, 08/01/22(c) BBB Baa2 1,125 1,168,132
- ---------------------------------------------------------------------------------------
Escambia (County of) Health Facilities
Authority (Health Care Facility Loan-
Veterans Hospital Project); Series 2000 RB
5.95%, 07/01/20(b) -- Aaa 1,000 1,096,020
- ---------------------------------------------------------------------------------------
Jacksonville (City of) Electric Authority;
Water & Sewer Series 2000 A RB
5.30%, 10/01/30 A+ Aa3 1,000 1,017,250
- ---------------------------------------------------------------------------------------
Jacksonville (City of) Health Facilities
Authority (Ascension Health Credit Group);
Series 2002 A RB
5.25%, 11/15/32 AA Aa2 2,000 1,973,140
- ---------------------------------------------------------------------------------------
Miami-Dade (County of) (Miami International
Airport); Series 2000 B RB
5.75%, 10/01/29(b) AAA Aaa 2,000 2,154,280
- ---------------------------------------------------------------------------------------
Orlando (City of) Utilities Commission;
Refunding Water & Electric Series 2002 C RB
5.00%, 10/01/27 AA- Aa2 1,000 1,009,860
- ---------------------------------------------------------------------------------------
Sunrise (City of) Utility System; Refunding
Series 1998 RB
5.00%, 10/01/28(b) AAA Aaa 1,000 1,021,770
=======================================================================================
10,566,772
=======================================================================================
</Table>
FS-158
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
GEORGIA-0.73%
Athens-Clarke (County of) Unified Government
Development Authority (Catholic Health
East); Series 2002 RB
5.50%, 11/15/32 A A2 $ 500 $ 499,955
- ---------------------------------------------------------------------------------------
Floyd (County of) Hospital Authority (Floyd
Medical Center Project); Series 2002 RAC
5.25%, 07/01/29(b) -- Aaa 1,510 1,551,706
- ---------------------------------------------------------------------------------------
Georgia (State of) Housing & Finance
Authority (Home Ownership Opportunity
Program); Series 1992 C RB
6.50%, 12/01/11 AA+ Aa2 390 398,440
- ---------------------------------------------------------------------------------------
Griffin (City of); Combined Public Utility
Refunding & Improvement Series 2002 RB
5.00%, 01/01/32(b) AAA Aaa 1,000 1,008,890
=======================================================================================
3,458,991
=======================================================================================
GUAM-0.03%
Guam (Territory of) Power Authority; Series
1993 A RB
5.25%, 10/01/23 BBB -- 125 126,224
=======================================================================================
ILLINOIS-8.68%
Bellwood (City of); Unlimited Tax Series 2002
GO
5.25%, 12/01/25(b) -- Aaa 1,000 1,031,680
- ---------------------------------------------------------------------------------------
Chicago (City of);
Project & Refunding Unlimited Tax Series
2000 C GO
5.50%, 01/01/40(b) AAA Aaa 1,750 1,828,908
- ---------------------------------------------------------------------------------------
Project & Refunding Unlimited Tax Series
2001 A GO
5.25%, 01/01/33(b) AAA Aaa 3,940 4,038,382
- ---------------------------------------------------------------------------------------
Special Transportation Series 2001 RB
5.25%, 01/01/31(b) AAA Aaa 1,000 1,022,790
- ---------------------------------------------------------------------------------------
Chicago (City of) (Cottage View Terrace
Apartments); FHA/GNMA Collateralized
Multi-Family Housing Series 2000 A RB
6.13%, 02/20/42(c) AAA -- 1,580 1,638,223
- ---------------------------------------------------------------------------------------
Chicago (City of) Parks District; Unlimited
Tax Series 2001 D GO
5.00%, 01/01/29(b) AAA Aaa 3,000 3,003,930
- ---------------------------------------------------------------------------------------
Freeport (City of); Unlimited Tax Sewer
Improvement Series 2000 GO
6.00%, 12/01/29(b) AAA Aaa 1,000 1,118,300
- ---------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Adventist Health Systems
Project); Series 1997 A RB
6.00%, 11/15/11(b) AAA Aaa 2,500 2,902,350
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
ILLINOIS-(CONTINUED)
Illinois (State of) Development Finance
Authority (CPC International Inc. Project);
Refunding Series 1992 PCR 6.75%, 05/01/16 -- A1 $2,000 $ 2,038,820
- ---------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (Evanston Northwestern Healthcare
Corp.); VRD Series 2001 C RB
1.15%, 05/01/31(h) AA+ Aa2 10,000 10,000,000
- ---------------------------------------------------------------------------------------
Illinois (State of) Educational Facilities
Authority (Northwestern University);
Adjustable Rate Medium Term Series 1997 RB
5.25%, 11/01/14(f) AA+ Aa1 1,000 1,112,160
- ---------------------------------------------------------------------------------------
Illinois (State of) Educational Facilities
Authority (Robert Morris College); Series
2000 RB
5.80%, 06/01/30(b) -- Aaa 1,000 1,086,390
- ---------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Blessing Hospital); Series 1999
A RB
6.00%, 11/15/19(b) AAA Aaa 1,000 1,110,750
- ---------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital Corp.);
Refunding Series 1992 A RB
6.25%, 04/15/22(e)(f) AA- Aaa 1,000 1,154,990
- ---------------------------------------------------------------------------------------
Series 1992 C RB
6.25%, 04/15/22(e)(f) AA- A1 1,150 1,328,239
- ---------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Franciscan Sisters Health Care);
Series 1992 RB
6.40%, 09/01/04(e)(f) AAA Aaa 2,000 2,162,780
- ---------------------------------------------------------------------------------------
Illinois State University Auxiliary
Facilities System; Series 1993 RB
5.75%, 04/01/14(b) AAA Aaa 1,000 1,026,490
- ---------------------------------------------------------------------------------------
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB
5.25%, 06/15/42(b) AAA Aaa 1,000 1,022,400
- ---------------------------------------------------------------------------------------
6.00%, 12/15/29(b)(i) AAA Aaa 1,500 340,245
- ---------------------------------------------------------------------------------------
6.02%, 06/15/30(b)(i) AAA Aaa 1,000 220,070
- ---------------------------------------------------------------------------------------
Rockford (City of) School District No. 205;
Unlimited Tax Series 2001 GO
5.00%, 02/01/17(b) -- Aaa 500 537,050
- ---------------------------------------------------------------------------------------
Tazewell (County of) Community High School
District No. 303 (Pekin); Unlimited Tax
Series 1996 GO
5.63%, 01/01/14(b) AAA Aaa 1,435 1,563,963
=======================================================================================
41,288,910
=======================================================================================
</Table>
FS-159
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
INDIANA-2.83%
Carmel (City of) (Beverly Enterprises Inc.
Project); Refunding Retirement Rental
Housing Series 1992 RB
8.75%, 12/01/08(d) -- -- $ 75 $ 77,322
- ---------------------------------------------------------------------------------------
East Allen (City of) Multi-School Building
Corp.; First Mortgage Series 2000 RB
5.75%, 01/15/10(e)(f) AAA Aaa 735 844,949
- ---------------------------------------------------------------------------------------
Indiana (State of) Bond Bank; Special Program
Series 2000 A RB
5.90%, 02/01/14(b) AAA Aaa 1,000 1,138,820
- ---------------------------------------------------------------------------------------
Indiana (State of) Housing Finance Authority;
Single Family Mortgage Series 1995 B-1 RB
6.15%, 07/01/17 -- Aaa 100 103,612
- ---------------------------------------------------------------------------------------
Indiana (State of) Transportation Finance
Authority;
Highway Series 2000 RB
5.38%, 12/01/25 AA Aa2 2,000 2,082,060
- ---------------------------------------------------------------------------------------
Unrefunded Airport Facilities Lease Series
1992 A RB
6.25%, 11/01/16 AA A1 105 107,546
- ---------------------------------------------------------------------------------------
Indianapolis (City of) (Lake Nora & Fox Club
Project); Multifamily Series 1999 A RB
5.90%, 10/01/19(b) -- Aaa 1,795 1,902,072
- ---------------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank (Waterworks Project);
Series 2002 A RB
5.25%, 07/01/33(b) AAA Aaa 1,000 1,025,320
- ---------------------------------------------------------------------------------------
Indianapolis (City of) Thermal Energy System;
Series 2001 A RB
5.00%, 10/01/11(b) AAA Aaa 1,500 1,645,560
- ---------------------------------------------------------------------------------------
Lafayette (City of); Sewer Series 2002 RB
5.15%, 07/01/24(b) AAA Aaa 1,000 1,020,720
- ---------------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project); Refunding Convertible
Series 1991 PCR 5.75%, 08/01/21 BB+ A3 2,500 2,409,125
- ---------------------------------------------------------------------------------------
Wa-Nee Middle School Building Corp.;
Unlimited Tax First Mortage Series 2001 GO
5.50%, 01/15/20(b) AAA Aaa 1,000 1,112,600
=======================================================================================
13,469,706
=======================================================================================
KANSAS-0.30%
Newton (City of) (Newton Healthcare Corp.);
Hospital Series 1994 A RB
7.38%, 11/15/04(e)(f) NRR NRR 250 280,570
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
KANSAS-(CONTINUED)
Overland Park (City of) Development Corp.
(First Tier-Overland Park Project); Series
2001 A RB
7.38%, 01/01/32(d) -- -- $1,135 $ 1,156,156
=======================================================================================
1,436,726
=======================================================================================
KENTUCKY-0.98%
Jefferson (County of) (Beverly Enterprises
Project); Refunding Health Facilities
Series 1999 RB
5.88%, 05/01/08(d) -- -- 595 586,224
- ---------------------------------------------------------------------------------------
Mount Sterling (City of) (Kentucky League
Cities); Lease Funding Series 1993 A RB
6.15%, 03/01/13 -- Aa3 3,000 3,069,540
- ---------------------------------------------------------------------------------------
Russell (City of) (Bon Secours-St. Francis
Medical Center Inc.); Series 2002 A RB
5.63%, 11/15/30 A- A3 1,000 996,420
=======================================================================================
4,652,184
=======================================================================================
LOUISIANA-5.44%
Lafayette (City of); Public Improvement Sales
Tax Series 2000 A RB
5.50%, 03/01/23(b) AAA Aaa 1,360 1,437,778
- ---------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority; Capital Projects &
Equipment Acquisitions Series 2000 RB
6.55%, 09/01/25(b) A -- 6,040 6,744,808
- ---------------------------------------------------------------------------------------
Capital Projects & Equipment Acquisitions
Series 2000 A RB
6.30%, 07/01/30(b) AAA Aaa 3,000 3,558,120
- ---------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (BRCC Facilities
Corp. Project); Series 2002 RB
5.00%, 12/01/26(b) AAA Aaa 1,000 1,006,880
- ---------------------------------------------------------------------------------------
5.00%, 12/01/32(b) AAA Aaa 2,000 2,007,560
- ---------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (Parking Facilities
Corp. Garage Project); Series 2001 A RB
5.20%, 10/01/20(b) AAA Aaa 1,000 1,040,930
- ---------------------------------------------------------------------------------------
Louisiana (State of) Public Facilities
Authority (Ochsner Clinic Foundation
Project); Series 2002 B RB
5.50%, 05/15/32 -- A3 1,250 1,233,763
- ---------------------------------------------------------------------------------------
</Table>
FS-160
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
LOUISIANA-(CONTINUED)
Louisiana (State of) Public Facilities
Authority (Tulane University); Series 1996
RB
6.00%, 10/01/16(b) AAA Aaa $2,500 $ 2,861,775
- ---------------------------------------------------------------------------------------
Series 2002 A RB
5.13%, 07/01/27(b) AAA Aaa 2,100 2,130,429
- ---------------------------------------------------------------------------------------
Series 2002 D RB
5.00%, 02/15/26(b) AAA Aaa 500 503,240
- ---------------------------------------------------------------------------------------
Ouachita (Parish of) Hospital Service
District No. 1 (Glenwood Regional Medical
Center); Refunding Hospital Series 1996 RB
5.70%, 05/15/16(b) AAA Aaa 1,000 1,095,780
- ---------------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales Tax
District; Series 1987 RB
7.60%, 01/01/08(e)(f) NRR NRR 500 612,210
- ---------------------------------------------------------------------------------------
7.60%, 01/01/09(e)(f) NRR NRR 500 620,300
- ---------------------------------------------------------------------------------------
West Feliciana (Parish of) (Gulf States
Utilities); Series 1992 A PCR 7.50%,
05/01/15 BB+ -- 1,000 1,019,720
=======================================================================================
25,873,293
=======================================================================================
MAINE-0.33%
Maine (State of) Housing Authority; Mortgage
Series 1999 E-1 RB
5.85%, 11/15/20 AA+ Aa1 1,500 1,564,530
=======================================================================================
MARYLAND-0.83%
Maryland (State of) Health & Higher
Educational Facilities Authority (Johns
Hopkins University); Refunding Series 2001
B RB
5.00%, 07/01/41 AA Aa2 1,000 1,001,990
- ---------------------------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical System);
Series 2001 RB
5.25%, 07/01/28 A Baa1 1,000 995,780
- ---------------------------------------------------------------------------------------
5.25%, 07/01/34 A Baa1 2,000 1,942,980
=======================================================================================
3,940,750
=======================================================================================
MASSACHUSETTS-1.24%
Massachusetts (State of) Health & Educational
Facilities Authority (Winchester Hospital);
Series 1994 D RB
5.80%, 07/01/09(b) AAA -- 1,000 1,073,000
- ---------------------------------------------------------------------------------------
Massachusetts (State of) Housing Finance
Agency; Single Family Housing Series 1994
RB
6.60%, 12/01/26(c) AA Aa3 1,250 1,294,525
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
MASSACHUSETTS-(CONTINUED)
Massachusetts (State of) Water Resources
Authority; Series 2002 B RB
5.13%, 08/01/27(b) AAA Aaa $2,000 $ 2,038,200
- ---------------------------------------------------------------------------------------
Series 2002 J RB
5.00%, 08/01/42 AA Aa3 1,500 1,482,150
=======================================================================================
5,887,875
=======================================================================================
MICHIGAN-6.42%
Almont (City of) Community Schools; Refunding
Unlimited Tax School Building & Site Series
2002 GO
5.00%, 05/01/27 AAA Aaa 1,580 1,589,575
- ---------------------------------------------------------------------------------------
Anchor Bay School District; Refunding
Unlimited Tax Series 2001 GO
5.00%, 05/01/29 AAA Aaa 1,000 1,005,960
- ---------------------------------------------------------------------------------------
Bullock Creek School District; Unlimited Tax
Series 2000 GO
5.50%, 05/01/22 AAA Aaa 1,000 1,052,290
- ---------------------------------------------------------------------------------------
Chippewa Valley Schools; Refunding Unlimited
Tax Series 2002 GO
5.13%, 05/01/27 AAA Aaa 1,000 1,015,000
- ---------------------------------------------------------------------------------------
Detroit (City of) School District; Unlimited
Tax Series 2001 A GO
5.13%, 05/01/31(b) AAA Aaa 1,000 1,013,510
- ---------------------------------------------------------------------------------------
Detroit (City of) Water Supply System; Sr.
Lien Series 2001 A RB
5.00%, 07/01/30(b) AAA Aaa 6,000 6,016,080
- ---------------------------------------------------------------------------------------
5.25%, 07/01/33(b) AAA Aaa 3,500 3,585,820
- ---------------------------------------------------------------------------------------
Garden City Hospital Finance Authority
(Garden City Hospital); Refunding Hospital
Series 1998 A RB
5.63%, 09/01/10 -- B1 850 711,161
- ---------------------------------------------------------------------------------------
Grand Rapids (City of) Building Authority;
Series 2002 A RB
5.00%, 10/01/22(b) AAA Aaa 1,660 1,696,902
- ---------------------------------------------------------------------------------------
Lake Orion Community School District;
Refunding Unlimited Tax Series 1994 GO
7.00%, 05/01/05(e)(f) AAA Aaa 2,500 2,831,675
- ---------------------------------------------------------------------------------------
Lincoln Park (City of) School District;
Unlimited Tax Series 1996 GO
6.00%, 05/01/06(e)(f) AAA Aaa 1,210 1,380,985
- ---------------------------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(Drinking Water Revolving Fund); Series
2000 RB
5.50%, 10/01/10(e)(f) AAA Aaa 1,000 1,150,370
- ---------------------------------------------------------------------------------------
Michigan (State of) Public Power Agency
(Combustion Turbine No. 1); Series 2001 A
RB
5.25%, 01/01/24(b) AAA Aaa 2,500 2,587,975
- ---------------------------------------------------------------------------------------
</Table>
FS-161
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
MICHIGAN-(CONTINUED)
Ypsilanti (City of) School District;
Refunding Unlimited Tax Series 1996 GO
5.75%, 05/01/07(e)(f) AAA Aaa $4,275 $ 4,883,974
=======================================================================================
30,521,277
=======================================================================================
MINNESOTA-0.39%
Minneapolis (City of); Unlimited Tax Parking
Ramp Series 2000 A GO
5.90%, 12/01/20 AAA Aa1 1,000 1,112,280
- ---------------------------------------------------------------------------------------
Minneapolis & St. Paul (Cities of)
Metropolitan Airports Commission (Northwest
Airlines Inc.); Special Facilities Series
2001 A RB
7.00%, 04/01/25(c)(d) -- -- 1,000 757,740
=======================================================================================
1,870,020
=======================================================================================
MISSISSIPPI-1.09%
Mississippi (State of) Higher Education
Assistance Corp.; Sub-Series 1994 C RB
7.50%, 09/01/09(c) -- A2 5,000 5,188,000
=======================================================================================
MISSOURI-0.85%
Kansas City Industrial Development Authority
(General Motors Corp. Project); Series 1984
PCR 6.05%, 04/01/06 BBB A3 170 170,700
- ---------------------------------------------------------------------------------------
Missouri (State of) Environmental Improvement
& Energy Resources Authority (State
Revolving Fund); Prerefunded Water
Pollution Series 1995 C RB
5.85%, 01/01/05(e)(f) NRR Aaa 730 797,970
- ---------------------------------------------------------------------------------------
Unrefunded Water Pollution Series 1995 C RB
5.85%, 01/01/10 -- Aaa 270 292,467
- ---------------------------------------------------------------------------------------
Missouri (State of) Health & Educational
Facilities Authority (Washington University
Project); Educational Facilities Series
2001 A RB
5.13%, 06/15/41 AA+ Aa1 2,750 2,778,710
=======================================================================================
4,039,847
=======================================================================================
NEBRASKA-0.22%
Omaha (City of) Public Power District;
Electric Series 2002 A RB
5.20%, 02/01/22 AA Aa2 1,000 1,027,690
=======================================================================================
NEVADA-3.23%
Boulder (City of) (Boulder City Hospital Inc.
Project); Refunding Hospital Series 1998 RB
5.85%, 01/01/22(d) -- -- 500 430,350
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
NEVADA-(CONTINUED)
Clark (County of); Airport Lien Sub-Series
2001 B RB
5.25%, 07/01/34(b) AAA Aaa $3,000 $ 3,038,490
- ---------------------------------------------------------------------------------------
Clark (County of) (Nevada Power Company
Project); Series 1992 C IDR 7.20%, 10/01/22 BB Ba2 1,500 1,498,695
- ---------------------------------------------------------------------------------------
Clark (County of) Bond Bank; Limited Tax
Series 2001 GO
5.00%, 06/01/31(b) AAA Aaa 5,000 5,019,900
- ---------------------------------------------------------------------------------------
Humboldt (County of) (Sierra Pacific
Project); Refunding Series 1987 PCR 6.55%,
10/01/13(b) AAA Aaa 3,000 3,145,500
- ---------------------------------------------------------------------------------------
Reno (City of) Redevelopment Agency;
Refunding Sub-Series 1995 A TAN 6.00%,
06/01/10 -- Baa3 1,185 1,239,202
- ---------------------------------------------------------------------------------------
Truckee Meadows Water Authority; Water Series
2001 A RB
5.13%, 07/01/30(b) AAA Aaa 1,000 1,009,130
=======================================================================================
15,381,267
=======================================================================================
NEW JERSEY-2.42%
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project);
Special Facility Series 1999 RB
6.25%, 09/15/29(c) B+ B3 6,300 4,446,477
- ---------------------------------------------------------------------------------------
6.40%, 09/15/23(c) B+ B3 1,000 720,770
- ---------------------------------------------------------------------------------------
Special Facility Series 2000 RB
7.00%, 11/15/30(c) B+ B3 4,000 2,943,120
- ---------------------------------------------------------------------------------------
New Jersey (State of) Health Care Facilities
Financing Authority (Raritan Bay Medical
Center); Series 1994 RB
7.25%, 07/01/27(d) -- -- 250 250,350
- ---------------------------------------------------------------------------------------
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 RB
5.75%, 06/01/32 A A1 2,500 2,243,750
- ---------------------------------------------------------------------------------------
6.13%, 06/01/42 A A1 1,000 891,690
=======================================================================================
11,496,157
=======================================================================================
NEW MEXICO-1.05%
Las Cruces (City of) South Central Solid
Waste Authority; Environmental Services
Series 1995 RB
5.65%, 06/01/09 -- A3 575 604,411
- ---------------------------------------------------------------------------------------
Los Alamos (County of) Utility System;
Refunding Series 1994 A RB
6.00%, 07/01/15(b) AAA Aaa 2,000 2,157,080
- ---------------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 RB
6.25%, 06/01/04(e)(f) AAA Aaa 2,100 2,239,818
=======================================================================================
5,001,309
=======================================================================================
</Table>
FS-162
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
NEW YORK-3.15%
Metropolitan Transportation Authority;
Dedicated Tax Fund Series 2000 A RB
5.88%, 04/01/10(e)(f) AAA Aaa $1,500 $ 1,757,865
- ---------------------------------------------------------------------------------------
Refunding Series 2002 A RB
5.13%, 01/01/29 AA- A3 1,000 1,004,030
- ---------------------------------------------------------------------------------------
New York (City of);
Prerefunded Unlimited Tax
Series 1994 B1 GO
7.38%, 08/15/04(e)(f) A Aaa 500 552,645
- ---------------------------------------------------------------------------------------
Prerefunded Unlimited Tax Series 1996 A GO
6.25%, 08/01/06(e)(f) A A2 2,540 2,961,996
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1991 B GO
7.00%, 02/01/18(e)(f) AAA Aaa 40 40,579
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1992 D GO
7.70%, 03/07/03(e)(f) A A2 15 15,230
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1996 A GO
6.25%, 08/01/17 A A2 495 577,239
- ---------------------------------------------------------------------------------------
New York (City of) Industrial Development
Agency (University of Staten Island
Hospital Project); Civic Facilities Series
2001 B RB
6.38%, 07/01/31 -- Baa3 600 602,688
- ---------------------------------------------------------------------------------------
New York (City of) Municipal Water Finance
Authority;
Water & Sewer System Series 1996 A RB
5.50%, 06/15/24(b) AAA Aaa 1,000 1,041,650
- ---------------------------------------------------------------------------------------
Water & Sewer System Series 1997 B RB
5.75%, 06/15/29 AA Aa2 3,850 4,173,516
- ---------------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(State University Educational Facilities);
Series 1995 A RB
6.50%, 05/15/06 AA- A3 1,000 1,138,290
- ---------------------------------------------------------------------------------------
New York (State of) Environmental Facilities
Corp. (State Water Revolving Project);
Unrefunded Series 1991 E PCR
6.88%, 06/15/10 AAA Aaa 1,100 1,116,500
=======================================================================================
14,982,228
=======================================================================================
NORTH CAROLINA-1.23%
North Carolina (State of) Eastern Municipal
Power Agency; Power System Series 1993 A RB
6.13%, 01/01/10(e)(f) AAA Aaa 1,500 1,757,700
- ---------------------------------------------------------------------------------------
North Carolina (State of) Housing Finance
Agency; Single Family Series 1996 II RB
6.20%, 03/01/16 AA Aa2 440 460,992
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
NORTH CAROLINA-(CONTINUED)
North Carolina (State of) Municipal Power
Agency (No. 1 Catawba Electric Project);
Prerefunded Series 1990 RB
6.50%, 01/01/10(e)(f) AAA Aaa $ 260 $ 308,240
- ---------------------------------------------------------------------------------------
Refunding Series 1992 RB
7.25%, 01/01/07 BBB+ Baa1 2,890 3,310,668
=======================================================================================
5,837,600
=======================================================================================
NORTH DAKOTA-0.11%
Fargo (City of) Health System (Meritcare
Medical Group); Series 2002 A RB
5.13%, 06/01/27(b) AAA Aaa 500 508,305
=======================================================================================
OHIO-1.91%
Fairfield (City of) School District;
Unlimited Tax Series 1995 GO
6.10%, 12/01/05(e)(f) AAA Aaa 1,000 1,126,620
- ---------------------------------------------------------------------------------------
Findlay (City of); Limited Tax Series 1996 GO
5.88%, 07/01/17 AA- Aa3 1,000 1,120,870
- ---------------------------------------------------------------------------------------
Lake Ohio School District (Stark County
School District); Unlimited Tax Series 2000
GO
5.75%, 12/01/26(b) AAA Aaa 2,500 2,712,550
- ---------------------------------------------------------------------------------------
Montgomery (County of) (Grandview Hospital &
Medical Center); Refunding Hospital Series
1997 RB
5.50%, 12/01/09(e)(f) BBB+ NRR 1,000 1,141,890
- ---------------------------------------------------------------------------------------
Ohio (State of) Department of Transportation
(Panhandle Rail Line Project); Series 1992
COP 6.50%, 04/15/12(b) AAA Aaa 1,100 1,121,681
- ---------------------------------------------------------------------------------------
University of Cincinnati; Series 2002 F RB
5.00%, 06/01/22 AA Aa3 820 835,244
- ---------------------------------------------------------------------------------------
5.00%, 06/01/23 AA Aa3 1,000 1,014,070
=======================================================================================
9,072,925
=======================================================================================
OKLAHOMA-1.97%
Mustang (City of) Improvement Authority;
Utility Series 1999 RB
5.70%, 10/01/19(b) -- Aaa 1,500 1,670,670
- ---------------------------------------------------------------------------------------
Oklahoma (State of) Development Finance
Authority (St. John Health System);
Refunding Series 1999 RB
5.75%, 02/15/18 AA Aa3 675 718,382
- ---------------------------------------------------------------------------------------
5.75%, 02/15/25 AA Aa3 1,750 1,848,158
- ---------------------------------------------------------------------------------------
Oklahoma (State of) Water Resource Board;
State Loan Program Series 2003 A RB
5.00%, 10/01/22 AA -- 1,000 1,015,850
- ---------------------------------------------------------------------------------------
</Table>
FS-163
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
OKLAHOMA-(CONTINUED)
Tulsa (City of) Industrial Authority (St.
John's Medical Center Project); Hospital
Series 1994 RB
6.25%, 02/15/06(e)(f) AA Aa3 $2,000 $ 2,261,740
- ---------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority (Tulsa
Regional Medical Center); Hospital Series
1992 RB
7.20%, 06/01/03(e)(f) AAA NRR 500 519,820
- ---------------------------------------------------------------------------------------
Tulsa (City of) Public Facilities Authority;
Capital Improvement Series 1988 B RB
6.00%, 03/01/08 A+ -- 1,305 1,334,389
=======================================================================================
9,369,009
=======================================================================================
OREGON-0.72%
Cow Creek Band Umpqua Tribe of Indians;
Series 1998 B RB 5.10%, 07/01/12
(Acquired 08/18/98;
Cost $997,470)(b)(g) AAA Aaa 1,000 1,040,260
- ---------------------------------------------------------------------------------------
Portland (City of) Sewer System; Series 1994
A RB
6.20%, 06/01/04(e)(f) AAA A1 1,200 1,290,924
- ---------------------------------------------------------------------------------------
6.25%, 06/01/04(e)(f) AAA A1 1,000 1,076,420
=======================================================================================
3,407,604
=======================================================================================
PENNSYLVANIA-2.69%
Allegheny (County of) Higher Education
Building Authority (Carnegie Mellon
University); Series 2002 RB
5.25%, 03/01/32 AA- -- 1,500 1,541,340
- ---------------------------------------------------------------------------------------
Allegheny (County of) Port Authority; Special
Transportation Series 1999 RB
6.13%, 03/01/09(e)(f) AAA Aaa 1,000 1,179,400
- ---------------------------------------------------------------------------------------
Benton Area School District; Unlimited Tax
Series 2002 B GO
5.13%, 06/01/31(b) -- Aaa 1,000 1,016,610
- ---------------------------------------------------------------------------------------
Chester (County of) Industrial Development
Authority (Westtown School Project);
Educational Facilities Series 2002 RB
5.00%, 01/01/31(b) AAA Aaa 1,000 1,007,100
- ---------------------------------------------------------------------------------------
Clarion (County of) Industrial Development
Authority (Beverly Enterprises Inc.
Project); Refunding Series 2001 RB
7.38%, 12/01/08(d) -- -- 1,450 1,476,854
- ---------------------------------------------------------------------------------------
Montgomery (County of) Industrial Development
Authority (Pennsburg Nursing &
Rehabilitation Center); Series 1993 RB
7.63%, 03/31/04(e)(f) NRR Aaa 100 110,135
- ---------------------------------------------------------------------------------------
Pennsylvania (State of); Unlimited Tax Third
Series 1994 GO
6.75%, 11/15/04(e)(f) AAA Aaa 1,250 1,388,575
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
PENNSYLVANIA-(CONTINUED)
Pennsylvania (State of) Economic Financing
Authority (Colver Project); Resource
Recovery Series 1994 D RB
7.05%, 12/01/10(c) BBB- -- $2,900 $ 3,023,540
- ---------------------------------------------------------------------------------------
Pennsylvania (State of) Public School
Building Authority (Lehigh Career &
Technical Institution); Series 2001 RB
5.00%, 10/01/26(b) -- Aaa 1,000 1,010,440
- ---------------------------------------------------------------------------------------
Spring-Ford Area School District; Unlimited
Tax Series 2002 GO
5.00%, 04/01/23(b) -- Aaa 1,025 1,039,975
=======================================================================================
12,793,969
=======================================================================================
PUERTO RICO-0.64%
Children's Trust Fund (Tobacco Settlement);
Asset-Backed Series 2000 RB
5.38%, 05/15/33 A A1 1,250 1,206,250
- ---------------------------------------------------------------------------------------
Sr. Series 2000 RB
6.00%, 07/01/10(e)(f) AAA Aa3 1,000 1,178,230
- ---------------------------------------------------------------------------------------
Puerto Rico (Commonwealth of); Unlimited Tax
Public Improvement Series 2000 GO
6.00%, 07/01/05(e)(f) A- Baa1 500 557,150
- ---------------------------------------------------------------------------------------
Puerto Rico (Commonwealth of) Highway &
Transportation Authority; Transportation
Series 2000 B RB
6.00%, 07/01/10(e)(f) A Baa1 100 118,973
=======================================================================================
3,060,603
=======================================================================================
RHODE ISLAND-1.03%
Rhode Island (State of) Housing & Mortgage
Finance Corp.; Homeownership Opportunity
Series 1994 15-B RB
6.00%, 10/01/04 AA+ Aa2 1,000 1,044,750
- ---------------------------------------------------------------------------------------
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
6.00%, 06/01/23 A A1 4,000 3,870,200
=======================================================================================
4,914,950
=======================================================================================
SOUTH CAROLINA-1.37%
Piedmont Municipal Power Agency; Refunding
Electric Series 1986 A RB
5.75%, 01/01/24 BBB- Baa3 1,150 1,133,429
- ---------------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (Bon Secours-St.
Francis Medical Center Inc.); Economic
Development Series 2002 A RB
5.50%, 11/15/23 A- A3 1,000 995,010
- ---------------------------------------------------------------------------------------
</Table>
FS-164
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
SOUTH CAROLINA-(CONTINUED)
South Carolina (State of) Jobs Economic
Development Authority (Palmetto Health
Alliance); Hospital Facilities Improvement
Series 2000 A RB
7.13%, 12/15/15 BBB Baa2 $1,000 $ 1,104,050
- ---------------------------------------------------------------------------------------
South Carolina (State of) Jobs Economic
Development Authority (South Carolina
Electric & Gas Co. Project); Series 2002 A
IDR 5.20%, 11/01/27(b) AAA Aaa 1,000 1,015,190
- ---------------------------------------------------------------------------------------
South Carolina (State of) Public Service
Authority; Series 2002 B RB
5.13%, 01/01/32(b) AAA Aaa 1,250 1,275,475
- ---------------------------------------------------------------------------------------
South Carolina (State of) Transportation
Infrastructure Bank; Series 2001 A RB
5.00%, 10/01/29(b) -- Aaa 1,000 1,011,850
=======================================================================================
6,535,004
=======================================================================================
SOUTH DAKOTA-0.46%
Aberdeen (City of) School District No. 6-1;
Unlimited Tax Series 2000 GO
5.45%, 01/01/26(b) AAA Aaa 2,000 2,083,260
- ---------------------------------------------------------------------------------------
South Dakota (State of) Health & Educational
Facilities Authority (Huron Regional
Medical Center); Series 1994 RB
7.25%, 04/01/20 BBB -- 100 103,346
=======================================================================================
2,186,606
=======================================================================================
TENNESSEE-1.32%
Clarksville (City of) Public Building
Authority (Tennessee Municipal Bond Fund);
VRD Pooled Financing Series 1997 RB
(LOC-Bank of America N.A.) 1.15%,
11/01/27(h)(j) -- Aa1 537 537,000
- ---------------------------------------------------------------------------------------
Franklin (City of) Industrial Development
Board (Landings Apartment Project);
Refunding Multifamily Housing Series 1996 A
RB
5.75%, 04/01/10(b) AAA Aaa 820 877,015
- ---------------------------------------------------------------------------------------
Putnam (County of); Refunding Unlimited Tax
Series 2001 GO
5.25%, 04/01/17(b) -- Aaa 2,500 2,760,925
- ---------------------------------------------------------------------------------------
Robertson & Somner (Counties of) White House
Utility District; Water & Sewer Series 2000
RB
6.00%, 01/01/10(e)(f) NRR Aaa 1,000 1,164,140
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
TENNESSEE-(CONTINUED)
Shelby (County of) Health Educational &
Housing Facilities Board (Kirby Pines
Retirement Community); Health Care
Facilities Series 1997 A RB
6.25%, 11/15/16(d) -- -- $1,000 $ 919,310
- ---------------------------------------------------------------------------------------
Tennessee (State of) Housing Development
Agency; Homeownership Progressive Series
1992 RB
6.80%, 07/01/17 AA Aa2 20 20,205
=======================================================================================
6,278,595
=======================================================================================
TEXAS-22.27%
Allen (City of) Independent School District;
Refunding Unlimited Tax Series 2000 GO
5.95%, 02/15/25 AAA Aaa 1,600 1,743,456
- ---------------------------------------------------------------------------------------
Arlington (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1995 GO
5.75%, 02/15/05(e)(f) NRR Aaa 705 766,095
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
5.75%, 02/15/21 -- Aaa 295 312,635
- ---------------------------------------------------------------------------------------
Austin (City of); Refunding Hotel Occupancy
Tax Sub. Lien Series 1999 RB
5.80%, 11/15/29(b) AAA Aaa 1,000 1,081,200
- ---------------------------------------------------------------------------------------
Austin (City of) Community College District;
Refunding Combined Fee Series 1995 RB
6.10%, 02/01/05(e)(f) AAA Aaa 1,115 1,217,435
- ---------------------------------------------------------------------------------------
Austin (City of) Water & Wastewater System;
Refunding
Series 2001 A&B RB
5.25%, 05/15/31(b) AAA Aaa 1,750 1,785,158
- ---------------------------------------------------------------------------------------
Bellville (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1995 GO
6.13%, 02/01/06(e)(f) NRR Aaa 535 602,201
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
6.13%, 02/01/20 -- Aaa 295 326,780
- ---------------------------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Dymaxion & Morrach Park Apartments);
Multifamily Housing Series 2000 A RB
6.10%, 08/01/30(b) -- Aaa 1,000 1,049,170
- ---------------------------------------------------------------------------------------
Bexar (County of) Metropolitan Water
District; Lease Purchase Series 2001 RB
5.53%, 07/20/06
(Acquired 07/27/01;
Cost $606,807)(d)(g) -- -- 601 635,477
- ---------------------------------------------------------------------------------------
</Table>
FS-165
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Brazos (County of) Health Facilities
Development Corp. (Franciscan Services
Corp.); Series 1997 A RB
5.38%, 01/01/22(b) AAA Aaa $1,250 $ 1,284,325
- ---------------------------------------------------------------------------------------
Carroll (City of) Independent School
District; Refunding Unlimited Tax Series
2001 GO
5.25%, 02/15/33 AAA Aaa 1,350 1,377,432
- ---------------------------------------------------------------------------------------
Carrollton (City of); Limited Tax Series 1996
GO
5.75%, 08/15/06(e)(f) AA Aa2 1,000 1,132,960
- ---------------------------------------------------------------------------------------
Cisco (City of) Jr. College District;
Refunding Consolidated Series 2002 RB
5.25%, 07/01/26(b) -- Aaa 1,000 1,026,080
- ---------------------------------------------------------------------------------------
Cleveland (City of) Independent School
District; Unlimited Tax Series 2001 GO
5.13%, 02/01/31 AAA Aaa 2,000 2,018,900
- ---------------------------------------------------------------------------------------
Comal (County of) Independent School
District;
Refunding Unlimited Tax Series 1999 GO
5.75%, 08/01/28 -- Aaa 1,000 1,084,280
- ---------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2001 GO
5.25%, 02/01/28 -- Aaa 1,000 1,023,570
- ---------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
5.00%, 02/01/28 -- Aaa 1,500 1,500,975
- ---------------------------------------------------------------------------------------
DeSoto (City of) Independent School District;
Refunding Unlimited Tax Series 1998 GO
5.13%, 08/15/17 AAA -- 1,000 1,000,590
- ---------------------------------------------------------------------------------------
Georgetown (City of) Utility System; Series
1995 A RB
6.20%, 08/15/05(e)(f) AAA Aaa 1,500 1,676,205
- ---------------------------------------------------------------------------------------
Grapevine (City of); Limited Tax Series 2000
GO Ctfs.
5.88%, 08/15/26(b) AAA Aaa 1,610 1,755,367
- ---------------------------------------------------------------------------------------
Harris (County of); Refunding Limited Tax
Series 2002 GO
5.13%, 08/15/31 AA+ Aa1 1,000 1,006,350
- ---------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann Health
Care Project); Hospital Series 2001 A RB
6.38%, 06/01/29 A A2 750 793,928
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
TEXAS-(CONTINUED)
Harris (County of) Health Facilities
Development Corp. (St. Luke's Episcopal
Hospital Project); Series 1991 RB
6.70%, 02/15/03(e)(f) AAA Aa3 $1,000 $ 1,001,560
- ---------------------------------------------------------------------------------------
Series 2001 A RB
5.38%, 02/15/26 AA- -- 1,000 1,005,070
- ---------------------------------------------------------------------------------------
Series 2002 RB
5.13%, 02/15/32 AA- -- 1,000 978,550
- ---------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Children's
Hospital Project); Hospital Series 1999 A
RB
5.25%, 10/01/29 AA Aa2 2,000 2,015,080
- ---------------------------------------------------------------------------------------
Harris (County of) Houston Sports Authority;
Refunding Jr. Lien Series 2001 B RB
5.25%, 11/15/40(b) AAA Aaa 3,000 3,039,750
- ---------------------------------------------------------------------------------------
Harris (County of) Mental Health & Mental
Retardation Authority; Refunding Series
1992 RB
6.25%, 09/15/10(b) AAA Aaa 4,500 4,523,310
- ---------------------------------------------------------------------------------------
Houston (City of) Airport System; Sub. Lien
Series 2000 B RB
5.50%, 07/01/30(b) AAA Aaa 1,000 1,035,580
- ---------------------------------------------------------------------------------------
Houston (City of) Water & Sewer System; Jr.
Lien Series 1997 C RB
5.38%, 12/01/27(b) AAA Aaa 2,495 2,585,593
- ---------------------------------------------------------------------------------------
Hurst-Euless-Bedford Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
6.50%, 08/15/04(e)(f) AAA Aaa 640 691,603
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
6.50%, 08/15/24 AAA Aaa 360 385,780
- ---------------------------------------------------------------------------------------
Katy (City of) Independent School District;
Limited Tax Series 1999 GO
6.13%, 02/15/32 AAA Aaa 1,500 1,655,700
- ---------------------------------------------------------------------------------------
Unlimited Tax Series 2001 B GO
5.00%, 02/15/32 AAA Aaa 3,000 2,990,820
- ---------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Refunding Unlimited Tax Series 2001 GO
5.25%, 08/15/26 AAA Aaa 2,000 2,053,900
- ---------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Series 1994 COP
6.00%, 08/15/05(b) AAA Aaa 770 854,007
- ---------------------------------------------------------------------------------------
Laredo (City of) Community College District;
Limited Tax Series 2002 GO
5.25%, 08/01/32(b) AAA Aaa 1,000 1,022,490
- ---------------------------------------------------------------------------------------
</Table>
FS-166
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
Little Elm (City of) Independent School
District;
Refunding Unlimited Tax Series 1999 GO
6.00%, 08/15/35 AAA -- $2,500 $ 2,760,575
- ---------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2000 GO
6.13%, 08/15/35 AAA -- 1,000 1,115,610
- ---------------------------------------------------------------------------------------
Lockhart (City of) Tax and Utility Systems;
Limited Tax Series 1996 GO Ctfs.
5.85%, 08/01/11(b) AAA Aaa 605 676,178
- ---------------------------------------------------------------------------------------
5.90%, 08/01/06(e)(f) AAA Aaa 1,100 1,252,251
- ---------------------------------------------------------------------------------------
Matagorda (County of) Navigation District
No.1 (Reliant Energy Project); Refunding
Series 1999 B RB
5.95%, 05/01/30(c) BBB- Ba1 2,000 1,632,160
- ---------------------------------------------------------------------------------------
Nacogdoches (City of) Independent School
District; Refunding Unlimited Tax Series
2001 GO
5.30%, 02/15/25 AAA Aaa 1,765 1,818,444
- ---------------------------------------------------------------------------------------
North Texas Higher Education Authority Inc.;
Student Loan Series 1993 C RB
6.10%, 04/01/08(c) -- Aa2 1,000 1,023,090
- ---------------------------------------------------------------------------------------
Student Loan Series 1993 D RB
6.30%, 04/01/09(c) -- A2 500 511,400
- ---------------------------------------------------------------------------------------
Northside Independent School District;
Unlimited Tax Series 1999 A GO
5.50%, 08/15/24 AAA Aaa 1,000 1,049,090
- ---------------------------------------------------------------------------------------
Pasadena (City of); Limited Tax Series 2002
GO Ctfs.
5.25%, 04/01/32(b) AAA Aaa 2,000 2,041,080
- ---------------------------------------------------------------------------------------
Pflugerville (City of) Independent School
District; Unlimited Tax Series 2000 GO
5.50%, 08/15/23 AAA Aaa 1,615 1,708,686
- ---------------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000 GO
5.88%, 09/01/19 AAA Aaa 850 947,334
- ---------------------------------------------------------------------------------------
Richardson (City of);
Limited Tax Series 2000 A GO Ctfs.
5.75%, 02/15/21(b) AAA Aaa 2,000 2,167,960
- ---------------------------------------------------------------------------------------
Limited Tax Series 2001 GO Ctfs.
5.00%, 02/15/19 AA+ Aa1 1,720 1,762,243
- ---------------------------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Richardson Medical Center); Unrefunded
Hospital Series 1993 RB
6.50%, 12/01/12 BBB+ Baa1 785 815,144
- ---------------------------------------------------------------------------------------
6.75%, 12/01/23 BBB+ Baa1 1,000 1,030,490
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
TEXAS-(CONTINUED)
San Angelo (City of) Waterworks & Sewer
System; Refunding & Improvement Series 2001
RB
5.25%, 04/01/19(b) AAA Aaa $1,000 $ 1,049,270
- ---------------------------------------------------------------------------------------
San Antonio (City of) Independent School
District; Unlimited Tax Series 1999 GO
5.50%, 08/15/24 AAA Aaa 3,500 3,671,815
- ---------------------------------------------------------------------------------------
Schertz-Cibolo-Universal City Independent
School District; Refunding Unlimited Tax
Building Series 2001 GO
5.13%, 08/01/25 -- Aaa 1,535 1,559,806
- ---------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
5.00%, 08/01/23 -- Aaa 750 756,188
- ---------------------------------------------------------------------------------------
Spring Branch Independent School District;
Limited Tax Series 2000 GO
5.75%, 02/01/24 AAA Aaa 1,700 1,836,782
- ---------------------------------------------------------------------------------------
Texas (State of) (Veteran's Land); Unlimited
Tax Series 1994 GO
6.40%, 12/01/24(c) AA Aa1 2,000 2,155,500
- ---------------------------------------------------------------------------------------
Texas (State of) (Water Development);
Refunding Unlimited Tax Series 2001 A GO
5.25%, 08/01/35 AA Aa1 1,840 1,876,598
- ---------------------------------------------------------------------------------------
Texas (State of) (Water Financial
Assistance); Unlimited Tax Series 2002 GO
5.00%, 08/01/23 AA Aa1 1,000 1,006,760
- ---------------------------------------------------------------------------------------
Texas (State of) Department of Housing &
Community Affairs (Asmara Affordable
Housing Inc. Project); Multifamily Housing
Series 1996 A RB
6.30%, 01/01/16 A -- 310 317,294
- ---------------------------------------------------------------------------------------
Texas (State of) Public Property Finance
Corp. (Mental Health & Mental Retardation);
Series 1996 RB
6.20%, 09/01/16 BBB+ -- 735 739,072
- ---------------------------------------------------------------------------------------
Texas (State of) Turnpike Authority; First
Tier Turnpike System Series 2002 A RB
5.50%, 08/15/39(b) AAA Aaa 1,000 1,052,230
- ---------------------------------------------------------------------------------------
Town Center Improvement District; Sales &
Hotel Occupancy Tax Series 2001 RB
5.13%, 03/01/23(b) AAA Aaa 1,000 1,015,480
- ---------------------------------------------------------------------------------------
5.25%, 03/01/27(b) AAA Aaa 2,800 2,862,720
- ---------------------------------------------------------------------------------------
5.50%, 03/01/13(b) AAA Aaa 1,725 1,901,951
- ---------------------------------------------------------------------------------------
Tyler (City of) Health Facilities Development
Corp. (Mother Frances Hospital); Hospital
Series 1997 A RB
5.63%, 07/01/13 -- Baa1 1,000 1,000,700
- ---------------------------------------------------------------------------------------
</Table>
FS-167
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
TEXAS-(CONTINUED)
United Independent School District; Unlimited
Tax Series 2000 GO
5.13%, 08/15/26 AAA Aaa $1,000 $ 1,016,190
- ---------------------------------------------------------------------------------------
University of Texas Financing System; Series
1999 B RB
5.70%, 08/15/09(e)(f) AAA Aaa 1,000 1,157,690
- ---------------------------------------------------------------------------------------
Victoria (County of) (Citizens Medical
Center); Hospital Series 1994 RB
6.20%, 01/01/10(b) AAA Aaa 1,000 1,058,250
- ---------------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax Series
2002 GO
5.25%, 08/15/26 -- Aaa 2,000 2,053,900
- ---------------------------------------------------------------------------------------
5.38%, 08/15/27 -- Aaa 1,000 1,039,130
- ---------------------------------------------------------------------------------------
Weatherford (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
6.40%, 02/15/05(e)(f) NRR Aaa 900 989,649
- ---------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
6.40%, 02/15/12 -- Aaa 100 108,554
- ---------------------------------------------------------------------------------------
Ysleta (City of) Independent School District
Public Facility Corp.; Refunding Lease
Series 2001 RB
5.38%, 11/15/24(b) AAA Aaa 1,300 1,335,035
=======================================================================================
105,911,661
=======================================================================================
UTAH-1.72%
Intermountain Power Agency;
Power Supply Series 1995 B RB
5.00%, 07/01/16(e)(f) A+ A1 2,000 2,008,240
- ---------------------------------------------------------------------------------------
Unrefunded Power Supply Series 1995 B RB
5.00%, 07/01/16 A+ A1 1,150 1,153,255
- ---------------------------------------------------------------------------------------
Salt Lake (County of) (Westminster College
Project); Series 1997 RB
5.75%, 10/01/27 BBB -- 1,000 1,022,150
- ---------------------------------------------------------------------------------------
South Jordan (City of); Sales Tax Series 2001
RB
5.20%, 08/15/26(b) AAA Aaa 1,500 1,527,900
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
UTAH-(CONTINUED)
Utah (State of) Housing Finance Agency;
Single Family Mortgage Sub-Series 1994 C RB
6.05%, 07/01/06 AA- Aa3 $ 90 $ 95,492
- ---------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 E-1
RB
6.30%, 07/01/06 AA- Aa3 60 63,878
- ---------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 G-1
RB
7.15%, 07/01/06 AA- Aa3 20 20,727
- ---------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 2000 B-1
RB
6.00%, 07/01/10(c) AA- Aa3 665 698,749
- ---------------------------------------------------------------------------------------
Sr. Single Family Mortgage Series 1995 G-2
RB
6.45%, 07/01/27(c) AAA Aaa 480 497,261
- ---------------------------------------------------------------------------------------
Utah (State of) Transit Authority; Sales Tax
Series 2002 A RB
5.00%, 06/15/25(b) AAA Aaa 1,105 1,110,061
=======================================================================================
8,197,713
=======================================================================================
VERMONT-0.24%
Vermont (State of) Educational & Health
Buildings Financing Agency (Fletcher Allen
Health Care); Hospital Series 2000 A RB
6.00%, 12/01/23(b) AAA Aaa 1,000 1,121,840
=======================================================================================
VIRGIN ISLANDS-0.11%
Virgin Islands (Territory of) Public Finance
Authority (Gross Receipts Taxes Loan
Notes); Series 1999 A RB
6.13%, 10/01/29(b) A -- 500 538,800
=======================================================================================
VIRGINIA-0.90%
Fauquier (County of) Industrial Development
Authority (Fauquier Hospital Foundation,
Inc.); Hospital Series 2002 RB
5.25%, 10/01/31 AA -- 1,000 1,017,390
- ---------------------------------------------------------------------------------------
Fredericksburg (City of) Industrial
Development Authority (Medicorp. Health
System); Series 2002 B RB
5.13%, 06/15/33 -- A3 250 245,638
- ---------------------------------------------------------------------------------------
Henrico (County of) Economic Development
Authority (Virginia United Methodist Homes
Inc.); Refunding Residential Care Facility
Series 2002 A RB
6.50%, 06/01/22(d) -- -- 1,000 978,800
- ---------------------------------------------------------------------------------------
Norton (City of) Industrial Development
Authority (Norton Community Hospital);
Refunding & Improvement Hospital Series
2001 RB
6.00%, 12/01/22(b) A -- 1,000 1,057,940
- ---------------------------------------------------------------------------------------
</Table>
FS-168
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
VIRGINIA-(CONTINUED)
Virginia (State of) Resources Authority
(Tuckahoe Creek Service District Project);
Water & Sewer System Series 2002 RB
5.00%, 11/01/35 AA Aa2 $1,000 $ 998,320
=======================================================================================
4,298,088
=======================================================================================
WASHINGTON-1.69%
Clark (County of) School District No. 117;
Unlimited Tax Series 1995 GO
6.00%, 12/01/05(e)(f) AAA Aaa 1,000 1,120,920
- ---------------------------------------------------------------------------------------
King (County of);
Sewer Series 1999 RB
5.50%, 01/01/22(b) AAA Aaa 1,000 1,047,340
- ---------------------------------------------------------------------------------------
Unlimited Tax Series 1969 GO
5.50%, 07/01/07(e)(f) AAA Aaa 490 557,311
- ---------------------------------------------------------------------------------------
Pend Oreille (County of) Public Utility
District No. 1; Electric Series 1996 B RB
6.30%, 01/01/17 BBB+ A3 1,400 1,503,180
- ---------------------------------------------------------------------------------------
Washington (State of) Health Care Facilities
Authority (Providence Health System
Project); Series 2001 RB
5.25%, 10/01/21(b) AAA Aaa 1,000 1,030,790
- ---------------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project No. 1); Refunding
Series 1996 A RB
5.75%, 07/01/12(b) AAA Aaa 2,000 2,249,040
- ---------------------------------------------------------------------------------------
West Richland (City of); Water & Sewer Series
1994 RB
7.00%, 12/01/04(e)(f) AAA Aaa 500 551,530
=======================================================================================
8,060,111
=======================================================================================
WISCONSIN-1.41%
Ladysmith-Hawkins School District; Refunding
Unlimited Tax Series 2002 GO
4.50%, 04/01/19(b) -- Aaa 1,350 1,319,598
- ---------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- ---------------------------------------------------------------------------------------
<Caption>
WISCONSIN-(CONTINUED)
Muskego-Norway School District; Refunding
Unlimited Tax Series 2002 GO
5.00%, 04/01/21(b) -- Aaa $1,000 $ 1,015,350
- ---------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sinai Samaritan
Medical Center Inc.); Series 1996 RB
5.75%, 08/15/16(b) AAA Aaa 1,500 1,651,860
- ---------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sisters of the
Sorrowful Mother Ministry Corp.); Series
1997 A RB
5.90%, 08/15/24(b) AAA Aaa 2,500 2,703,075
=======================================================================================
6,689,883
=======================================================================================
WYOMING-0.50%
Laramie (County of) (Memorial Hospital
Project); Hospital Series 1992 RB
6.70%, 05/01/12(b) AAA Aaa 250 256,155
- ---------------------------------------------------------------------------------------
Natrona (County of) (Wyoming Medical Center
Project); Hospital Series 1995 RB
6.00%, 09/15/11(b) AAA Aaa 1,000 1,109,540
- ---------------------------------------------------------------------------------------
Sweetwater (County of) (Idaho Power Co.
Project); Refunding Series 1996 A PCR
6.05%, 07/15/26 BBB+ A3 1,000 1,026,010
=======================================================================================
2,391,705
=======================================================================================
TOTAL INVESTMENTS-99.13% (Cost $446,474,757) 471,498,596
=======================================================================================
OTHER ASSETS LESS LIABILITIES-0.87% 4,124,629
=======================================================================================
NET ASSETS-100.00% $475,623,225
_______________________________________________________________________________________
=======================================================================================
</Table>
Investment Abbreviations:
<Table>
COP - Certificate of Participation
Ctfs. - Certificates
FHA - Federal Housing Administration
GNMA - Government National Mortgage Association
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
Jr. - Junior
LOC - Letter of Credit
PCR - Pollution Control Revenue Bonds
RAC - Revenue Anticipation Certificates
RB - Revenue Bonds
Sr. - Senior
Sub. - Subordinated
TAN - Tax Allocation Notes
VRD - Variable Rate Demand
Wts. - Warrants
</Table>
FS-169
Notes to Schedule of Investments:
(a) Ratings assigned by Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's"). NRR indicates a security that is not
re-rated subsequent to funding of an escrow fund (consisting of U.S.
Treasury obligations); this funding is pursuant to an advance refunding of
this security.
(b) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., American Capital
Access Corp., Financial Guaranty Insurance Co., Financial Security
Assurance, or MBIA Insurance Co.
(c) Security subject to the alternative minimum tax.
(d) 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 Trustees and followed by
the investment advisor.
(e) Advance refunded; secured by an escrow fund of U.S. Treasury obligations.
(f) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(g) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/03 was $475,623,225,
which represented 0.43% of the Fund's net assets. These securities are
considered illiquid.
(h) Demand securities; payable upon demand by the Fund with usually no more than
seven calendar days' notice. Interest rates are redetermined weekly. Rates
shown are rates in effect on 01/31/03.
(i) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(j) Principal and interest payments are guaranteed by a letter of credit
agreement.
See Notes to Financial Statements
FS-170
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$446,474,757) $471,498,596
- -----------------------------------------------------------
Receivables for:
Fund shares sold 557,283
- -----------------------------------------------------------
Interest 6,785,298
- -----------------------------------------------------------
Investment for deferred compensation plan 78,344
- -----------------------------------------------------------
Other assets 37,624
===========================================================
Total assets 478,957,145
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 996,820
- -----------------------------------------------------------
Fund shares reacquired 1,239,018
- -----------------------------------------------------------
Dividends 736,811
- -----------------------------------------------------------
Deferred compensation plan 78,344
- -----------------------------------------------------------
Accrued distribution fees 218,073
- -----------------------------------------------------------
Accrued trustees' fees 1,028
- -----------------------------------------------------------
Accrued transfer agent fees 13,113
- -----------------------------------------------------------
Accrued operating expenses 50,713
===========================================================
Total liabilities 3,333,920
===========================================================
Net assets applicable to shares outstanding $475,623,225
___________________________________________________________
===========================================================
NET ASSETS:
Class A $342,010,220
___________________________________________________________
===========================================================
Class B $106,973,053
___________________________________________________________
===========================================================
Class C $ 26,639,952
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 42,220,183
___________________________________________________________
===========================================================
Class B 13,183,625
___________________________________________________________
===========================================================
Class C 3,289,473
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 8.10
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $8.10 divided by
95.25%) $ 8.50
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 8.11
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 8.10
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $12,903,711
===========================================================
EXPENSES:
Advisory fees 1,058,214
- -----------------------------------------------------------
Administrative services fees 59,159
- -----------------------------------------------------------
Custodian fees 9,105
- -----------------------------------------------------------
Distribution fees -- Class A 429,314
- -----------------------------------------------------------
Distribution fees -- Class B 537,321
- -----------------------------------------------------------
Distribution fees -- Class C 138,905
- -----------------------------------------------------------
Transfer agent fees 136,573
- -----------------------------------------------------------
Trustees' fees 5,771
- -----------------------------------------------------------
Other 80,240
===========================================================
Total expenses 2,454,602
===========================================================
Less: Expenses paid indirectly (3,572)
===========================================================
Net expenses 2,451,030
===========================================================
Net investment income 10,452,681
===========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 551,800
- -----------------------------------------------------------
Change in net unrealized appreciation of
investment securities 1,860,654
===========================================================
Net gain from investment securities 2,412,454
===========================================================
Net increase in net assets resulting from
operations $12,865,135
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-171
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 10,452,681 $ 21,138,440
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 551,800 (210,205)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 1,860,654 (392,841)
================================================================================================
Net increase in net assets resulting from operations 12,865,135 20,535,394
================================================================================================
Distributions to shareholders from net investment income:
Class A (7,951,107) (16,156,773)
- ------------------------------------------------------------------------------------------------
Class B (2,090,093) (3,770,131)
- ------------------------------------------------------------------------------------------------
Class C (541,191) (953,868)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 776,209 17,431,346
- ------------------------------------------------------------------------------------------------
Class B 2,356,583 17,606,047
- ------------------------------------------------------------------------------------------------
Class C (2,661,638) 11,286,232
================================================================================================
Net increase in net assets 2,753,898 45,978,247
================================================================================================
NET ASSETS:
Beginning of period 472,869,327 426,891,080
================================================================================================
End of period $475,623,225 $472,869,327
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $461,326,317 $460,855,163
- ------------------------------------------------------------------------------------------------
Undistributed net investment income 190,114 319,824
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (10,917,045) (11,468,845)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 25,023,839 23,163,185
================================================================================================
$475,623,225 $472,869,327
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-172
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be 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 the Fund. The Fund's investment objective
is to achieve a high level of current income exempt from federal income taxes,
consistent with the preservation of principal.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 on the basis of
prices provided by an independent pricing service approved by the Board of
Trustees. 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
Trustees, or persons designated by the Board of Trustees, 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 Trust's officers in a manner specifically
authorized by the Board of Trustees. Securities with a demand feature
exercisable within one to seven days are valued at par. Notwithstanding the
above, short-term obligations with maturities of 60 days or less and
commercial paper are valued at amortized cost which approximates market
value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Premiums and
discounts are amortized and/or accreted for financial reporting purposes.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$200 million of the Fund's average daily net assets, plus 0.40% on the next $300
million of the Fund's average daily net assets, plus 0.35% on the next $500
million of the Fund's average daily net assets, plus 0.30% on 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. For the six months ended January 31, 2003, AIM
was paid $59,159 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 and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $85,959 for such services.
The Trust has entered into a master distribution agreement 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 Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C 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
FS-173
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 under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges, that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the six months ended January 31, 2003, the Class A, Class B and Class
C shares paid $429,314, $537,321 and $138,905, respectively.
Front-end sales commissions and CDSCs are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
the six months ended January 31, 2003, AIM Distributors retained $31,472 in
front-end sales commissions from the sale of Class A shares and $38,562, $1,510
and $52,695 for Class A, Class B shares and Class C shares, respectively, for
CDSCs imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended January 31, 2003, the Fund paid legal fees of
$2,355 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $3,572 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$3,572.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the six months ended January
31, 2003, the Fund did not borrow under the line of credit agreement. The funds
which are party 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
the funds based on their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
July 31, 2003 $ 728,546
- ----------------------------------------------------------
July 31, 2004 92,144
- ----------------------------------------------------------
July 31, 2007 1,947,609
- ----------------------------------------------------------
July 31, 2008 8,431,875
==========================================================
Total capital loss carryforward $11,200,174
__________________________________________________________
==========================================================
</Table>
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $54,062,722 and $57,723,907, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $29,039,718
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,983,187)
===========================================================
Net unrealized appreciation of investment
securities $25,056,531
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $446,442,065.
</Table>
FS-174
NOTE 8--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a contingent
deferred sales charge ("CDSC"). Under some circumstances, Class A shares are
subject to CDSC charges. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2003 JULY 31, 2002
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 17,514,398 $ 141,750,955 25,443,792 $ 203,919,132
- -----------------------------------------------------------------------------------------------------------------------
Class B 2,205,816 17,924,615 5,648,537 45,438,128
- -----------------------------------------------------------------------------------------------------------------------
Class C 1,271,125 10,293,085 3,492,497 27,986,065
=======================================================================================================================
Issued as reinvestment of dividends:
Class A 542,863 4,398,059 1,118,428 8,950,726
- -----------------------------------------------------------------------------------------------------------------------
Class B 159,648 1,295,089 281,101 2,253,388
- -----------------------------------------------------------------------------------------------------------------------
Class C 47,954 388,410 86,031 687,981
=======================================================================================================================
Issued in connection with acquisitions:*
Class A -- -- 4,890,500 39,744,960
=======================================================================================================================
Conversion of Class B shares to Class A shares:**
Class A 277,349 2,242,090 -- --
- -----------------------------------------------------------------------------------------------------------------------
Class B (276,389) (2,242,090) -- --
=======================================================================================================================
Reacquired:
Class A (18,237,759) (147,614,895) (29,353,247) (235,183,472)
- -----------------------------------------------------------------------------------------------------------------------
Class B (1,805,196) (14,621,031) (3,758,234) (30,085,469)
- -----------------------------------------------------------------------------------------------------------------------
Class C (1,649,837) (13,343,133) (2,179,285) (17,387,814)
=======================================================================================================================
49,972 $ 471,154 5,670,120 $ 46,323,625
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
* As of the close of business September 7, 2001, the Fund acquired all the net
assets of AIM Tax-Exempt Bond Fund of Connecticut pursuant to a plan of
reorganization approved by AIM Tax-Exempt Bond Fund of Connecticut
shareholders on June 13, 2001. The acquisition was accomplished by a tax-free
exchange of 4,890,500 shares of the Fund for 3,624,409 shares of AIM
Tax-Exempt Bond Fund of Connecticut outstanding as of the close of business
on September 7, 2001. AIM Tax-Exempt Bond Fund of Connecticut net assets at
that date of $39,744,960, including $2,619,081 of unrealized appreciation,
were combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $446,100,096.
** Prior to the year ended July 31, 2002, conversion of Class B shares to Class
A shares were included in Class A share sold and Class B shares reacquired.
FS-175
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED DECEMBER
ENDED ENDED 31,
JANUARY 31, -------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35 $ 8.34
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.38(a) 0.40 0.24(b) 0.41 0.42
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.04 0.00 0.23 0.09 (0.61) 0.01
=================================================================================================================================
Total from investment operations 0.23 0.38 0.63 0.33 (0.20) 0.43
=================================================================================================================================
Less dividends from net investment income (0.19) (0.38) (0.40) (0.24) (0.41) (0.42)
=================================================================================================================================
Net asset value, end of period $ 8.10 $ 8.06 $ 8.06 $ 7.83 $ 7.74 $ 8.35
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.86% 4.84% 8.28% 4.32% (2.45)% 5.28%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $342,010 $339,545 $322,437 $283,416 $294,720 $327,705
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.81%(d) 0.81% 0.85% 0.85%(e) 0.84% 0.82%
=================================================================================================================================
Ratio of net investment income to average net
assets 4.58%(d) 4.79%(a) 5.06% 5.32%(e) 5.01% 5.00%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 12% 35% 28% 18% 28% 19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing market discounts on debt securities. Had the Fund not
amortized market discounts on debt securities, the net investment income
per share and the ratio of net investment income to average net assets
would have remained the same. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$340,651,090.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-176
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
JANUARY 31, -------------------- JULY 31, ------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37 $ 8.36
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.32(a) 0.34 0.21(b) 0.35 0.36
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.04 0.00 0.23 0.08 (0.62) 0.01
=================================================================================================================================
Total from investment operations 0.20 0.32 0.57 0.29 (0.27) 0.37
=================================================================================================================================
Less dividends from net investment income (0.16) (0.32) (0.34) (0.20) (0.35) (0.36)
=================================================================================================================================
Net asset value, end of period $ 8.11 $ 8.07 $ 8.07 $ 7.84 $ 7.75 $ 8.37
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 2.48% 4.05% 7.46% 3.84% (3.28)% 4.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $106,973 $104,150 $86,565 $67,363 $72,256 $72,723
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.56%(d) 1.56% 1.60% 1.61%(e) 1.59% 1.57%
=================================================================================================================================
Ratio of net investment income to average net
assets 3.83%(d) 4.04%(a) 4.31% 4.56%(e) 4.26% 4.25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 12% 35% 28% 18% 28% 19%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing market discounts on debt securities. Had the Fund not
amortized market discounts on debt securities, the net investment income
per share and the ratio of net investment income to average net assets
would have remained the same. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(d) Ratios are annualized and based on average daily net assets of
$106,588,104.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-177
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY 31, SEVEN MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
JANUARY 31, ------------------- JULY 31, ----------------
2003 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35 $ 8.35
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.32(a) 0.34 0.21(b) 0.35 0.36
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.04 0.01 0.22 0.08 (0.61) 0.00
================================================================================================================================
Total from investment operations 0.20 0.33 0.56 0.29 (0.26) 0.36
================================================================================================================================
Less dividends from net investment income (0.16) (0.32) (0.34) (0.20) (0.35) (0.36)
================================================================================================================================
Net asset value, end of period $ 8.10 $ 8.06 $ 8.05 $ 7.83 $ 7.74 $ 8.35
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 2.49% 4.19% 7.34% 3.85% (3.16)% 4.36%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,640 $29,175 $17,889 $8,252 $9,652 $9,565
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 1.56%(d) 1.56% 1.60% 1.61%(e) 1.59% 1.57%
================================================================================================================================
Ratio of net investment income to average net assets 3.83%(d) 4.04%(a) 4.31% 4.56%(e) 4.26% 4.25%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(f) 12% 35% 28% 18% 28% 19%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) As required, effective August 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing market discounts on debt securities. Had the Fund not
amortized market discounts on debt securities, the net investment income
per share and the ratio of net investment income to average net assets
would have remained the same. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to August 1, 2001 have not been restated to reflect this
change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(d) Ratios are annualized and based on average daily net assets of
$27,554,534.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-178
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
AIM has established an interfund lending facility for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the period August 30, 2002 (date operations commenced) through
January 31, 2003.
NOTE 6--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the period August
30, 2002 (date operations commenced) through January 31, 2003 was $140,212,873
and $16,199,052, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 887,360
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (149,881)
==========================================================
Net unrealized appreciation of investment
securities $ 737,479
__________________________________________________________
==========================================================
Investments have the same costs for tax and financial
statement purposes.
</Table>
NOTE 7--SHARE INFORMATION
The Fund currently offers Class C shares. Class C shares are sold at net asset
value.
Changes in Class C shares outstanding during the period August 30, 2002
(date operations commenced) through January 31, 2003 were as follows:
<Table>
<Caption>
AUGUST 30, 2002
(DATE OPERATIONS
COMMENCED) TO
JANUARY 31, 2003
--------------------------
SHARES AMOUNT
- --------------------------------------------------------------
Sold 15,963,724 $159,980,873
==============================================================
Issued as reinvestment of
dividends 65,216 654,650
==============================================================
Reacquired (3,881,464) (38,865,177)
==============================================================
12,147,476 $121,770,346
______________________________________________________________
==============================================================
</Table>
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
As of January 31, 2003, permanent reclassifications for paydown gains
(losses) amounted to $389,739 which may be more or less than the permanent
reclassifications for paydown gains (losses) at fiscal year-end.
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding during the period August 30, 2002 (date operations commenced)
through January 31, 2003.
<Table>
<Caption>
CLASS C
---------------------------
AUGUST 30, 2002
(DATE OPERATIONS COMMENCED)
TO JANUARY 31,
2003
- -----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.01
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a)
- -----------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.11
=========================================================================================
Total from investment operations 0.15
=========================================================================================
Less dividends from net investment income (0.12)
=========================================================================================
Net asset value, end of period $ 10.04
_________________________________________________________________________________________
=========================================================================================
Total return(b) 1.46%
_________________________________________________________________________________________
=========================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $121,982
_________________________________________________________________________________________
=========================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(c)
- -----------------------------------------------------------------------------------------
Without fee waivers 1.78%(c)
=========================================================================================
Ratio of net investment income to average net assets 0.93%(c)
_________________________________________________________________________________________
=========================================================================================
Portfolio turnover rate(d) 27%
_________________________________________________________________________________________
=========================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$65,171,838.
(d) Not annualized for periods less than one year.
FS-179
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
BONDS & NOTES-47.46%
AEROSPACE & DEFENSE-0.37%
Lockheed Martin Corp., Unsec. Gtd. Unsub.
Notes, 7.25%, 05/15/06 $ 150,000 $ 168,790
- -----------------------------------------------------------------------
Raytheon Co., Notes, 6.75%, 08/15/07 40,000 43,772
=======================================================================
212,562
=======================================================================
AGRICULTURAL PRODUCTS-0.57%
Archer-Daniels-Midland Co., Unsec. Unsub.
Deb., 6.95%, 12/15/97 300,000 326,439
=======================================================================
AUTOMOBILE MANUFACTURERS-0.46%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 200,000 201,692
- -----------------------------------------------------------------------
General Motors Corp., Unsec. Deb., 8.80%,
03/01/21 60,000 64,095
=======================================================================
265,787
=======================================================================
BANKS-6.04%
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 250,000 280,032
- -----------------------------------------------------------------------
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 100,000 113,075
- -----------------------------------------------------------------------
Citicorp,
Jr. Unsec. Sub. Notes, 6.38%, 01/15/06 100,000 107,872
- -----------------------------------------------------------------------
Sub. Global Notes, 6.75%, 08/15/05 150,000 165,022
- -----------------------------------------------------------------------
Unsec. Sub. Notes, 7.13%, 09/01/05 200,000 223,064
- -----------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
$107,346)(a) 100,000 107,062
- -----------------------------------------------------------------------
Dresdner Funding Trust I, Bonds, 8.15%,
06/30/31 (Acquired 05/09/02; Cost
$53,049)(a) 50,000 50,668
- -----------------------------------------------------------------------
European Investment Bank (Luxembourg),
Global Notes, 4.63%, 03/01/07 200,000 212,904
- -----------------------------------------------------------------------
Medium Term Yankee Notes, 4.88%, 09/06/06 250,000 267,536
- -----------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 250,000 299,667
- -----------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 100,000 103,455
- -----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom), Unsec. Sub.
Floating Rate Euro Notes, 1.69%,
06/29/49(b) 300,000 241,338
- -----------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$104,633)(a) 100,000 104,984
- -----------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 250,000 316,462
- -----------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 100,000 108,690
- -----------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%, 10/29/49 300,000 357,000
- -----------------------------------------------------------------------
U.S. Bank N.A., Sub. Global Notes, 6.30%,
02/04/14 25,000 27,891
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
BANKS-(CONTINUED)
Union Planters Bank N.A., Unsec. Putable Sub.
Notes, 6.50%, 03/15/08 $ 250,000 $ 278,437
- -----------------------------------------------------------------------
Wachovia Corp., Unsec. Sub. Notes, 6.80%,
06/01/05 100,000 110,003
=======================================================================
3,475,162
=======================================================================
BREWERS-0.13%
Anheuser-Busch Cos., Inc., Sr. Unsec. Deb.,
6.50%, 02/01/43 65,000 72,763
=======================================================================
BROADCASTING & CABLE TV-2.40%
Comcast Cable Communications, Inc., Unsec.
Unsub. Notes, 8.88%, 05/01/17 150,000 178,246
- -----------------------------------------------------------------------
Comcast Corp., Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 01/15/15 400,000 400,612
- -----------------------------------------------------------------------
Jones Intercable, Inc., Sr. Unsec. Notes,
8.88%, 04/01/07 100,000 106,391
- -----------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 100,000 108,258
- -----------------------------------------------------------------------
Sr. Notes, 8.65%, 09/15/04 400,000 428,500
- -----------------------------------------------------------------------
Sr. Unsec. Deb., 7.88%, 02/15/26 50,000 51,948
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05 50,000 53,812
- -----------------------------------------------------------------------
Time Warner Inc., Unsec. Notes, 7.75%,
06/15/05 50,000 53,334
=======================================================================
1,381,101
=======================================================================
COMPUTER HARDWARE-0.22%
International Business Machines Corp., Deb.,
8.38%, 11/01/19 100,000 126,336
=======================================================================
CONSUMER FINANCE-6.01%
CitiFinancial Credit Co.,
Notes, 6.63%, 06/01/15 150,000 168,429
- -----------------------------------------------------------------------
Unsec. Notes, 6.75%, 07/01/07 100,000 111,719
- -----------------------------------------------------------------------
Countrywide Home Loans, Inc.,
Unsec. Gtd. Global Notes, 6.85%, 06/15/04 598,000 632,343
- -----------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 100,000 100,841
- -----------------------------------------------------------------------
Ford Motor Credit Co.,
Global Notes, 7.88%, 06/15/10 60,000 59,733
- -----------------------------------------------------------------------
Unsec. Floating Rate Notes, 1.60%,
03/17/03(c) 350,000 349,447
- -----------------------------------------------------------------------
Unsec. Global Notes,
6.70%, 07/16/04 250,000 257,125
- -----------------------------------------------------------------------
6.88%, 02/01/06 235,000 237,143
- -----------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Bonds, 6.85%, 06/17/04 250,000 261,488
- -----------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 300,000 304,833
- -----------------------------------------------------------------------
Unsec. Unsub. Notes, 7.63%, 06/15/04 200,000 211,032
- -----------------------------------------------------------------------
</Table>
FS-180
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Household Finance Corp.,
Sr. Unsec. Global Notes,
6.50%, 01/24/06 $ 100,000 $ 107,409
- -----------------------------------------------------------------------
8.00%, 05/09/05 600,000 657,714
=======================================================================
3,459,256
=======================================================================
DISTILLERS & VINTNERS-0.42%
Diageo PLC, Sr. Unsec. Gtd. Putable Notes,
7.45%, 04/15/05 200,000 243,264
=======================================================================
DIVERSIFIED FINANCIAL SERVICES-11.58%
American General Finance Corp., Sr. Notes,
6.75%, 11/15/04 200,000 214,650
- -----------------------------------------------------------------------
ASIF Global Financing XIX, Sec. Notes, 4.90%,
01/17/13 (Acquired 01/08/03; Cost
$199,374)(a) 200,000 199,464
- -----------------------------------------------------------------------
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03; Cost
$149,763)(a) 150,000 149,823
- -----------------------------------------------------------------------
Associates Corp. of North America, Sr. Global
Notes, 5.80%, 04/20/04 250,000 262,010
- -----------------------------------------------------------------------
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%,
05/01/20 200,000 303,870
- -----------------------------------------------------------------------
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes,
2.60%, 11/25/03(d) 100,000 100,063
- -----------------------------------------------------------------------
Sr. Global Notes, 7.13%, 10/15/04 40,000 42,454
- -----------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 350,000 389,379
- -----------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Global Notes,
6.63%, 06/15/32 100,000 110,239
- -----------------------------------------------------------------------
Fidelity Investments, Bonds, 7.57%, 06/15/29
(Acquired 05/01/02-07/25/02; Cost
$218,028)(a) 200,000 238,666
- -----------------------------------------------------------------------
General Electric Capital Corp.,
Gtd. Sub. Notes, 8.13%, 05/15/12 45,000 54,237
- -----------------------------------------------------------------------
Series A, Medium Term Global Notes,
5.00%, 06/15/07 200,000 211,452
- -----------------------------------------------------------------------
6.80%, 11/01/05 400,000 444,048
- -----------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), Global
Bonds, 7.63%, 08/17/05 150,000 168,093
- -----------------------------------------------------------------------
Heller Financial, Inc.,
Sr. Unsec. Global Notes,
6.38%, 03/15/06 125,000 136,830
- -----------------------------------------------------------------------
8.00%, 06/15/05 400,000 449,428
- -----------------------------------------------------------------------
Unsec. Global Notes, 7.38%, 11/01/09 60,000 69,754
- -----------------------------------------------------------------------
John Hancock Global Funding II, Notes,
5.00%, 07/27/07 (Acquired 06/12/02;
Cost $99,945)(a) 100,000 103,804
- -----------------------------------------------------------------------
6.50%, 03/01/11 (Acquired 07/24/02;
Cost $263,610)(a) 250,000 266,820
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Notes,
8.75%, 03/15/05 $ 250,000 $ 280,825
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 250,000 295,418
- -----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 150,000 168,245
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05 250,000 259,430
- -----------------------------------------------------------------------
Morgan Stanley,
Sr. Global Notes, 7.75%, 06/15/05 375,000 418,410
- -----------------------------------------------------------------------
Unsec. Notes, 6.30%, 01/15/06 200,000 216,084
- -----------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$166,261)(a) 148,178 171,305
- -----------------------------------------------------------------------
Salomon Smith Barney Holdings Inc., Sr.
Unsec. Notes, 6.25%, 06/15/05 100,000 108,001
- -----------------------------------------------------------------------
USL Capital Corp., Sr. Global Notes, 5.95%,
10/15/03 265,000 271,455
- -----------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 400,000 451,372
- -----------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 100,000 108,327
=======================================================================
6,663,956
=======================================================================
ELECTRIC UTILITIES-2.07%
Duke Energy Corp., Bonds, 6.45%, 10/15/32 80,000 78,129
- -----------------------------------------------------------------------
Hydro-Quebec (Canada),
Gtd. Euro Notes, 1.94%, 09/29/49 350,000 310,366
- -----------------------------------------------------------------------
Gtd. Yankee Bonds, 9.40%, 02/01/21(e) 50,000 71,068
- -----------------------------------------------------------------------
Niagara Mohawk Power Corp., First Mortgage
Notes, 8.00%, 06/01/04(e) 210,000 223,509
- -----------------------------------------------------------------------
Wisconsin Public Service Corp., Sr. Sec.
Notes, 4.88%, 12/01/12 500,000 506,405
=======================================================================
1,189,477
=======================================================================
GAS UTILITIES-0.47%
Kinder Morgan, Inc., Sr. Notes, 6.80%,
03/01/08 250,000 270,750
=======================================================================
GENERAL MERCHANDISE STORES-0.25%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 125,000 141,089
=======================================================================
INDUSTRIAL MACHINERY-0.18%
Pall Corp., Notes, 6.00%, 08/01/12 (Acquired
08/01/02; Cost $99,949)(a) 100,000 105,156
=======================================================================
INTEGRATED OIL & GAS-2.74%
BP Canada Finance Co. (Canada), Unsec. Gtd.
Unsub. Yankee Bonds, 3.38%, 10/31/07 300,000 300,315
- -----------------------------------------------------------------------
Conoco Inc., Sr. Unsec. Global Notes, 5.90%,
04/15/04 350,000 366,961
- -----------------------------------------------------------------------
ConocoPhillips, Unsec. Global Notes, 8.50%,
05/25/05 100,000 113,362
- -----------------------------------------------------------------------
</Table>
FS-181
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
INTEGRATED OIL & GAS-(CONTINUED)
Occidental Petroleum Corp.,
Sr. Putable Deb., 9.25%, 08/01/04 $ 350,000 $ 457,125
- -----------------------------------------------------------------------
Sr. Unsec. Notes,
6.50%, 04/01/05 250,000 269,015
- -----------------------------------------------------------------------
7.38%, 11/15/08 60,000 69,138
=======================================================================
1,575,916
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.78%
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 75,000 81,452
- -----------------------------------------------------------------------
Sprint Capital Corp.,
Gtd. Global Notes, 5.88%, 05/01/04 400,000 392,500
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
5.70%, 11/15/03 700,000 697,375
- -----------------------------------------------------------------------
6.00%, 01/15/07 100,000 91,125
- -----------------------------------------------------------------------
7.13%, 01/30/06 50,000 47,563
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes, 6.13%,
11/15/08 35,000 30,494
- -----------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 250,000 261,253
=======================================================================
1,601,762
=======================================================================
LIFE & HEALTH INSURANCE-0.78%
American General Corp., Unsec. Notes, 7.75%,
04/01/05 280,000 311,114
- -----------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 120,000 137,467
=======================================================================
448,581
=======================================================================
MOVIES & ENTERTAINMENT-1.26%
AOL Time Warner Inc., Sr. Gtd. Unsub. Global
Notes, 6.13%, 04/15/06 400,000 415,308
- -----------------------------------------------------------------------
Walt Disney Co. (The), Medium Term Notes,
5.25%, 11/10/03 300,000 307,200
=======================================================================
722,508
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.88%
Amerada Hess Corp., Unsec. Notes,
5.30%, 08/15/04 450,000 469,449
- -----------------------------------------------------------------------
7.30%, 08/15/31 300,000 316,776
- -----------------------------------------------------------------------
Burlington Resources Finance Co. (Canada),
Sr. Unsec. Gtd. Yankee Notes, 7.40%,
12/01/31 200,000 234,286
- -----------------------------------------------------------------------
Canadian Oil Sands Ltd. (Canada), Sr. Yankee
Notes, 7.90%, 09/01/21 (Acquired 07/31/02;
Cost $304,776)(a) 300,000 335,619
- -----------------------------------------------------------------------
Devon Energy Corp., Sr. Unsec. Deb., 7.95%,
04/15/32 30,000 35,902
- -----------------------------------------------------------------------
Devon Financing Corp. ULC, Unsec. Gtd. Unsub.
Global Deb., 7.88%, 09/30/31 30,000 35,618
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Noble Energy, Inc., Sr. Unsec. Notes, 8.00%,
04/01/27 $ 100,000 $ 113,207
- -----------------------------------------------------------------------
Norcen Energy Resources Ltd. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 100,000 113,469
=======================================================================
1,654,326
=======================================================================
PHARMACEUTICALS-0.61%
Johnson & Johnson, Unsec. Deb., 8.72%,
11/01/24 300,000 351,894
=======================================================================
PROPERTY & CASUALTY INSURANCE-0.20%
Allstate Corp. (The), Sr. Unsec. Notes,
7.88%, 05/01/05 100,000 111,830
=======================================================================
PUBLISHING-0.92%
News America Inc., Putable Deb., 6.75%,
01/09/10 100,000 103,283
- -----------------------------------------------------------------------
Tribune Co., Putable Notes, 6.61%, 09/15/04 400,000 427,840
=======================================================================
531,123
=======================================================================
REAL ESTATE-1.50%
EOP Operating L.P.,
Sr. Unsec. Notes, 6.50%, 06/15/04 110,000 114,598
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 7.25%, 02/15/18 30,000 32,683
- -----------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 20,000 21,405
- -----------------------------------------------------------------------
Unsec. Notes, 6.50%, 01/15/04 420,000 434,288
- -----------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub.
Notes, 6.80%, 05/01/04 250,000 261,478
=======================================================================
864,452
=======================================================================
SOFT DRINKS-0.38%
Coca-Cola Enterprises Inc., Putable Notes,
8.00%, 01/04/04 200,000 221,016
=======================================================================
SOVEREIGN DEBT-1.70%
Export Development Canada (Canada), Global
Bonds, 4.00%, 08/01/07 350,000 362,366
- -----------------------------------------------------------------------
Japan Bank for International Cooperation
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05 100,000 110,172
- -----------------------------------------------------------------------
Region of Lombardy (Italy), Unsec. Global
Bonds, 5.80%, 10/25/32 300,000 310,236
- -----------------------------------------------------------------------
United Mexican States (Mexico)-Series A,
Medium Term Global Notes, 6.38%, 01/16/13 200,000 195,500
=======================================================================
978,274
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.54%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 8.75%, 03/01/31 300,000 310,125
=======================================================================
Total Bonds & Notes (Cost $26,729,605) 27,304,905
=======================================================================
</Table>
FS-182
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
ASSET-BACKED SECURITIES-1.67%
AIRLINES-0.81%
Continental Airlines, Inc., Class A-1,
Series 2000-1, Sr. Pass Through Ctfs.,
8.05%, 11/01/20 $ 161,331 $ 142,374
- -----------------------------------------------------------------------
Series 2000-2, Sr. Sec. Pass Through Ctfs.,
7.71%, 04/02/21 253,266 227,306
- -----------------------------------------------------------------------
Series 974A, Pass Through Ctfs., 6.90%,
01/02/18 106,107 94,529
=======================================================================
464,209
=======================================================================
DIVERSIFIED FINANCIAL SERVICES-0.86%
Citicorp Lease-Series 1999-1,
Class A1, Pass Through Ctfs., 7.22%,
06/15/05 (Acquired 05/08/02-10/03/02; Cost
$313,955)(a) 295,004 322,841
- -----------------------------------------------------------------------
Class A2, Pass Through Ctfs., 8.04%,
12/15/19 (Acquired 08/20/02; Cost
$166,614)(a) 150,000 173,379
=======================================================================
496,220
=======================================================================
Total Asset-Backed Securities (Cost
$975,257) 960,429
=======================================================================
U.S. GOVERNMENT AGENCY SECURITIES-44.12%
FEDERAL HOME LOAN BANK-2.16%
Unsec. Bonds,
4.88%, 04/16/04 to 05/15/07 650,000 691,170
- -----------------------------------------------------------------------
5.70%, 03/03/09 500,000 553,445
=======================================================================
1,244,615
=======================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-11.58%
Pass Through Ctfs.,
6.50%, 05/01/16 to 08/01/32 1,738,846 1,818,040
- -----------------------------------------------------------------------
7.00%, 06/01/16 to 06/01/32 783,207 826,381
- -----------------------------------------------------------------------
6.00%, 04/01/17 to 05/01/32 706,463 738,003
- -----------------------------------------------------------------------
7.50%, 04/01/17 to 03/01/32 426,292 455,027
- -----------------------------------------------------------------------
Pass Through Ctfs., TBA,(f)
6.00%, 02/01/33 2,210,000 2,287,634
- -----------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 500,000 536,380
=======================================================================
6,661,465
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-21.40%
Bonds,
5.88%, 02/02/06 350,000 384,174
- -----------------------------------------------------------------------
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 1,037,971 1,105,336
- -----------------------------------------------------------------------
7.00%, 12/01/15 to 09/01/32 1,650,970 1,742,261
- -----------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/32 3,788,429 3,956,273
- -----------------------------------------------------------------------
6.00%, 01/01/17 to 03/01/22 1,296,113 1,349,773
- -----------------------------------------------------------------------
8.00%, 08/01/21 to 04/01/32 2,018,198 2,180,524
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
Pass Through Ctfs., TBA,(f)
6.00%, 02/01/33(g) $ 675,000 $ 698,780
- -----------------------------------------------------------------------
7.00%, 02/01/33 200,000 210,688
- -----------------------------------------------------------------------
Unsec. Bonds,
6.63%, 11/15/30 45,000 52,358
- -----------------------------------------------------------------------
Unsec. Notes,
6.20%, 06/13/17 150,000 159,638
- -----------------------------------------------------------------------
Unsec. Sub. Notes,
4.75%, 01/02/07 150,000 158,067
- -----------------------------------------------------------------------
5.25%, 08/01/12 300,000 309,699
=======================================================================
12,307,571
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-7.94%
Pass Through Ctfs.,
7.50%, 06/15/23 to 05/15/32 1,068,855 1,151,036
- -----------------------------------------------------------------------
8.50%, 02/15/25 147,670 161,960
- -----------------------------------------------------------------------
8.00%, 08/15/25 34,894 38,114
- -----------------------------------------------------------------------
7.00%, 04/15/28 to 08/15/31 1,222,776 1,299,312
- -----------------------------------------------------------------------
6.50%, 01/15/29 to 07/15/32 1,333,475 1,401,447
- -----------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32 496,857 517,741
=======================================================================
4,569,610
=======================================================================
TENNESSEE VALLEY AUTHORITY-1.04%
Unsec. Bonds,
7.14%, 05/23/12 500,000 596,615
=======================================================================
Total U.S. Government Agency Securities
(Cost $24,927,627) 25,379,876
=======================================================================
U.S. TREASURY SECURITIES-7.68%
U.S. TREASURY NOTES-6.53%
4.63%, 05/15/06 1,500,000 1,606,635
- -----------------------------------------------------------------------
6.50%, 10/15/06 150,000 170,789
- -----------------------------------------------------------------------
3.50%, 11/15/06 100,000 103,266
- -----------------------------------------------------------------------
6.13%, 08/15/07 150,000 170,742
- -----------------------------------------------------------------------
4.75%, 11/15/08 1,580,000 1,703,682
=======================================================================
3,755,114
=======================================================================
U.S. TREASURY BONDS-1.15%
7.50%, 11/15/16 150,000 194,413
- -----------------------------------------------------------------------
6.25%, 08/15/23 400,000 465,688
=======================================================================
660,101
=======================================================================
Total U.S. Treasury Securities (Cost
$4,380,438) 4,415,215
=======================================================================
</Table>
FS-183
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-3.77%
STIC Liquid Assets Portfolio(h) 1,083,893 1,083,893
- -----------------------------------------------------------------------
STIC Prime Portfolio(h) 1,083,893 1,083,893
=======================================================================
Total Money Market Funds (Cost
$2,167,786) 2,167,786
=======================================================================
TOTAL INVESTMENTS-104.70% (Cost $59,180,713) 60,228,211
=======================================================================
OTHER ASSETS LESS LIABILITIES-(4.70%) (2,701,778)
=======================================================================
NET ASSETS-100.00% $57,526,433
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Gtd. - Guaranteed
Jr. - Junior
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/03 was $2,329,591,
which represented 4.05% of the Fund's net assets. These securities are
considered to be illiquid.
(b) Interest rates are redetermined semiannually. Rates shown are rates in
effect on 01/31/03.
(c) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 01/31/03.
(d) Interest rates are redetermined monthly. Rates shown are rates in effect on
01/31/03.
(e) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp. or Financial Security
Assurance.
(f) Security purchased on forward commitment basis.
(g) These securities are subject to dollar roll transactions. See Note 1 Section
C.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-184
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$59,180,713) $60,228,211
- -----------------------------------------------------------
Receivables for:
Investments sold 374,959
- -----------------------------------------------------------
Fund shares sold 666,876
- -----------------------------------------------------------
Dividends and interest 672,759
- -----------------------------------------------------------
Amount due from advisor 42,486
- -----------------------------------------------------------
Investment for deferred compensation plan 2,765
- -----------------------------------------------------------
Other assets 17,044
===========================================================
Total assets 62,005,100
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 4,080,754
- -----------------------------------------------------------
Fund shares reacquired 295,614
- -----------------------------------------------------------
Dividends 16,493
- -----------------------------------------------------------
Deferred compensation plan 2,765
- -----------------------------------------------------------
Accrued distribution fees 40,838
- -----------------------------------------------------------
Accrued trustees' fees 868
- -----------------------------------------------------------
Accrued transfer agent fees 14,922
- -----------------------------------------------------------
Accrued operating expenses 26,413
===========================================================
Total liabilities 4,478,667
===========================================================
Net assets applicable to shares outstanding $57,526,433
___________________________________________________________
===========================================================
NET ASSETS:
Class A $18,820,844
___________________________________________________________
===========================================================
Class B $31,407,450
___________________________________________________________
===========================================================
Class C $ 7,298,139
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 1,806,241
___________________________________________________________
===========================================================
Class B 3,014,270
___________________________________________________________
===========================================================
Class C 700,424
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.42
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.42 divided by
95.25%) $ 10.94
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.42
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.42
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 926,061
- -----------------------------------------------------------
Dividends from affiliated money market funds 15,942
===========================================================
Total investment income 942,003
===========================================================
EXPENSES:
Advisory fees 106,830
- -----------------------------------------------------------
Administrative services fees 25,206
- -----------------------------------------------------------
Custodian fees 12,270
- -----------------------------------------------------------
Distribution fees -- Class A 25,504
- -----------------------------------------------------------
Distribution fees -- Class B 117,748
- -----------------------------------------------------------
Distribution fees -- Class C 23,044
- -----------------------------------------------------------
Transfer agent fees 63,158
- -----------------------------------------------------------
Trustees' fees 4,244
- -----------------------------------------------------------
Registration and filing fees 36,513
- -----------------------------------------------------------
Other 30,816
===========================================================
Total expenses 445,333
===========================================================
Less: Fees waived and expenses reimbursed (127,013)
- -----------------------------------------------------------
Expenses paid indirectly (330)
===========================================================
Net expenses 317,990
===========================================================
Net investment income 624,013
===========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 104,368
- -----------------------------------------------------------
Change in net unrealized appreciation of
investment securities 904,976
===========================================================
Net gain from investment securities 1,009,344
===========================================================
Net increase in net assets resulting from
operations $1,633,357
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-185
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the period December 31, 2001 (date
operations commenced) to July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 624,013 $ 139,633
- -----------------------------------------------------------------------------------------------
Net realized gain from investment securities 104,368 87,097
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 904,976 142,522
===============================================================================================
Net increase in net assets resulting from operations 1,633,357 369,252
===============================================================================================
Distributions to shareholders from net investment income:
Class A (292,084) (77,172)
- -----------------------------------------------------------------------------------------------
Class B (384,968) (73,438)
- -----------------------------------------------------------------------------------------------
Class C (74,953) (27,624)
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (29,365) --
- -----------------------------------------------------------------------------------------------
Class B (47,673) --
- -----------------------------------------------------------------------------------------------
Class C (8,494) --
- -----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 9,233,554 9,251,803
- -----------------------------------------------------------------------------------------------
Class B 16,289,788 14,591,873
- -----------------------------------------------------------------------------------------------
Class C 4,159,579 3,012,998
===============================================================================================
Net increase in net assets 30,478,741 27,047,692
===============================================================================================
NET ASSETS:
Beginning of period 27,047,692 --
===============================================================================================
End of period $57,526,433 $27,047,692
_______________________________________________________________________________________________
===============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $56,510,484 $26,827,563
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (129,210) (1,218)
- -----------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 97,661 78,825
- -----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,047,498 142,522
===============================================================================================
$57,526,433 $27,047,692
_______________________________________________________________________________________________
===============================================================================================
</Table>
See Notes to Financial Statements.
FS-186
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Total Return Bond Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate portfolios, each having an unlimited number of shares of beneficial
interest. Matters affecting each portfolio or class will be 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 the Fund.
The Fund's investment objective is to achieve maximum total return
consistent with preservation of capital. In the Schedule of Investments each
company is organized in the United States unless otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. 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. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
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 the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at a
later date at an agreed upon price. The mortgage-backed securities that are
repurchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for the
Fund exceeding the yield on the security sold. The Fund will segregate
assets to cover its
FS-187
obligations under dollar roll transactions. The difference between the
selling price and the future repurchase price is recorded as an adjustment
to interest income.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
E. 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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
F. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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 an annual rate of 0.50% on the first
$500 million of the Fund's average daily net assets, plus 0.45% on the next $500
million of the Fund's average daily net assets, plus 0.40% on the Fund's average
daily net assets in excess of $1 billion. A I M Distributors, Inc. ("AIM
Distributors") has contractually agreed to waive 0.10% of Rule 12b-1 plan fees
of Class A shares. Further, AIM has contractually agreed to waive advisory fees
and/or reimburse expenses for Class A, Class B and Class C shares to the extent
necessary to limit total annual operating expenses of Class A shares to 1.25%
and has voluntarily agreed to waive advisory fees and/or reimburse expenses of
Class A, Class B and Class C shares to the extent necessary to limit total
annual operating expenses of Class A shares to 1.00%. The expense limitations
exclude interest, taxes, dividends on short sales, extraordinary items and
increases in expenses to due to expense offset arrangements, if any. Voluntary
fee waivers or reimbursements may be rescinded at any time without further
notice to investors. During periods of voluntary fee waivers or reimbursements,
to the extent that the annualized expense ratio does not exceed the contractual
expense limit for the period committed, AIM will retain its ability to be
reimbursed for such fee waivers or reimbursements prior to the end of each
fiscal year. To the extent that the annualized expense ratio does not exceed the
contractual expense limitation AIM will retain their ability to be reimbursed
for such fee waivers or reimbursements prior to the end of each committed
period. Further, AIM has voluntarily agreed to waive advisory fees of the Fund
in the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds in which the Fund has invested. For the six months ended January
31, 2003, AIM Distributors waived $7,287 and AIM waived fees of $106,830 and
reimbursed expenses of $12,896.
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. For the six months ended January 31, 2003, AIM
was paid $25,206 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 and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $63,158 for such services.
The Trust has entered into a master distribution agreement with AIM
Distributors to serve as the distributor for the Class A, Class B and Class C
shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the
1940 Act with respect to the Fund's Class A shares, Class B shares and Class C
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays AIM
Distributors compensation at the annual rate of 0.35% of the Fund's average
daily net assets of Class A shares and 1.00% of the average daily net assets of
Class B and Class C 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 under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the six months
ended January 31, 2003, the Class A, Class B and Class C shares paid $18,217,
$117,748 and $23,044, respectively after waivers.
Front-end sales commissions and CDSCs are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
the six months ended January 31, 2003, AIM Distributors retained $23,262 in
front-end sales commissions from the sale of Class A shares and $0, $5 and $541
for Class A, Class B shares and Class C shares, respectively, for CDSCs imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended January 31, 2003, the Fund paid $1,761 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
FS-188
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $320 and reductions in
custodian fees of $10 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $330.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the six months ended January
31, 2003, the Fund did not borrow under the line of credit agreement. The funds
which are party 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
the funds based on their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
As of January 31, 2003, permanent reclassifications for paydown gains
(losses) amounted to $92,078, which may be more or less than the permanent
reclassifications for paydown gains (losses) at fiscal year-end.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $61,838,755 and $31,463,657, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $1,128,388
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (80,890)
===========================================================
Net unrealized appreciation of investment
securities $1,047,498
___________________________________________________________
===========================================================
Investments have the same costs for tax and financial
statement purposes.
</Table>
FS-189
NOTE 8--SHARE INFORMATION
The Fund currently offers multiple classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge ("CDSC"). Under some circumstances, Class A shares are subject to
CDSC charges. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
Changes in the shares outstanding during the six months ended January 31, 2003
and the period ended December 31, 2001 (date operations commenced) through July
31, 2002 were as follows:
<Table>
<Caption>
DECEMBER 31, 2001
(DATE OPERATIONS
SIX MONTHS ENDED COMMENCED)
JANUARY 31, TO JULY 31,
2003 2002
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,509,168 $15,576,252 992,436 $10,034,790
- ------------------------------------------------------------------------------------------------------------------
Class B 2,104,023 21,739,279 1,538,451 15,590,664
- ------------------------------------------------------------------------------------------------------------------
Class C 654,516 6,765,178 385,449 3,888,452
==================================================================================================================
Issued as reinvestment of dividends:
Class A 28,751 297,822 7,294 73,755
- ------------------------------------------------------------------------------------------------------------------
Class B 35,535 368,121 6,117 61,932
- ------------------------------------------------------------------------------------------------------------------
Class C 7,463 77,326 2,532 25,581
==================================================================================================================
Conversion of Class B shares to Class A shares:
Class A 15,104 156,572 -- --
- ------------------------------------------------------------------------------------------------------------------
Class B (15,088) (156,572) -- --
==================================================================================================================
Reacquired:
Class A (661,750) (6,797,092) (84,762) (856,742)
- ------------------------------------------------------------------------------------------------------------------
Class B (550,320) (5,661,040) (104,448) (1,060,723)
- ------------------------------------------------------------------------------------------------------------------
Class C (260,315) (2,682,925) (89,221) (901,035)
==================================================================================================================
2,867,087 $29,682,921 2,653,848 $26,856,674
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
FS-190
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2003 2002
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.19 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18(a) 0.18(a)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.28 0.23
=================================================================================================
Total from investment operations 0.46 0.41
=================================================================================================
Less distributions:
Dividends from net investment income (0.21) (0.22)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
=================================================================================================
Total distributions (0.23) (0.22)
=================================================================================================
Net asset value, end of period $ 10.42 $10.19
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 4.53% 4.09%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,821 $9,325
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.00%(c) 1.00%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.66%(c) 3.21%(d)
=================================================================================================
Ratio of net investment income to average net assets 3.41%(c) 3.10%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 78% 215%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$14,455,031.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-191
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2003 2002
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.19 $ 10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.14(a)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.28 0.22
=================================================================================================
Total from investment operations 0.42 0.36
=================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.17)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
=================================================================================================
Total distributions (0.19) (0.17)
=================================================================================================
Net asset value, end of period $ 10.42 $ 10.19
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 4.14% 3.65%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $31,407 $14,678
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.75%(c) 1.75%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.31%(c) 3.86%(d)
=================================================================================================
Ratio of net investment income to average net assets 2.66%(c) 2.35%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 78% 215%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$23,357,504.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-192
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------
DECEMBER 31, 2001
SIX MONTHS (DATE OPERATIONS
ENDED COMMENCED) TO
JANUARY 31, JULY 31,
2003 2002
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.19 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.14(a)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.28 0.22
=================================================================================================
Total from investment operations 0.42 0.36
=================================================================================================
Less distributions:
Dividends from net investment income (0.17) (0.17)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.02) --
=================================================================================================
Total distributions (0.19) (0.17)
=================================================================================================
Net asset value, end of period $10.42 $10.19
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 4.14% 3.65%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,298 $3,045
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.75%(c) 1.75%(d)
- -------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.31%(c) 3.86%(d)
=================================================================================================
Ratio of net investment income to average net assets 2.66%(c) 2.35%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 78% 215%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$4,571,255.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-193
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
BONDS & NOTES-42.45%
AEROSPACE & DEFENSE-0.60%
Lockheed Martin Corp., Unsec. Gtd. Unsub.
Notes, 7.25%, 05/15/06 $ 650,000 $ 731,425
=========================================================================
AUTOMOBILE MANUFACTURERS-0.74%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 900,000 907,614
=========================================================================
BANKS-7.48%
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/01/05 1,400,000 1,568,182
- -------------------------------------------------------------------------
Bankers Trust Corp., Unsec. Sub. Notes,
8.25%, 05/01/05 1,200,000 1,349,652
- -------------------------------------------------------------------------
Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06 400,000 452,300
- -------------------------------------------------------------------------
Citicorp,
Jr. Unsec. Sub. Notes, 6.38%, 01/15/06 100,000 107,872
- -------------------------------------------------------------------------
Sub. Global Notes, 6.75%, 08/15/05 500,000 550,075
- -------------------------------------------------------------------------
Unsec. Sub. Notes, 7.13%, 09/01/05 1,000,000 1,115,320
- -------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee Notes,
6.38%, 06/15/08 (Acquired 08/30/02; Cost
$53,673)(a) 50,000 53,531
- -------------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 900,000 1,078,803
- -------------------------------------------------------------------------
JPMorgan Chase Bank, Sub. Notes, 7.00%,
06/01/05 1,000,000 1,086,900
- -------------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%,
07/15/04 (Acquired 12/04/02; Cost
$1,046,330)(a) 1,000,000 1,049,840
- -------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 250,000 271,725
- -------------------------------------------------------------------------
Union Planters Bank N.A., Unsec. Putable Sub.
Notes, 6.50%, 03/15/08 350,000 389,812
- -------------------------------------------------------------------------
Wachovia Corp., Unsec. Sub. Notes, 6.80%,
06/01/05 50,000 55,001
=========================================================================
9,129,013
=========================================================================
BROADCASTING & CABLE TV-6.78%
Clear Channel Communications, Inc., Sr.
Unsec. Notes, 7.25%, 09/15/03 500,000 513,755
- -------------------------------------------------------------------------
Cox Communications, Inc., Unsec, Notes,
7.50%, 08/15/04 2,000,000 2,127,160
- -------------------------------------------------------------------------
Jones Intercable, Inc., Sr. Unsec. Notes,
8.88%, 04/01/07 900,000 957,519
- -------------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 1,337,000 1,447,411
- -------------------------------------------------------------------------
Sr. Notes, 8.65%, 09/15/04 2,000,000 2,142,500
- -------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05 15,000 16,144
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
BROADCASTING & CABLE TV-(CONTINUED)
Time Warner Inc., Unsec. Notes, 7.75%,
06/15/05 $ 1,000,000 $ 1,066,670
=========================================================================
8,271,159
=========================================================================
CONSUMER FINANCE-4.63%
CitiFinancial Credit Co., Unsec. Notes,
6.50%, 06/01/05 1,000,000 1,086,510
- -------------------------------------------------------------------------
Countrywide Home Loans, Inc.,
Series K, Medium Term Global Notes, 3.50%,
12/19/05 1,000,000 1,008,410
- -------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 6.85%, 06/15/04 575,000 608,022
- -------------------------------------------------------------------------
Ford Motor Credit Co., Unsec. Global Notes,
6.70%, 07/16/04 150,000 154,275
- -------------------------------------------------------------------------
General Motors Acceptance Corp.,
Medium Term Notes, 5.25%, 05/16/05 1,000,000 1,016,110
- -------------------------------------------------------------------------
Unsec. Unsub. Notes, 7.63%, 06/15/04 125,000 131,895
- -------------------------------------------------------------------------
Household Finance Corp., Sr. Unsec. Global
Notes,
- -------------------------------------------------------------------------
8.00%, 05/09/05 1,400,000 1,534,666
- -------------------------------------------------------------------------
6.50%, 01/24/06 100,000 107,409
=========================================================================
5,647,297
=========================================================================
DIVERSIFIED FINANCIAL SERVICES-13.17%
American General Finance Corp., Sr. Notes,
6.75%, 11/15/04 300,000 321,975
- -------------------------------------------------------------------------
ASIF Global Financing XX, Sec. Notes, 2.65%,
01/17/06 (Acquired 01/08/03; Cost
$698,894)(a) 700,000 699,174
- -------------------------------------------------------------------------
Capital One Bank-Series 4, Sr. Global Notes,
6.50%, 07/30/04 2,100,000 2,093,175
- -------------------------------------------------------------------------
CIT Group Inc., Sr. Global Floating Rate
Medium Term Notes, 2.60%, 11/25/03(b) 600,000 600,378
- -------------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 6.80%, 11/01/05 1,750,000 1,942,710
- -------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), Global
Bonds, 7.63%, 08/17/05 75,000 84,046
- -------------------------------------------------------------------------
Heller Financial, Inc., Sr. Unsec. Global
Notes, 8.00%, 06/15/05 1,750,000 1,966,247
- -------------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Notes,
8.75%, 03/15/05 175,000 196,577
- -------------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 125,000 147,709
- -------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 700,000 785,141
- -------------------------------------------------------------------------
Merrill Lynch & Co., Inc.,
Series B, Medium Term Notes, 4.54%,
03/08/05 250,000 259,430
- -------------------------------------------------------------------------
Series E, Medium Term Floating Rate Euro
Notes, 1.62%, 06/28/04(b) 400,000 401,009
- -------------------------------------------------------------------------
</Table>
FS-194
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Morgan Stanley,
Sr. Global Notes, 7.75%, 06/15/05 $ 1,050,000 $ 1,171,548
- -------------------------------------------------------------------------
Unsec. Notes, 6.30%, 01/15/06 300,000 324,126
- -------------------------------------------------------------------------
Salomon Smith Barney Holdings Inc., Sr.
Unsec. Notes, 6.25%, 06/15/05 125,000 135,001
- -------------------------------------------------------------------------
USL Capital Corp., Sr. Global Notes, 5.95%,
10/15/03 1,535,000 1,572,393
- -------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 2,500,000 2,821,075
- -------------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes,
6.13%, 02/15/06 500,000 541,635
=========================================================================
16,063,349
=========================================================================
ELECTRIC UTILITIES-0.09%
Niagara Mohawk Power Corp., First Mortgage
Notes, 8.00%, 06/01/04(c) 100,000 106,433
=========================================================================
GENERAL MERCHANDISE STORES-0.56%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 600,000 677,226
=========================================================================
INTEGRATED OIL & GAS-1.18%
Conoco Inc., Sr. Unsec. Global Notes, 5.90%,
04/15/04 575,000 602,864
- -------------------------------------------------------------------------
ConocoPhillips, Unsec. Global Notes, 8.50%,
05/25/05 75,000 85,022
- -------------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 700,000 753,242
=========================================================================
1,441,128
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.83%
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 300,000 325,806
- -------------------------------------------------------------------------
Sprint Capital Corp.,
Gtd. Global Notes, 5.88%, 05/01/04 1,375,000 1,349,219
- -------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes,
5.70%, 11/15/03 1,769,000 1,762,366
- -------------------------------------------------------------------------
7.13%, 01/30/06 15,000 14,269
=========================================================================
3,451,660
=========================================================================
LIFE & HEALTH INSURANCE-1.15%
American General Corp., Unsec. Notes, 7.75%,
04/01/05 750,000 833,340
- -------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 500,000 572,780
=========================================================================
1,406,120
=========================================================================
MOVIES & ENTERTAINMENT-0.89%
AOL Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 750,000 778,702
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
MOVIES & ENTERTAINMENT-(CONTINUED)
Walt Disney Co. (The), Medium Term Notes,
5.25%, 11/10/03 $ 300,000 $ 307,200
=========================================================================
1,085,902
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.52%
Amerada Hess Corp., Unsec. Notes, 5.30%,
08/15/04 550,000 573,771
- -------------------------------------------------------------------------
Norcen Energy Resources Ltd. (Canada), Unsec.
Yankee Deb., 7.38%, 05/15/06 50,000 56,735
=========================================================================
630,506
=========================================================================
PROPERTY & CASUALTY INSURANCE-0.07%
Allstate Corp. (The), Sr. Unsec. Notes,
7.88%, 05/01/05 75,000 83,873
=========================================================================
REAL ESTATE-1.58%
EOP Operating L.P.,
Sr. Unsec. Notes, 6.50%, 06/15/04 1,200,000 1,250,155
- -------------------------------------------------------------------------
Unsec. Notes, 6.50%, 01/15/04 400,000 413,608
- -------------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub.
Notes, 6.80%, 05/01/04 250,000 261,478
=========================================================================
1,925,241
=========================================================================
SOFT DRINKS-0.11%
Coca-Cola Enterprises Inc., Putable Notes,
8.00%, 01/04/04 125,000 138,135
=========================================================================
SOVEREIGN DEBT-0.07%
Japan Bank for International Cooperation
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05 75,000 82,629
=========================================================================
Total Bonds & Notes (Cost $51,379,317) 51,778,710
=========================================================================
ASSET-BACKED SECURITY-0.73%
DIVERSIFIED FINANCIAL SERVICES-0.73%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
10/03/02; Cost $878,515)(a) (Cost $870,704) 811,262 887,812
=========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-45.93%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-12.89%
Pass Through Ctfs.,
8.00%, 11/20/12 1,934,823 2,075,427
- -------------------------------------------------------------------------
7.50%, 06/01/16 to 07/01/24 1,187,537 1,276,384
- -------------------------------------------------------------------------
7.00%, 12/01/16 to 10/25/24 2,825,929 3,007,707
- -------------------------------------------------------------------------
8.50%, 02/01/19 to 08/17/26 8,500,875 9,365,354
=========================================================================
15,724,872
=========================================================================
</Table>
FS-195
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-21.95%
Pass Through Ctfs.,
7.50%, 02/01/15 to 01/01/21 $ 4,632,883 $ 4,950,235
- -------------------------------------------------------------------------
7.00%, 04/01/15 to 09/01/31 12,469,220 13,241,584
- -------------------------------------------------------------------------
8.00%, 12/01/26 to 08/01/32 7,923,011 8,585,105
=========================================================================
26,776,924
=========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-11.09%
Pass Through Ctfs.,
7.00%, 08/15/17 to 06/15/32 5,940,213 6,330,933
- -------------------------------------------------------------------------
7.50%, 06/15/23 to 02/15/28 6,676,779 7,189,389
=========================================================================
13,520,322
=========================================================================
Total U.S. Government Agency Securities
(Cost $55,712,897) 56,022,118
=========================================================================
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
U.S. TREASURY NOTES-7.83%
2.88%, 06/30/04 $ 5,850,000 $ 5,966,064
- -------------------------------------------------------------------------
4.63%, 05/15/06 3,350,000 3,588,152
=========================================================================
9,554,216
=========================================================================
Total U.S. Treasury Notes (Cost
$9,542,459) 9,554,216
=========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-3.32%
STIC Liquid Assets Portfolio(d) 2,028,263 2,028,263
- -------------------------------------------------------------------------
STIC Prime Portfolio(d) 2,028,263 2,028,263
=========================================================================
Total Money Market Funds (Cost
$4,056,526) 4,056,526
=========================================================================
TOTAL INVESTMENTS-100.26% (Cost $121,561,903) 122,299,382
=========================================================================
OTHER ASSETS LESS LIABILITIES-(0.26%) (317,553)
=========================================================================
NET ASSETS-100.00% $121,981,829
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Gtd. - Guaranteed
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 01/31/03 was $2,690,357,
which represented 2.21% of the Fund's net assets. These securities are
considered to be illiquid.
(b) Interest rates are redetermined monthly. Rate shown is the rate in effect on
01/31/03.
(c) Principal and interest are secured by bond insurance provided by Financial
Security Assurance.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-196
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$121,561,903) $122,299,382
- -----------------------------------------------------------
Receivables for:
Investments sold 131,726
- -----------------------------------------------------------
Fund shares sold 7,283,391
- -----------------------------------------------------------
Dividends and interest 1,234,792
- -----------------------------------------------------------
Investment for deferred compensation plan 1,231
- -----------------------------------------------------------
Other assets 29,099
===========================================================
Total assets 130,979,621
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 7,873,269
- -----------------------------------------------------------
Fund shares reacquired 1,045,669
- -----------------------------------------------------------
Dividends 30,377
- -----------------------------------------------------------
Deferred compensation plan 1,231
- -----------------------------------------------------------
Accrued distribution fees 9,393
- -----------------------------------------------------------
Accrued trustees' fees 844
- -----------------------------------------------------------
Accrued transfer agent fees 3,083
- -----------------------------------------------------------
Accrued operating expenses 33,926
===========================================================
Total liabilities 8,997,792
===========================================================
Net assets applicable to shares outstanding $121,981,829
___________________________________________________________
===========================================================
CLASS C:
Shares outstanding, $0.01 par value per
share 12,147,476
===========================================================
Net asset value and offering price per
share $ 10.04
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the period August 30, 2002 (date operations commenced) through January 31,
2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 551,534
- ----------------------------------------------------------
Dividends from affiliated money market funds 36,942
==========================================================
Total investment income 588,476
==========================================================
EXPENSES:
Advisory fees 110,703
- ----------------------------------------------------------
Administrative services fees 21,096
- ----------------------------------------------------------
Custodian fees 8,411
- ----------------------------------------------------------
Distribution fees 276,757
- ----------------------------------------------------------
Transfer agent fees 13,177
- ----------------------------------------------------------
Trustees' fees 4,983
- ----------------------------------------------------------
Other 57,530
==========================================================
Total expenses 492,657
==========================================================
Less: Fees waived (160,951)
- ----------------------------------------------------------
Expenses paid indirectly (610)
==========================================================
Net expenses 331,096
==========================================================
Net investment income 257,380
==========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (13,708)
==========================================================
Change in net unrealized appreciation of
investment securities 737,479
==========================================================
Net gain from investment securities 723,771
==========================================================
Net increase in net assets resulting from
operations $ 981,151
__________________________________________________________
==========================================================
</Table>
See Notes to Financial Statements.
FS-197
STATEMENT OF CHANGES IN NET ASSETS
For the period August 30, 2002 (date operations commenced) through January 31,
2003
(Unaudited)
<Table>
<Caption>
JANUARY 31,
2003
- ----------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 257,380
- ----------------------------------------------------------------------------
Net realized gain (loss) from investment securities (13,708)
- ----------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 737,479
============================================================================
Net increase in net assets resulting from operations 981,151
============================================================================
Distributions to shareholders from net investment
income-Class C (769,668)
- ----------------------------------------------------------------------------
Share transactions-net-Class C 121,770,346
============================================================================
Net increase in net assets 121,981,829
============================================================================
NET ASSETS:
Beginning of period --
============================================================================
End of period $121,981,829
____________________________________________________________________________
============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $121,770,346
- ----------------------------------------------------------------------------
Undistributed net investment income (512,288)
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (13,708)
- ----------------------------------------------------------------------------
Unrealized appreciation of investment securities 737,479
============================================================================
$121,981,829
____________________________________________________________________________
============================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Short Term Bond Fund (the "Fund") is a series portfolio of AIM Investment
Securities Funds (the "Trust"). The Trust is a Delaware statutory trust
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of nine
separate portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers one class of shares. The Fund commenced
operations on August 30, 2002. Matters affecting each portfolio will be voted on
exclusively by the shareholders of such portfolio. The assets, liabilities and
operations of each portfolio are accounted for separately. Information presented
in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current
income, consistent with the preservation of capital. In the Schedule of
Investments each company is organized in the United States unless otherwise
noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. 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, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in
FS-198
the case of debt obligations, the mean between the last bid and asked
prices. 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. Short-term obligations having 60 days
or less to maturity and commercial paper are valued at amortized cost which
approximates market value. For purposes of determining net asset value per
share, futures and option contracts generally will be valued 15 minutes
after the close of the customary trading session of the New York Stock
Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
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 the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- 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 on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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 gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust 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
0.40% of the Fund's average daily net assets. AIM has contractually agreed to
waive and/or reimburse expenses (excluding interest, taxes, dividends on short
sales, extraordinary items and increases in expenses due to expense offset
arrangements, if any) of Class C shares to the extent necessary to limit the
total annual fund operating expenses of Class C to 1.20%. To the extent that the
annualized expense ratio does not exceed the contractual expense limitation AIM
will retain the ability to be reimbursed for such fee waivers or reimbursements
prior to the end of the each committed period. Further, AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds in which the Fund has
invested. For the period August 30, 2002 (date operations commenced) through
January 31, 2003, AIM waived fees of $50,248.
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. For the period August 30, 2002 (date operations
commenced) through January 31, 2003, AIM was paid $21,096 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 and
shareholder services to the Fund. During the period August 30, 2002 (date
operations commenced) through January 31, 2003, AFS retained $7,416 for such
services.
The Trust 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 Fund, pursuant to the Plans, pays
AIM Distributors compensation at the annual rate of 1.00% of the Fund's average
daily net assets of Class C shares. Of these amounts, the Fund may pay a service
fee of 0.25% of the average daily net assets of the 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 under the Plans would
constitute an asset-based sales charge. NASD Rules also impose a cap on the
total sales charges, including asset-based sales charges that may be paid by the
Fund. AIM Distributors has contractually agreed to waive 0.40% of the Rule 12b-1
plan fees on Class C shares. Pursuant to the Plans, for the period August 30,
2002 (date operations commenced) through January 31, 2003 the Class C shares
paid AIM Distributors $166,054 after plan fees waived by AIM Distributors of
$110,703.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the period August 30, 2002 (date operations commenced) through
January 31, 2003, the Fund paid legal fees of $795 for services rendered by
Kramer, Levin, Naftalis & Frankel LLP as counsel to the Board of Trustees. A
member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the period August 30, 2002 (date operations commenced) through January 31,
2003, the Fund received reductions in transfer agency fees from AFS (an
affiliate of AIM) of $322 and reductions in custodian fees of $288 under expense
offset arrangements which resulted in a reduction of the Fund's total expenses
of $610.
FS-199
APPENDIX II
MAY 31, 2003
ANNUAL REPORT
INVESCO MONEY MARKET FUNDS, INC.
CASH RESERVES FUND
TAX-FREE MONEY FUND
U.S. GOVERNMENT MONEY FUND
"IN JUNE, THE FED LOWERED THE FEDERAL FUNDS TARGET RATE 25 BASIS POINTS TO A
53-YEAR LOW OF 1%."
SEE PAGE 5
[INVESCO ICON] INVESCO(R)
FELLOW SHAREHOLDER:
[PHOTOGRAPH OF RAYMOND R. CUNNINGHAM OMITTED]
A HAVEN AND SMART CASH MANAGEMENT TOOL IN ONE
The recent period of market volatility has provided challenges for every
investor. Yet it is this kind of environment that underscores the value of
investing at least a portion of your portfolio in money market funds, which
provide both a short-term savings vehicle and a haven against market volatility.
I'd like to reiterate our approach to money market management by providing some
insight into our different investment alternatives.
o CASH RESERVES FUND provides competitive current yields from a diversified
portfolio of short-term obligations, as well as convenient access to your
money through free check writing. (Checks subject to a minimum amount of
$500.)
o TAX-FREE MONEY FUND helps you shelter earnings from federal taxes by
investing in the debt obligations of states and municipalities. (Income may
be subject to state and local taxes, as well as the federal Alternative
Minimum Tax.)
o U.S. GOVERNMENT MONEY FUND is designed for investors who are primarily
concerned with safeguarding their principal, and invests in securities
backed by the federal government and its agencies. This fund offers the
highest credit quality of all INVESCO money market alternatives.
o TREASURER'S MONEY MARKET RESERVE FUND and TREASURER'S TAX-EXEMPT RESERVE
FUND provide potentially low-cost, higher-yield money market options for
institutions and individuals with more than $100,000 to invest ($1 million
as of July 1, 2003, for new investors). The expense ratio of the two
Treasurer's Funds is fixed at 0.25%, which is extremely competitive.
(Treasurer's Tax-Exempt Reserve Fund income may be subject to state and
local taxes, as well as the federal Alternative Minimum Tax.)
Remember, money market funds are not insured or guaranteed by the federal
government, Federal Deposit Insurance Corporation or any other government
agency. And while the funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the funds.
Nonetheless, we believe these funds provide investors with a low-risk and
increasingly convenient cash management tool that offers both flexibility and
protection against market volatility.
Sincerely,
/s/Ray Cunningham
Ray Cunningham
President and CEO, INVESCO Funds Group, Inc.
"WHILE THE ECONOMY IS BEING STIMULATED ON MANY FRONT, IT REMAINS UP TO THE
CORPORATE SECTOR TO START SPENDING AND HIRING BEFORE A SOLID ECONOMIC RECOVERY
CAN OCCUR."
- - SEE PAGE 5
TABLE OF CONTENTS
LETTER FROM THE PRESIDENT & CEO........... 1
MARKET HEADLINES.......................... 3
AN INTERVIEW WITH LYMAN MISSIMER.......... 4
INVESTMENT HOLDINGS....................... 6
FINANCIAL STATEMENTS......................14
NOTES TO FINANCIAL STATEMENTS.............21
FINANCIAL HIGHLIGHTS......................25
OTHER INFORMATION.........................31
FOR THE LATEST YIELD INFORMATION, CALL US AT 1-800-525-8085 OR VISIT OUR WEB
SITE AT INVESCOFUNDS.COM.
INVESCO MUTUAL FUNDS PROXY VOTING POLICY
The Boards of Directors of the INVESCO Mutual Funds have expressly delegated to
INVESCO Funds Group, Inc. ("INVESCO") the responsibility to vote proxies related
to the securities held in the funds' portfolios. Under this authority, INVESCO
is required by the Boards of Directors to act solely in the interests of
shareholders of the funds. Other INVESCO clients who have delegated proxy voting
authority to INVESCO similarly require that proxy votes be cast in the best
interests of the clients.
On behalf of the funds and its other clients, INVESCO acquires and holds a
company's securities in the portfolios it manages in the expectation that they
will be a good investment and appreciate in value. As such, INVESCO votes
proxies with a focus on the investment implications of each matter upon which a
vote is solicited.
A copy of the description of the funds' proxy voting policy and procedures, as
administered by INVESCO, is available without charge by calling 1-800-525-8085.
It is also available on the Web site of the Securities and Exchange Commission,
at www.sec.gov, and on the funds' Web site, invescofunds.com.
MARKET HEADLINES
"...INVESTORS FLOCKED TO INVESTMENTS WITH DEFENSIVE REPUTATIONS."
MARKET OVERVIEW:
JUNE 2002 THROUGH MAY 2003
After two years of declines in the stock market, investors had hoped to see an
improvement through 2002 and into 2003. Instead, the market continued downward,
with the major stock indexes registering losses for the 12-month period ended
May 31, 2003.
There were a number of factors responsible for the year's decline. First, a
series of corporate accounting scandals dominated the news well into summer
2002, tainting investors' perceptions of the market. Talk of Enron's collapse
lingered -- and new scandals surrounding companies such as WorldCom Inc, Tyco
International Ltd, and HealthSouth Corp followed. Furthermore, geopolitical
uncertainty persisted throughout the year to varying degrees as threats of
terrorist attacks, a nuclear standoff between India and Pakistan, speculation
regarding the U.S.'s intentions toward Iraq, and North Korea's refusal to obey a
1994 arms agreement all clouded the landscape. In addition, oil prices surged,
as inventories were pressured by strikes in Venezuela, violence in Nigeria, and
concerns over a potential war with Iraq.
In addition, a generally weak economy and disappointing corporate earnings were
ongoing stories. Although a few rallies were ignited by hopes that a recovery
might be forthcoming -- most notably, a two-month surge that began on October
10, 2002, a week-long rally during the first days of January 2003, and a
mini-rebound in mid-March on the heels of the long-awaited start to the war in
Iraq -- they could not be sustained in such an uncertain environment.
Meanwhile, investors flocked to investments with defensive reputations.
Fixed-income securities advanced, benefiting from the flight-to-quality trend as
well as the Federal Reserve's decision to leave interest rates unchanged until
November, when a surprisingly steep 50-basis-point cut was implemented. Gold
stocks and real estate investment trusts were other top performers. Conversely,
high-growth sectors, including technology and telecommunications, declined.
As the fiscal period came to a close, investors seemed to be growing
increasingly optimistic. For one, quick success by the American-led coalition in
the liberation of Iraq muted one source of uncertainty. Additionally, investors
were encouraged by the economic rebound in the weeks following the war, during
which consumer confidence and manufacturing activity improved.
To be sure, risks remained. However, the end of the fiscal year saw investors
focusing on the positive rather than worrying about potential negatives. For
example, the dollar's slide versus the euro could have stirred concerns that
foreign investors might sell dollar-denominated assets. Instead, investors
pointed to the potentially stimulative effects that the weak dollar might have
on exports and manufacturing. Investors' newfound optimism was also reflected in
the market's technical profile at period-end, which saw trading volume spike
higher during rallies, while dropping as stocks slid, reflecting an overall
desire on the part of investors to buy stocks.
While we don't believe equity markets are necessarily out of the woods yet, the
economic progress made since the resolution of the war has made the outlook for
equities at the end of May 2003 brighter than it was this time last year. For
this recovery to find its legs, investors and consumers will likely need to see
a sustained upturn in the employment market before the bear market is officially
pronounced dead.
QUESTIONS & ANSWERS
AN INTERVIEW WITH FUND MANAGER LYMAN MISSIMER
[PHOTOGRAPH OF LYMAN MISSIMER OMITTED]
LYMAN MISSIMER, CFA
TEAM LEADER
VICE PRESIDENT LYMAN MISSIMER III LEADS A TEAM OF MANAGERS FOR THE FUND. HE
JOINED AIM CAPITAL MANAGEMENT, INC, WHICH IS THE SUB-ADVISOR FOR INVESCO'S MONEY
MARKET PORTFOLIOS, IN 1995 AND HAS MORE THAN 20 YEARS OF INVESTING EXPERIENCE.
LYMAN EARNED HIS BACHELOR'S DEGREE FROM DARTMOUTH COLLEGE AND AN M.B.A. FROM THE
UNIVERSITY OF CHICAGO GRADUATE SCHOOL OF BUSINESS. HE IS A CHARTERED FINANCIAL
ANALYST CHARTERHOLDER AND A MEMBER OF THE ASSOCIATION OF INVESTMENT MANAGEMENT
RESEARCH.
SPUTTERING RECOVERY MAY LEAD TO LOWER RATES
WHAT CONDITIONS AND EVENTS INFLUENCED MONEY MARKET PERFORMANCE DURING THE PAST
YEAR?
LYMAN MISSIMER: The past year was a tumultuous one for the markets beginning
with corporate scandals, volatile oil and stock market prices, turmoil in the
Middle East, a war with Iraq, the SARS scare, continuing terrorist threats, and
talk of deflation from the Federal Reserve.
The year started with the federal funds target already at an extremely
stimulative 40-year low of 1.75%. But many market participants believed that the
Fed would soon raise rates to bring the target up to a more neutral level.
However, the economy, which had been fairly robust early in 2002, began to slow
and the Fed changed the balance of risks to a better chance of a weakening
economy in August. Expectations for lower rates were fueled further when two
federal open market committee (FOMC) members dissented from the majority and
voted to lower rates. Typically, the FOMC, which is the active arm of the Fed,
presents a unified front to the public, so the dissension was an unusual
occurrence.
As it appeared that fourth quarter growth would slow considerably and
geopolitical uncertainties were starting to increase, the Fed decided to lower
rates by 50 basis points in November 2002. This was the twelfth rate decrease
since January of 2001 and brought the federal funds target rate to 1.25%, the
lowest level since the 1950s.
As the New Year began, the markets focused on Iraq and whether Saddam Hussein
would allow full and complete searches for weapons of mass destruction by the
U.N. weapons inspection team. Oil prices surged as instability in Venezuela and
uncertainty in Iraq had investors considering the potential for a large drop in
oil supplies. This led to further concerns over the health of the U.S. economy.
March was a historic month as the U.S.-led coalition invaded Iraq to remove the
ruthless dictator and his alleged weapons of mass destruction. Once the war
began and it became apparent that the U.S. and its allies would be successful,
the markets looked for a post-war bounce from the stock market and the economy.
Meanwhile, Fed Chairman Alan Greenspan announced to Congress in May that the
risks for disinflation were now greater than the risks for inflation. As a
result, the fixed-income markets assumed that there would be no pre-emptive
tightening in the near future, and the Treasury yield curve flattened, as
10-year yields dropped to 40-year lows of about 3.30%.
"DURING THE PERIOD, THE CORPORATE CREDIT SITUATION CONTINUED TO BE SHAKY, AND WE
EMPHASIZED MAINTAINING HIGH CREDIT QUALITY ACROSS ALL PORTFOLIOS."
Market participants are still debating whether the economy will show a post-war
bounce, whether the Federal Reserve will continue to lower short-term rates, or
whether they will have to resort to unconventional measures, such as buying
longer-term securities to help stimulate the economy.
WHAT IS YOUR CURRENT STRATEGY AND HOW HAVE SPECIFIC DECISIONS INFLUENCED THE
PORTFOLIOS' PERFORMANCE?
LYMAN MISSIMER: At the beginning of the period, the markets were expecting that
the next move from the Fed would be to increase short-term rates. In response,
we had shortened the funds' weighted average maturities (WAMs) to the 30-day
range. As the year progressed, however, it became apparent that the economy was
starting to struggle, and the yield curve flattened out. As that transition
unfolded, we extended the portfolios to lock in the higher yields.
The Fed reduced rates in November to 1.25%. From that time, our goal was to
maintain the portfolios' WAMs in the 40- to 50-day range. Since cash flows
generally remained volatile, we maintained this barbell strategy, with overnight
cash positions held at high levels to provide liquidity. During the period, the
corporate credit situation continued to be shaky, and we emphasized maintaining
high credit quality across all portfolios. As high-quality credits grew
increasingly rare and as spreads narrowed, we utilized more government-sponsored
agencies across the portfolios to extend out along the yield curve.
WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 2003?
LYMAN MISSIMER: As the second quarter came to a close, the U.S. economy
continued to struggle. Second quarter gross domestic product growth was expected
to be in the 1% to 2% range. Most analysts now expect growth to increase to the
3% to 4% range during the second half of 2003, but many uncertainties remain.
Low interest rates continue to stimulate the consumer and housing sectors, and
it appears that the corporate scandals are largely behind us. All major stock
markets have risen significantly since the end of the war. Hope is that the SARS
situation has been contained and that diplomacy will continue to progress
positively in the Middle East. This will help keep energy prices from rising.
The recently passed tax cut should further stimulate demand, and a declining
dollar should help increase U.S. exports and help push the U.S. manufacturing
sector out of a recession-like environment.
Although the Fed has discussed the potential for deflation, Chairman Greenspan
still maintains that it is a remote possibility. While the economy is being
stimulated on many fronts, it remains up to the corporate sector to start
spending and hiring before a solid economic recovery can occur.
HOW ARE YOU CURRENTLY POSITIONING THE PORTFOLIOS?
LYMAN MISSIMER: In June, the Fed lowered the federal funds target rate 25 basis
points to a 53-year low of 1%. The Fed's statement afterward was very similar to
its announcement after its May meeting, with risks to the economy being balanced
and concerns about disinflation rather than inflation. There is hope that this
will be the last short-term rate decrease in this cycle, but unless the economy
picks up, there is a risk of further rate reductions. In response, we have
extended the portfolios' WAMs into the 50- to 55-day range to lock in yields,
and we are looking to buy yields above the 1% target rate. Assuming that the
economy does start to look healthier, we expect the Fed may begin to raise rates
back up to a more neutral level sometime in 2004.
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO MONEY MARKET FUNDS, INC.
MAY 31, 2003
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
CASH RESERVES FUND
103.53 SHORT-TERM INVESTMENTS
26.90 US Government Agency Obligations
Federal Home Loan Bank, Bonds
4/21/2004 1.42 $ 5,000,000 $ 5,000,000
5/11/2004 1.38 10,000,000 10,000,000
6/4/2004 1.40 4,500,000 4,500,000
6/7/2004 1.30 13,000,000 13,000,000
Federal Home Loan Bank, 6/2/2003 1.28 100,000,000 99,996,500
Overseas Private Investment, Gtd Participation
Certificates, F/VR, Series 497-2002-333-IG(a)
6/15/2009 1.23 28,300,000 28,300,000
========================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Amortized Cost $160,796,500) 160,796,500
========================================================================================================
2.51 CORPORATE BONDS
2.51 ASSET-BACKED SECURITIES --
MULTI-PURPOSE
Beta Finance, Medium-Term Notes(b), 6/2/2003
(Amortized Cost $15,000,400) 1.61 15,000,000 15,000,400
========================================================================================================
42.59 COMMERCIAL PAPER
5.84 ASSET-BACKED SECURITIES --
COMMERCIAL LOANS & LEASES
Atlantis One Funding
8/27/2003 1.27 30,000,000 29,909,268
8/28/2003 1.23 5,000,000 4,985,205
========================================================================================================
34,894,473
4.18 ASSET-BACKED SECURITIES --
CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, 6/26/2003 1.29 25,000,000 24,977,861
========================================================================================================
17.54 ASSET-BACKED SECURITIES --
MULTI-PURPOSE
Asset Securitization, 6/3/2003 1.25 35,000,000 34,997,604
Charta Corp, 7/7/2003 1.25 30,000,000 29,963,033
Edison Asset Securitization LLC, 11/10/2003 1.21 20,000,000 19,892,843
Mont Blanc Capital, 6/9/2003 1.29 20,000,000 19,994,348
========================================================================================================
104,847,828
5.01 ASSET BACKED SECURITIES --
TRADE RECEIVABLES
Bills Securitisation Ltd, 6/10/2003 1.29 20,000,000 19,993,625
Eureka Securitization, 7/22/2003 1.28 10,000,000 9,982,125
========================================================================================================
29,975,750
5.01 BANKS
Wachovia Corp, 8/6/2003 1.30 30,000,000 29,929,868
========================================================================================================
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
1.66 CONSUMER FINANCE
General Electric Capital International
Funding, Series A, 10/20/2003 1.29 $ 10,000,000 $ 9,950,582
========================================================================================================
3.35 DIVERSIFIED FINANCIAL SERVICES
Morgan Stanley Dean Witter & Co
F/VR, 8/21/2003 1.46 20,000,000 20,000,000
========================================================================================================
TOTAL COMMERCIAL PAPER
(Amortized Cost $254,576,362) 254,576,362
========================================================================================================
2.07 ASSET-BACKED NOTES
0.40 FULLY BACKED
Capital One Auto Finance Trust, Notes
Series 2002-B, Class A1, 9/15/2003 1.76 2,411,784 2,411,784
========================================================================================================
1.67 RESIDENTIAL MORTGAGE LOANS
Holmes Financing PLC, Notes, F/VR, Series 1
Class A, 4/15/2004 1.27 10,000,000 10,000,000
========================================================================================================
TOTAL ASSET-BACKED NOTES
(Amortized Cost $12,411,784) 12,411,784
========================================================================================================
5.02 CERTIFICATES OF DEPOSIT -- BANKS
Credit Agricole Indosuez, 7/9/2003
(Cost $30,000,000) 1.23 30,000,000 30,000,000
========================================================================================================
5.69 PROMISSORY NOTES -- DIVERSIFIED
FINANCIAL SERVICES
Goldman Sachs Group, F/VR(e)
9/17/2003 1.51 14,000,000 14,000,000
10/2/2003 1.58 20,000,000 20,000,000
========================================================================================================
TOTAL PROMISSORY NOTES (Cost $34,000,000) 34,000,000
========================================================================================================
1.17 FUNDING AGREEMENTS --
LIFE & HEALTH INSURANCE
New York Life Insurance(e), 4/7/2004
(Cost $7,000,000) 1.38 7,000,000 7,000,000
========================================================================================================
17.58 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
5/30/2003 due 6/2/2003 at 1.260%, repurchased
at $105,123,227 (Collateralized by: Fannie Mae,
Bonds, due 3/24/2005 at 1.720%, value $48,459,333,
Fannie Mae, Notes, due 5/14/2003 at 1.450%,
value $47,996,332 and Federal Farm Credit Bank ,
Bonds, due 10/1/2003 at 3.125%, value $11,342,076)
(Cost $105,112,190) 105,112,190 105,112,190
========================================================================================================
103.53 TOTAL INVESTMENTS AT VALUE
(AMORTIZED COST $618,897,236)(c) 618,897,236
========================================================================================================
(3.53) OTHER ASSETS LESS LIABILITIES (21,113,102)
========================================================================================================
100.00 NET ASSETS AT VALUE $ 597,784,134
========================================================================================================
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
TAX-FREE MONEY FUND
101.23 SHORT-TERM INVESTMENTS
99.40 Municipal Notes(a)
4.88 ALABAMA
Birmingham Med Clinic Brd, Alabama
(LOC - AmSouth Bank), AR, Med Clinic Rev,
UAHSF Series 1991, 12/1/2026 1.35 $ 1,300,000 $ 1,300,000
========================================================================================================
5.86 FLORIDA
Lee Cnty School Brd, Florida (FSA Insured), FR,
Ctfs of Participation, Series 1993A, 8/1/2004 1.10 200,000 205,299
Seminole Cnty Indl Dev Auth, Florida (Florida Living
Nursing Ctr Proj) (LOC - Bank of America), VR,
Hlth Facil Rev, Series 1991, 2/1/2011 1.39 1,200,000 1,200,000
South Indian River Wtr Ctl Dist, Florida (Egret
Landing - Phase I), FR, Sect 15 Impt Bds,
Special Assmt, 11/1/2018 1.05 150,000 156,988
========================================================================================================
1,562,287
2.44 GEORGIA
Floyd Cnty Dev Auth, Georgia (Shorter College Proj)
(LOC - SunTrust Bank), AR, Rev, Series 1998,
6/1/2017 1.34 500,000 500,000
Newnan Hosp Auth, Georgia (Newnan Hosp Proj)
(MBIA Insured), FR, Rev Anticipation Ctfs,
Series 2002, 1/1/2004 1.29 150,000 151,051
========================================================================================================
651,051
9.70 ILLINOIS
Hoffman Estates, Illinois (Hoffman Estates
Econ Dev Proj Area) (AMBAC Insured), FR, Tax
Increment Rev Ref, Series 1997, 11/15/2003 1.11 250,000 254,426
Illinois Dev Fin Auth (6 West Hubbard Street Proj)
(LOC - LaSalle Natl Bank), F/FR, IDR,
Series 1986, 12/1/2016 1.25 765,000 765,000
Illinois Hlth Facils Auth (Blessing Hosp) (FSA
Insured), VRD, Rev, Series 1999B, 11/15/2029 1.20 200,000 200,000
Peoria, Illinois (Easter Seal Ctr Proj)
(LOC - Bank One), AR, Hlth Care Facil Rev,
Series 1997, 5/1/2007 1.30 1,050,000 1,050,000
Schillar Park School Dist #81, Illinois (Cook Cnty)
(FSA Insured), FR, School Ref, Series 2002A,
12/1/2003 1.63 115,000 115,210
School Dist #U-46, Illinois (Kane, Cook & DuPage
Cntys) (AMBAC Insured), FR, Gen Oblig
School Bds, Series 2003A, 1/1/2004 1.10 200,000 201,038
========================================================================================================
2,585,674
2.63 INDIANA
Newton Cnty, Indiana (Intec Group Proj)
(LOC - LaSalle Natl Bank), A/FR, Econ Dev Rev,
Series 1994, 9/1/2010 1.29 500,000 500,000
Purdue Univ Trustees, Indiana, FR, Purdue Univ
Student Fee, Rev, Series R, 7/1/2003 1.67 200,000 200,379
========================================================================================================
700,379
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
3.75 IOWA
Iowa Fin Auth (YMCA Proj) (LOC - Wells Fargo & Co),
VR, Econ Dev Rev, Series 2000, 6/1/2010 1.30 $ 1,000,000 $ 1,000,000
========================================================================================================
1.13 KANSAS
Unified Govt of Wyandotte Cnty/Kansas City, Kansas
(MBIA Insured), FR, Gen Oblig Impt,
Series 2002-A, 8/1/2003 1.50 300,000 300,247
========================================================================================================
0.94 KENTUCKY
Kentucky Asset/Liability Commn, FR,
Gen Fund, TRAN, 2002 Series A, 6/26/2003 1.67 250,000 250,184
========================================================================================================
6.69 MARYLAND
Frederick Cnty, Maryland (Buckingham's
Choice Facil) (LOC - Branch Banking & Trust),
EXTRAS, Retirement Cmnty Rev, Series 1997 C,
1/1/2027 1.25 1,500,000 1,500,000
Mayor & City Council of Baltimore, Maryland
(FGIC Insured), FR, Tax-Exempt
Gen Oblig Cons Pub Impt, Series A, 10/15/2003 1.08 275,000 281,442
========================================================================================================
1,781,442
1.92 MICHIGAN
Lowell, Michigan (Kent Cnty) (MBIA Insured), FR,
Elec Supply System Rev, Series 2002, 8/1/2003 1.50 130,000 130,322
Muskegon, Michigan (Muskegon Cnty), FR, Michigan
Transn Fund Ref, Series 2002, 6/1/2003 1.40 150,000 150,000
Ottawa Cnty, Michigan (Holland Area Sewage
Disp System), FR, Gen Oblig, Ottawa Cnty 2001
Ref, 6/1/2004 1.10 225,000 230,230
========================================================================================================
510,552
1.13 MONTANA
Havre, Montana (Safeway Inc Proj)
(LOC - Duetsche Bank), VR, IDR, Ref,
Series 1991, 6/1/2006 1.30 300,000 300,000
========================================================================================================
0.75 NEVADA
Clark Cnty School Dist, Nevada (FGIC Insured), FR,
Gen Oblig Bldg, Series July 1, 1999A, 6/15/2003 1.37 200,000 200,276
========================================================================================================
1.50 NEW JERSEY
Gloucester Cnty, New Jersey (FGIC Insured), FR,
Gen Oblig, Series 2001, 7/1/2003 1.45 400,000 400,991
========================================================================================================
4.20 NEW MEXICO
New Mexico Hosp Equip Ln Council
(Dialysis Clinic Proj) (LOC - SunTrust Bank),
AR, Rev, Series 2000, 7/1/2025 1.34 1,120,000 1,120,000
========================================================================================================
0.57 NEW YORK
Westchester Cnty, New York, FR, Gen Oblig,
Series 1991B, 9/15/2003 1.00 150,000 152,042
========================================================================================================
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
8.65 NORTH CAROLINA
Carolinas HlthCare System (North Carolina)
(Charlotte-Mecklenberg Hosp Auth), FR, Hlth
Care Rev, Series 2003A, 1/15/2004 1.15 $ 150,000 $ 150,786
Carteret Cnty Indl Facils & Pollution Ctl Fing Auth,
North Carolina (Texasgulf Proj)
(LOC - BNP-Paribas), VR, PCR,
Series 1985, 10/1/2005 1.33 2,000,000 2,000,000
North Carolina Eastern Muni Pwr Agency
(MBIA Insured), FR, Pwr System Rev,
Series 1996A, 1/1/2004 1.65 150,000 153,336
========================================================================================================
2,304,122
0.02 OHIO
Univ of Toledo, Ohio (State Univ of Ohio)
(FGIC Insured), VR, Gen Rcpts, Rev, Series 2002,
6/1/2032 1.25 5,000 5,000
========================================================================================================
2.00 OREGON
Cent Lincoln People's Util Dist, Oregon
(AMBAC Insured) , FR, Elec System Rev Ref,
Series 2002, 12/1/2003 1.50 330,000 330,818
Emerald People's Util Dist, Oregon (Lane Cnty)
(FSA Insured), FR, Elec System Ref Rev,
2003 Series A, 11/1/2003 1.10 200,000 200,744
========================================================================================================
531,562
3.21 PENNSYLVANIA
Canon-McMillan School Dist, Pennsylvania
(Washington Cnty) (FSA Insured), FR, Gen
Oblig, Series C of 2002, 9/1/2003 1.55 250,000 250,279
Pennsylvania (AMBAC Insured),
FR, Gen Oblig, Ref, Series of 1997, 9/15/2003 1.15 200,000 202,295
Pennsylvania Infrastructure Invt Auth (Pennvest Ln
Pool Proj), A/FR, Series 1991A
9/1/2009 1.75 200,000 206,043
9/1/2010 1.65 190,000 195,790
========================================================================================================
854,407
0.94 SOUTH CAROLINA
Anderson Cnty, South Carolina (Belton Inds Proj)
(LOC - Bank of America), AR, Indl Rev,
Series 1991A, 7/1/2004 1.35 100,000 100,000
Rock Hill, South Carolina (FSA Insured), FR,
Combined Util System Rev Impt, Ref,
Series 2003A, 1/1/2004 1.30 150,000 150,609
========================================================================================================
250,609
0.53 SOUTH DAKOTA
South Dakota Brd of Regts (MBIA Insured), FR,
Univ of South Dakota Hsg & Auxiliary Facils Rev,
Series 2003, 4/1/2004 1.18 140,000 140,941
========================================================================================================
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
23.07 TENNESSEE
Hamilton Cnty Indl Dev Brd, Tennessee
(LOC - Mellon Bank), AR, IDR, Ref,
(Trade Ctr Hotel Assoc #1 Ltd
Partnership Proj), Series 1998A,
9/1/2016 1.30 $ 1,400,000 $ 1,400,000
(Trade Ctr Hotel Assoc #3 Ltd
Partnership Proj), Series 1998C,
9/1/2016 1.30 1,797,250 1,797,250
Hawkins Cnty Indl Dev Brd, Tennessee
(LOC - Wachovia Bank), AR, IDR, Ref,
1998 Series B, 10/1/2027 1.30 1,450,000 1,450,000
Tullahoma Indl Dev Brd, Tennessee
(Marine Master Project) (LOC - AmSouth Bank),
AR, Rev, Series 2002, 10/1/2017 1.54 1,500,000 1,500,000
========================================================================================================
6,147,250
7.53 TEXAS
Corpus Christi, Texas (FSA Insured), FR,
Combination Tax & Muni Hotel Occupancy Tax,
Rev, Ctfs of Oblig, Series 2002, 9/1/2003 1.40 200,000 200,000
Dallas, Texas, FR, Gen Oblig, Series 1994, 2/15/2011 1.20 250,000 257,733
Donna Indpt School Dist, Texas (Hidalgo Cnty)
(PSFG Insured), FR, Unltd Tax School Bldg Bds,
Series 1998, 2/15/2004 1.25 200,000 205,232
Grapevine-Colleyville Indpt School Dist, Texas
(Tarrant & Dallas Cntys) (PSFG Insured), FR,
Unltd Tax School Bldg & Ref, Series 1995,
8/15/2003 1.10 335,000 337,826
Houston Cmnty College System, Texas
(Harris & Fort Bend Cntys) (AMBAC Insured), FR,
Student Fee Rev, Series 1999, 4/15/2004 1.20 100,000 103,063
North East Indpt School Dist, Texas (Bexar Cnty)
(PSFG Insured), FR, Unltd Tax School Bldg Bds,
Series 1999, 10/1/2003 1.58 100,000 101,628
Northside Indpt School Dist, Texas (Bexar Cnty)
(PSFG Insured), A/FR, Unltd Tax School Bldg
Bds, Series 2001-A, 8/1/2003 1.60 200,000 200,132
Texas, FR, TRAN, Series 2002, 8/29/2003 1.48 600,000 601,829
========================================================================================================
2,007,443
1.13 UTAH
Tremonton City, Utah (Box Elder Cnty)
(La-Z-Boy Chair Proj) (LOC - Bank One), VRD,
IDR, Series 1990, 6/1/2026 1.30 300,000 300,000
========================================================================================================
1.41 VIRGINIA
Stafford Cnty Indl Dev Auth, Virginia
(Safeway Inc Proj) (LOC - Duetsche Bank & Trust),
AR, IDR, Ref, Series 1993, 6/1/2003 1.45 375,000 375,000
========================================================================================================
2.82 WISCONSIN
Neenah-Menasha Sewerage Commn, Wisconsin
(Winnebago Cnty) (MBIA Insured), FR,
Sewerage System Rev, Series 2003A, 12/1/2003 1.20 200,000 200,797
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
Wisconsin Hlth & Edl Facils Auth
(Riverview Hosp Assn) (LOC - Firstar Bank),
VRD, Rev, Series 2001, 10/1/2030 1.35 $ 550,000 $ 550,000
========================================================================================================
750,797
TOTAL MUNICIPAL NOTES
(Amortized Cost $26,482,256) 26,482,256
========================================================================================================
1.83 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
5/30/2003 due 6/2/2003 at 1.260% repurchased
at $488,547 (Collateralized by Freddie Mac,
Medium-Term Notes, due 1/21/2005 at
2.150%, value $501,694) (Cost $488,496) 488,496 488,496
========================================================================================================
101.23 TOTAL INVESTMENTS AT VALUE
(AMORTIZED COST $26,970,752)(c) 26,970,752
========================================================================================================
(1.23) OTHER ASSETS LESS LIABILITIES (327,325)
========================================================================================================
100.00 NET ASSETS AT VALUE $ 26,643,427
========================================================================================================
U.S. GOVERNMENT MONEY FUND
99.58 SHORT-TERM INVESTMENTS
85.34 US GOVERNMENT AGENCY OBLIGATIONS
Fannie Mae
10/27/2003 1.20 $ 500,000 $ 507,739
11/15/2003 1.35 500,000 504,033
12/1/2003 1.22 500,000 510,558
Federal Farm Credit Bank
9/2/2003 1.85 1,610,000 1,625,228
11/6/2003 1.50 300,000 304,242
Federal Home Loan Bank
6/2/2003 1.28 17,000,000 16,999,405
6/11/2003 1.77 500,000 500,542
6/23/2003 1.75 500,000 501,281
6/24/2003 2.04 1,000,000 1,002,306
7/25/2003 2.24 2,000,000 2,000,000
8/15/2003 1.20 750,000 754,449
9/2/2003 1.85 1,000,000 1,009,463
11/4/2003 1.50 250,000 254,055
11/14/2003 1.50 2,545,000 2,591,252
4/12/2004 1.34 1,500,000 1,499,445
5/7/2004 1.40 1,000,000 1,000,000
6/18/2004 1.25 2,000,000 2,000,000
Federal Home Loan Bank, F/VR
Series 300, 9/15/2003 1.15 5,000,000 4,999,277
Overseas Private Investment, Gtd Participation
Certificates, VR
Series 2000-044A, 5/15/2015(a) 1.18 5,700,000 5,700,000
Series 2000-044A3, 4/1/2014(a) 1.18 3,000,000 3,000,000
Sallie Mae, F/VR, 6/19/2003 1.27 10,000,000 10,000,000
========================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Amortized Cost $57,263,275) 57,263,275
========================================================================================================
EFFECTIVE
INTEREST PRINCIPAL
% DESCRIPTION RATE% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
14.24 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated
5/30/2003 due 6/2/2003 at 1.260% repurchased
at $9,556,810 (Collateralized by Federal Home
Loan Bank, Bonds, due 4/12/2004 at 1.300%,
value $9,755,649) (Cost $9,555,807) $ 9,555,807 $ 9,555,807
========================================================================================================
99.58 TOTAL INVESTMENTS AT VALUE
(AMORTIZED COST $66,819,082)(c) 66,819,082
========================================================================================================
0.42 OTHER ASSETS LESS LIABILITIES 278,265
========================================================================================================
100.00 NET ASSETS AT VALUE $ 67,097,347
========================================================================================================
(a) All securities with a maturity date greater than one year have either a variable rate, demand
feature, prerefunded, optional or mandatory put resulting in an effective maturity of one year
or less.
(b) Securities acquired pursuant to Rule 144A. The fund deems such securities to be "liquid" because
an institutional market exists.
(c) Also represents cost of investments for income tax purposes.
The following acronyms may be used in portfolio descriptions:
A/FR(d) -- Adjustable/Fixed Rate
AMBAC -- American Municipal Bond Assurance Corporation
AR(d) -- Adjustable Rate
EXTRAS -- Extendable Rate Adjustable Securities
FGIC -- Financial Guaranty Insurance Company
F/FR(d) -- Floating/Fixed Rate
FR -- Fixed Rate
FSA -- Financial Security Assurance
F/VR(d) -- Floating/Variable Rate
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guarantee Program
TRAN -- Tax & Revenue Anticipation Notes
UAHSF -- University of Alabama Health Services Foundation
VR(d) -- Variable Rate
VRD(d) -- Variable Rate Demand
(d) Rate is subject to change. Rate shown reflects current rate.
(e) The following are restricted and illiquid securities at May 31, 2003:
SCHEDULE OF RESTRICTED AND ILLIQUID SECURITIES
VALUE AS
ACQUISITION ACQUISITION % OF
DESCRIPTION DATE COST NET ASSETS
- --------------------------------------------------------------------------------
CASH RESERVES FUND
Goldman Sachs Group, F/VR
9/17/2003 3/21/2003 $ 14,000,000 2.34%
10/2/2003 3/13/2003 20,000,000 3.35
New York Life Insurance, 4/7/2004 4/3/2003 7,000,000 1.17
================================================================================
6.86%
================================================================================
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO MONEY MARKET FUNDS, INC.
MAY 31, 2003
CASH TAX-FREE
RESERVES MONEY
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 618,897,236 $ 26,970,752
================================================================================
At Value(a) $ 618,897,236 $ 26,970,752
Cash 0 54
Receivables:
Fund Shares Sold 4,212,973 79,615
Interest 596,021 123,705
Prepaid Expenses and Other Assets 122,494 27,137
================================================================================
TOTAL ASSETS 623,828,724 27,201,263
================================================================================
LIABILITIES
Payables:
Custodian 1,472 0
Distributions to Shareholders 8,466 675
Investment Securities Purchased 0 440,967
Fund Shares Repurchased 25,882,975 99,641
Accrued Distribution Expenses
Class A 3,367 --
Class B 462 --
Class C 21,476 --
Accrued Expenses and Other Payables 126,372 16,553
================================================================================
TOTAL LIABILITIES 26,044,590 557,836
================================================================================
NET ASSETS AT VALUE, Applicable to
Shares Outstanding $ 597,784,134 $ 26,643,427
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 570,867,083 $ 26,643,427
================================================================================
Class A $ 8,915,545 --
================================================================================
Class B $ 599,070 --
================================================================================
Class C $ 17,402,436 --
================================================================================
Shares Outstanding(b)
Investor Class 570,867,083 26,643,427
Class A 8,915,545 --
Class B 599,070 --
Class C 17,402,436 --
================================================================================
NET ASSET VALUE, Offering and Redemption
Price per Share
Investor Class $ 1.00 $ 1.00
Class A $ 1.00 --
Class B $ 1.00 --
Class C $ 1.00 --
================================================================================
(a) Investment securities at cost and value at May 31, 2003 include repurchase
agreements of $105,112,190 and $488,496 for Cash Reserves and Tax-Free
Money Funds, respectively.
(b) The INVESCO Money Market Funds, Inc. have 20 billion authorized shares of
common stock, par value of $0.01 per share. Of such shares, 18.8 billion
have been allocated to Cash Reserves Fund and 500 million to Tax-Free Money
Fund: 4.7 billion to each class of Cash Reserves Fund and 500 million to
Tax-Free Money - Investor Class. Paid-in capital was $597,784,134 and
$26,643,427 for Cash Reserves and Tax-Free Money Fund, respectively.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO MONEY MARKET FUNDS, INC.
MAY 31, 2003
U.S. GOVERNMENT
MONEY
FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 66,819,082
================================================================================
At Value(a) $ 66,819,082
Receivables:
Fund Shares Sold 264,765
Interest 221,960
Prepaid Expenses and Other Assets 33,046
================================================================================
TOTAL ASSETS 67,338,853
================================================================================
LIABILITIES
Payables:
Custodian 38
Distributions to Shareholders 329
Fund Shares Repurchased 220,132
Accrued Expenses and Other Payables 21,007
================================================================================
TOTAL LIABILITIES 241,506
================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 67,097,347
================================================================================
Shares Outstanding(b) 67,097,347
================================================================================
NET ASSET VALUE, Offering and Redemption Price per Share $ 1.00
================================================================================
(a) Investment securities at cost and value at May 31, 2003 includes a
repurchase agreement of $9,555,807 .
(b) The INVESCO Money Market Funds, Inc. have 20 billion authorized shares of
common stock, par value of $0.01 per share. Of such shares, 500 million has
been allocated to U.S. Government Money Fund - Investor Class.
Paid-in-capital for U.S. Government Money Fund was $67,097,347.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
INVESCO MONEY MARKET FUNDS, INC.
YEAR ENDED MAY 31, 2003
CASH TAX-FREE
RESERVES MONEY
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 14,112,098 $ 445,552
================================================================================
EXPENSES
Investment Advisory Fees 3,445,659 156,418
Distribution Expenses
Class A 15,627 --
Class B 5,535 --
Class C 342,484 --
Transfer Agent Fees
Investor Class 2,865,888 96,636
Class A 4,446 --
Class B 1,192 --
Class C 171,315 --
Administrative Services Fees 406,849 24,078
Custodian Fees and Expenses 125,599 8,723
Directors' Fees and Expenses 80,566 10,586
Professional Fees and Expenses 89,697 27,154
Registration Fees and Expenses
Investor Class 109,014 17,064
Class A 252 --
Class B 186 --
Class C 5,102 --
Reports to Shareholders 315,206 10,029
Other Expenses 35,563 5,718
================================================================================
TOTAL EXPENSES 8,020,180 356,406
Fees and Expenses Absorbed/Reimbursed
by Investment Adviser
Investor Class 0 (89,606)
Class B (4,102) --
Class C (268,032) --
Fees and Expenses Paid Indirectly (524) 0
================================================================================
NET EXPENSES 7,747,522 266,800
================================================================================
NET INVESTMENT INCOME AND NET INCREASE IN
NET ASSETS FROM OPERATIONS $ 6,364,576 $ 178,752
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO MONEY MARKET FUNDS, INC.
YEAR ENDED MAY 31, 2003
U.S. GOVERNMENT
MONEY
FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 1,162,651
================================================================================
EXPENSES
Investment Advisory Fees 368,428
Transfer Agent Fees 299,092
Administrative Services Fees 43,159
Custodian Fees and Expenses 11,788
Directors' Fees and Expenses 14,784
Professional Fees and Expenses 21,483
Registration Fees and Expenses 24,369
Reports to Shareholders 32,617
Other Expenses 4,677
================================================================================
TOTAL EXPENSES 820,397
Fees and Expenses Absorbed by Investment Adviser (191,120)
================================================================================
NET EXPENSES 629,277
================================================================================
NET INVESTMENT INCOME AND NET INCREASE IN
NET ASSETS FROM OPERATIONS $ 533,374
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
CASH RESERVES FUND
YEAR ENDED MAY 31
- ------------------------------------------------------------------------------------
2003 2002
OPERATIONS AND DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income Earned and
Distributed to Shareholders
Investor Class $ 6,227,342 $ 17,796,534
Class A 20,915 4,839
Class B 1,845 3,283
Class C 114,474 420,688
======================================================================================
$ 6,364,576 $ 18,225,344
======================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class $ 19,488,956,950 $ 23,212,451,413
Class A 165,682,044 3,356,987
Class B 1,075,652 594,915
Class C 1,572,492,634 2,598,809,105
Reinvestment of Distributions
Investor Class 5,434,912 14,770,191
Class A 9,588 4,551
Class B 1,327 3,065
Class C 62,702 162,324
======================================================================================
21,233,715,809 25,830,152,551
Amounts Paid for Repurchases of Shares
Investor Class (20,045,506,084) (22,985,728,920)
Class A (158,339,989) (1,798,690)
Class B (886,595) (252,742)
Class C (1,607,385,823) (2,561,512,041)
=======================================================================================
(21,812,118,491) (25,549,292,393)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (578,402,682) 280,860,158
NET ASSETS
Beginning of Period 1,176,186,816 895,326,658
=======================================================================================
End of Period $ 597,784,134 $ 1,176,186,816
=======================================================================================
--------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold
Investor Class 19,488,956,950 23,212,451,413
Class A 165,682,044 3,356,987
Class B 1,075,652 594,915
Class C 1,572,492,634 2,598,809,105
Shares Issued from Reinvestment of Distributions
Investor Class 5,434,912 14,770,191
Class A 9,588 4,551
Class B 1,327 3,065
Class C 62,702 162,324
======================================================================================
21,233,715,809 25,830,152,551
Shares Repurchased
Investor Class (20,045,506,084) (22,985,728,920)
Class A (158,339,989) (1,798,690)
Class B (886,595) (252,742)
Class C (1,607,385,823) (2,561,512,041)
=======================================================================================
(21,812,118,491) (25,549,292,393)
NET INCREASE (DECREASE) IN FUND SHARES (578,402,682) 280,860,158
=======================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
TAX-FREE MONEY FUND
YEAR ENDED MAY 31
- ------------------------------------------------------------------------------------
2003 2002
OPERATIONS AND DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income Earned and
Distributed to Shareholders $ 178,752 $ 415,165
=====================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares $ 36,281,861 $ 75,518,443
Reinvestment of Distributions 157,851 380,240
=====================================================================================
36,439,712 75,898,683
Amounts Paid for Repurchases of Shares (41,933,785) (79,815,841)
=====================================================================================
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (5,494,073) (3,917,158)
NET ASSETS
Beginning of Period 32,137,500 36,054,658
=====================================================================================
End of Period $ 26,643,427 $ 32,137,500
=====================================================================================
--------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 36,281,861 75,518,443
Shares Issued from Reinvestment of Distributions 157,851 380,240
=====================================================================================
36,439,712 75,898,683
Shares Repurchased (41,933,785) (79,815,841)
=====================================================================================
NET DECREASE IN FUND SHARES (5,494,073) (3,917,158)
=====================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
U.S. GOVERNMENT MONEY FUND
YEAR ENDED MAY 31
- ------------------------------------------------------------------------------------
2003 2002
OPERATIONS AND DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income Earned and
Distributed to Shareholders $ 533,374 $ 1,540,454
=====================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares $ 231,418,527 $ 1,448,716,464
Reinvestment of Distributions 502,735 1,454,825
=====================================================================================
231,921,262 1,450,171,289
Amounts Paid for Repurchases of Shares (240,544,136) (1,449,830,999)
=====================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (8,622,874) 340,290
NET ASSETS
Beginning of Period 75,720,221 75,379,931
=====================================================================================
End of Period $ 67,097,347 $ 75,720,221
=====================================================================================
--------------------------------------------------------------
FUND SHARE TRANSACTIONS
Shares Sold 231,418,527 1,448,716,464
Shares Issued from Reinvestment of Distributions 502,735 1,454,825
=====================================================================================
231,921,262 1,450,171,289
Shares Repurchased (240,544,136) (1,449,830,999)
=====================================================================================
NET INCREASE (DECREASE) IN FUND SHARES (8,622,874) 340,290
=====================================================================================
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
INVESCO MONEY MARKET FUNDS, INC.
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Money Market
Funds, Inc. is incorporated in Maryland and presently consists of three separate
funds: Cash Reserves Fund, Tax-Free Money Fund and U.S. Government Money Fund
(individually the "Fund" and collectively, the "Funds"). The investment
objectives of the Funds are: to seek a high level of current income for Cash
Reserves Fund; to seek a high level of current income exempt from federal income
taxation for Tax-Free Money Fund; and to seek current income by investing only
in debt obligations issued or guaranteed by the U.S. Government or its agencies
for U.S. Government Money Fund. INVESCO Money Market Funds, Inc. is registered
under the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company.
Income, expenses (other than those attributable to a specific class) and
realized and unrealized gains and losses are allocated daily to each class of
shares based on the relative proportion of net assets represented by such class.
Operating expenses directly attributable to a specific class are charged against
operations of that class. Cash Reserves Fund also offers Class A, Class B and
Class C shares, which are subject to a contingent deferred sales charge paid by
the redeeming shareholder. Class A and Class B shares are not appropriate for
direct investment and are for exchange only from other INVESCO Funds' Class A
and Class B shares. Class B shares convert to Class A shares after eight years
along with a pro rata portion of its reinvested dividends and distributions.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Securities held by the Funds are valued at their market
value determined by the amortized cost method of valuation. If management
believes that such valuation does not reflect the securities' fair value, or
events or circumstances that may affect the value of portfolio securities are
identified by the time that the net asset value per share is determined, these
securities are valued at fair value as determined in good faith under procedures
established by the Fund's board of directors. Restricted and illiquid securities
are valued in accordance with procedures established by the Fund's board of
directors.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date. Interest income, which may be comprised of
stated coupon rate, market discount, original issue discount or amortized
premium, is recorded on the accrual basis. The Fund amortizes discounts or
premiums paid on purchases of securities to the earliest put, call or maturity
date. Cost is determined on the specific identification basis.
Restricted securities held by a Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded companies.
Lack of a secondary market and resale restrictions may result in the inability
of a Fund to sell a security at a fair price and may substantially delay the
sale of the security which each Fund seeks to sell. In addition, these
securities may exhibit greater price volatility than securities for which
secondary markets exist.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- All of the Fund's net
investment income is distributed to shareholders by dividends declared daily and
paid monthly. Such dividends are automatically reinvested at the month-end net
asset value, unless the shareholder requests a cash payment.
E. TAX INFORMATION -- The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes. Dividends paid
by the Fund from net investment income are, for federal income tax purposes,
taxable as ordinary income to shareholders. Of the distributions paid by
Tax-Free Money Fund for the year ended May 31, 2003, 99.19% were exempt from
federal income taxes.
F. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Such credits are included in Fees and Expenses Paid
Indirectly in the Statement of Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Funds' average net
assets as follows: 0.50% on the first $300 million of average net assets;
reduced to 0.40% on the next $200 million of average net assets; and 0.30% on
average net assets in excess of $500 million.
A Sub-Advisory Agreement between IFG and AIM Capital Management, Inc. ("AIM"),
affiliated with IFG, provides that investment decisions of the Funds are made by
AIM. Fees for such sub-advisory services are paid by IFG.
A master distribution plan and agreement for Cash Reserves Fund Class A, Class B
& Class C shares pursuant to Rule 12b-1 of the Act (the "Plans") provides for
compensation of certain promotional and other sales related costs to INVESCO
Distributors, Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of
IFG. Class A shares of the Fund pay compensation to IDI at a rate of 0.35% of
annual average net assets. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average 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 applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class.
Any unreimbursed expenses IDI incurs with respect to Class A and Class C shares
in any fiscal year can not be recovered in subsequent years. Effective July 1,
2003, the Distributor will change to AIM Distributors, Inc., an affiliate of
IFG. For the year ended May 31, 2003, amounts paid to the Distributor were as
follows:
CLASS CLASS CLASS
FUND A B C
- --------------------------------------------------------------------------------
Cash Reserves Fund $ 12,456 $ 5,420 $ 355,481
If the Class B Plan is terminated, the board of directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
year ended May 31, 2003, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- -----------------------------------------------------------------------------------------------
Cash Reserves Fund - Class B Plan $ 4,405 $ 0 0.00%
IFG receives a transfer agent fee from each Class at an annual rate of $29.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. Aggregate fees collected for such omnibus accounts
for the year ended May 31, 2003 amounted to $226,250 for Cash Reserves Fund,
$226 for Tax-Free Money Fund and $23,558 for U.S. Government Money Fund, of
which $490, $127 and $1,839, respectively, were retained by IFG. The fee is paid
monthly at one-twelfth of the annual fee and is based upon the actual number of
accounts in existence during each month.
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds for the year ended May 31, 2003. IFG is entitled to
reimbursement from a Fund share class that has fees and expenses voluntarily
absorbed pursuant to this arrangement if such reimbursements do not cause a
share class to exceed voluntary expense limitations and the reimbursement is
made within three years after IFG incurred the expense.
At May 31, 2003, the reimbursement that may be potentially made by the Funds to
IFG that will expire during the years ended May 31, 2005 and 2006, are as
follows:
INVESTOR CLASS CLASS CLASS
FUND CLASS A B C
- -------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2005
Cash Reserves Fund $ 0 $ 0 $ 176 $28,335
Tax-Free Money Fund 7,390 -- -- --
U.S. Government Money Fund 15,663 -- -- --
INVESTOR CLASS CLASS CLASS
FUND CLASS A B C
- -------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 2006
Cash Reserves Fund $ 0 $ 0 $ 3,926 $239,697
Tax-Free Money Fund 82,216 -- -- --
U.S. Government Money Fund 175,457 -- -- --
NOTE 3 -- TRANSACTIONS WITH AFFILIATES. Certain of the Funds' officers and
directors are also officers and directors of IFG, AIM or IDI.
Each Fund has adopted a retirement plan covering all independent directors of
the Fund who will have served as an independent director for at least five years
at the time of retirement. Benefits under this plan are based on an annual rate
as defined in the plan agreement, as amended March 1, 2001. Effective November
8, 2002, the plan provides that a director, prior to retirement, may elect to
convert amounts accrued under this plan into a new deferred retirement plan.
Pension expenses for the year ended May 31, 2003 included in Directors' Fees and
Expenses in the Statement of Operations, and pension liability included in
Accrued Expenses, in the Statement of Assets and Liabilities were as follows:
PENSION PENSION
FUND EXPENSES LIABILITY
- --------------------------------------------------------------------------------
Cash Reserves Fund $ 32,418 $ 65,406
Tax-Free Money Fund 977 3,701
U.S. Government Money Fund 3,375 7,181
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
NOTE 4 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. Effective November 15, 2002,
qualified plans investing in Class A shares may pay a 1.00% CDSC if a
shareholder redeemed these shares within 12 months from the date of purchase. A
CDSC is charged by Class B shares on redemptions or exchanges of shares at a
maximum of 5.00% beginning at the time of purchase to 0.00% at the beginning of
the seventh year. A 1.00% CDSC is charged by Class C shares on redemptions or
exchanges held thirteen months or less. Shares acquired through reinvestment of
dividends or other distributions are not charged a CDSC. The CDSC may be reduced
or certain sales charge exceptions may apply. The CDSC is paid by the redeeming
shareholder and therefore it is not an expense of the Fund. For the year ended
May 31, 2003, the Distributor received the following CDSC from Class A, Class B
and Class C shareholders:
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------
Cash Reserves Fund $ 15,024 $ 4,141 $ 67,864
NOTE 5 -- SUBSEQUENT EVENTS. On June 9, 2003, the Board of Directors for the
INVESCO Cash Reserves Fund and INVESCO Tax-Free Money Fund ("Selling Funds")
unanimously approved an Agreement and Plan of Reorganization ("the Plan")
pursuant to which the Selling Funds, would transfer all of its assets and
liabilities to AIM Money Market Fund and AIM Tax-Exempt Cash Fund, a series of
AIM Investment Securities Funds and AIM Tax-Exempt Funds, respectively. The Plan
is more fully described in a proxy statement to be presented for shareholder
consideration on or around August 25, 2003.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
INVESCO Money Market Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO Cash Reserves Fund, INVESCO
Tax-Free Money Fund and INVESCO U.S. Government Money Fund (constituting INVESCO
Money Market Funds, Inc., hereafter referred to as the "Fund") at May 31, 2003,
the results of each of their operations for the year then ended, the changes in
each of their net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 2003 by correspondence with the custodian
and the application of alternative auditing procedures where securities
purchased had not been received, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
June 27, 2003
FINANCIAL HIGHLIGHTS
CASH RESERVES FUND -- INVESTOR CLASS
- --------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================
INCOME AND DISTRIBUTIONS FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME EARNED AND
DISTRIBUTED TO SHAREHOLDERS 0.01 0.02 0.05 0.05 0.04
====================================================================================================================
Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================
TOTAL RETURN 0.68% 1.76% 5.34% 4.87% 4.45%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 570,867 $ 1,121,981 $ 880,489 $ 912,135 $ 814,158
Ratio of Expenses to Average Net Assets(a)(b) 0.86% 0.82% 0.90% 0.91% 0.90%
Ratio of Net Investment Income to Average
Net Assets(b) 0.74% 1.76% 5.14% 4.75% 4.36%
(a) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(b) Various expenses of the Class were voluntarily absorbed by IFG for the years ended May 31, 2001, 2000
and 1999. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 0.90%, 0.94% and 0.91%, respectively, and ratio of net investment income to average
net assets would have been 5.14%, 4.72% and 4.35%, respectively.
FINANCIAL HIGHLIGHTS
CASH RESERVES FUND -- CLASS A
- -----------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00
=====================================================================================================
INCOME AND DISTRIBUTIONS FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME EARNED AND
DISTRIBUTED TO SHAREHOLDERS 0.01 0.01 0.02
=====================================================================================================
Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00
=====================================================================================================
TOTAL RETURN 0.51% 1.32% 2.43%(b)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 8,916 $ 1,564 $ 1
Ratio of Expenses to Average Net Assets(c)(d) 0.96% 1.06% 1.32%(e)
Ratio of Net Investment Income to Average Net
Assets(d) 0.47% 1.40% 5.41%(e)
(a) From August 25, 2000, inception of Class, to May 31, 2001.
(b) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the year ended May 31, 2002 and
the period ended May 31, 2001. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.12% and 1.67%(annualized), respectively, and
ratio of net investment income to average net assets would have been 1.34% and 5.06%
(annualized), respectively.
(e) Annualized
FINANCIAL HIGHLIGHTS
CASH RESERVES FUND -- CLASS B
- -----------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00
=====================================================================================================
INCOME AND DISTRIBUTIONS FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME EARNED AND
DISTRIBUTED TO SHAREHOLDERS(B) 0.00 0.01 0.03
=====================================================================================================
Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00
=====================================================================================================
TOTAL RETURN(c) 0.36% 1.07% 2.96%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 599 $ 409 $ 63
Ratio of Expenses to Average Net Assets(e)(f) 1.21% 1.52% 1.82%(g)
Ratio of Net Investment Income to Average Net
Assets(f) 0.33% 0.87% 2.99%(g)
(a) From August 25, 2000, inception of Class, to May 31, 2001.
(b) Net Investment Income Earned and Distributed to Shareholders aggregated less than $0.01 on
a per share basis for the year ended May 31, 2003.
(c) The applicable CDSC is not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of
a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the years ended May 31,
2003 and 2002 and the period ended May 31, 2001. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.95%, 1.65% and 1.89%
(annualized), respectively, and ratio of net investment income (loss) to average net
assets would have been (0.41%), 0.74% and 2.92% (annualized), respectively.
(g) Annualized
FINANCIAL HIGHLIGHTS
CASH RESERVES FUND -- CLASS C
- -----------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MAY 31 MAY 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================================================
INCOME AND DISTRIBUTIONS FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME EARNED
AND DISTRIBUTED TO SHAREHOLDERS(B) 0.00 0.01 0.04 0.01
=====================================================================================================
Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================================================
TOTAL RETURN(c) 0.29% 0.96% 4.43% 1.36%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 17,402 $ 52,233 $ 14,774 $ 4,186
Ratio of Expenses to Average Net
Assets(e)(f) 1.27% 1.44% 1.64% 1.54%(g)
Ratio of Net Investment Income to Average
Net Assets(f) 0.33% 1.03% 4.07% 4.73%(g)
(a) From February 15, 2000, inception of Class, to May 31, 2000.
(b) Net Investment Income Earned and Distributed to Shareholders aggregated less than $0.01 on
a per share basis for the year ended May 31, 2003.
(c) The applicable CDSC is not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser,
if applicable, which is before any expense offset arrangements (which may include custodian
fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the years ended May 31,
2003 and 2002. If such expenses had not been absorbed, ratio of expenses to average net assets
would have been 2.05% and 1.77%, respectively, and ratio of net investment income (loss) to
average net assets would have been (0.45%) and 0.70%, respectively.
(g) Annualized
FINANCIAL HIGHLIGHTS
TAX-FREE MONEY FUND -- INVESTOR CLASS
- --------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================
INCOME AND DISTRIBUTIONS FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME EARNED AND
DISTRIBUTED TO SHAREHOLDERS 0.01 0.01 0.03 0.03 0.03
====================================================================================================================
Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================
TOTAL RETURN 0.57% 1.22% 3.22% 2.86% 2.63%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 26,643 $ 32,138 $ 36,055 $ 40,396 $ 50,697
Ratio of Expenses to Average Net Assets(a)(b) 0.85% 0.85% 0.86% 0.87% 0.77%
Ratio of Net Investment Income to Average
Net Assets(b) 0.57% 1.21% 3.16% 2.82% 2.61%
(a) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is
before any expense offset arrangements (which may include custodian fees).
(b) Various expenses of the Fund were voluntarily absorbed by IFG for the years ended May 31, 2003, 2002,
2001, 2000 and 1999. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 1.14%, 1.14%, 1.17%, 1.11% and 1.02%, respectively, and ratio of
net investment income to average net assets would have been 0.28%, 0.92%, 2.85%, 2.58% and 2.36%,
respectively.
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY FUND -- INVESTOR CLASS
- --------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED MAY 31
- --------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================
INCOME AND DISTRIBUTIONS FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME EARNED AND
DISTRIBUTED TO SHAREHOLDERS 0.01 0.02 0.05 0.05 0.04
====================================================================================================================
Net Asset Value -- End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================
TOTAL RETURN 0.72% 1.67% 5.24% 4.74% 4.36%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 67,097 $ 75,720 $ 75,380 $ 86,060 $ 91,509
Ratio of Expenses to Average Net Assets(a)(b) 0.85% 0.85% 0.86% 0.86% 0.86%
Ratio of Net Investment Income to Average
Net Assets(b) 0.72% 1.65% 5.10% 4.63% 4.28%
(a) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by Investment Adviser, which is
before any expense offset arrangements (which may include custodian fees).
(b) Various expenses of the Fund were voluntarily absorbed by IFG and for the years ended May 31, 2003,
2002, 2001, 2000 and 1999. If such expenses had not been voluntarily absorbed, ratio of expenses
to average net assets would have been 1.11%, 1.04%, 1.18%, 1.16% and 1.08%, respectively, and
ratio of net investment income to average net assets would have been 0.46%, 1.46%, 4.78%, 4.33% and
4.06%, respectively.
OTHER INFORMATION
UNAUDITED
The table below provides information about each of the Independent and
Interested Directors. Their affiliations represent their principal occupations.
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Bob A. Baker Vice Chairman of Consultant (2000-present). 48
37 Castle Pines Dr. N. the Board Formerly, President and
Castle Rock, Colorado (Since 2003) Chief Executive Officer
(1988-2000) of AMC Cancer
Age: 66 Research Center, Denver,
Colorado. Until Mid-December
1988, Vice Chairman of the
Board of First Columbia
Financial Corporation,
Englewood, Colorado;
formerly, Chairman of the
Board and Chief Executive
Officer of First Columbia
Financial Corporation.
Sueann Ambron, Ph.D. Director Dean of the Business School, 48
University of Colorado (Since 2003) College of Business,
at Denver University of Colorado of
1250 14th Street Denver (2000-present).
Denver, Colorado Formerly, President and
Chief Executive Officer of
Age: 58 Avulet, Inc., Sunnyvale,
California (1998-1999), Vice
President and General
Manager, Multimedia Services
Division, Motorola, Inc.,
Schoumburg, Illinois
(1996-1998).
Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman 48
34 Seawatch Drive Emeritus and Chairman and
Savannah, Georgia CFO of the Roundtable of the
Department of Finance of
Age: 72 Georgia State University;
and President, Andrews
Financial Associates, Inc.
(consulting firm). Formerly,
member of the faculties of
the Harvard Business School;
and the Sloan School of
Management of MIT.
Lawrence H. Budner Director Trust Consultant. Formerly, 48
7608 Glen Albens Circle Senior Vice President and
Dallas, Texas Senior Trust Officer of
InterFirst Bank, Dallas,
Age: 72 Texas.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
James T. Bunch Director Co-President and Founder of 48
Green, Manning & Bunch,
3600 Republic Plaza (since 2000) Ltd., Denver, Colorado
370 Seventeenth Street (1988-present); Director and
Denver, Colorado Vice President of Western
Golf Association and Evans
Age: 60 Scholars Foundation; and
Excutive Committee, United
States Golf Association.
Formerly, General Counsel
and Director of Boettcher &
Company, Denver, Colorado;
and formerly, Chairman and
Managing Partner of Davis,
Graham & Stubbs, Denver,
Colorado.
Gerald J. Lewis Director Chairman of Lawsuit 48 Director of General Chemical
701 "B" Street (since 2000) Resolution Services, San Group, Inc., Hampdon, New
Suite 2100 Diego, California Hampshire (1996-present).
San Diego, California (1987-present). Formerly, Director of Wheelabrator
Associate Justice of the Technologies, Inc., Fisher
California Court of Appeals; Scientific, Inc., Henley
Age: 69 and of Counsel, Latham & Manufacturing, Inc., and
Watkins, San Diego, California Coastal Properties,
California (1987-1997). Inc.
John W. McIntyre Director Retired. Trustee of Gables 48
7 Piedmont Center Residential Trust. Trustee
Suite 100 and Chairman of the J.M. Tull
Atlanta, Georgia Charitable Foundation;
Director of Kaiser Foundation
Age: 72 Health Plans of Georgia, Inc.
Formerly, Vice Chairman of
the Board of Directors of The
Citizens and Southern
Corporation and Chairman of
the Board and Chief Executive
Officer of The Citizens and
Southern Georgia Corporation
and The Citizens and Southern
National Bank. Formerly,
Trustee of INVESCO Global
Health Sciences Fund and
Trustee of Employee's
Retirement System of Georgia,
Emory University.
Larry Soll, Ph. D. Director Retired. Formerly, Chairman 48 Director of Synergen since
2358 Sunshine Canyon Dr. (since 1997) of the Board (1987-1994), incorporation in 1982;
Boulder, Colorado Chief Executive Officer Director of Isis
(1982-1989 and 1993-1994) and Pharmaceuticals, Inc.
Age: 60 President (1982-1989) of
Synergen Inc.; and formerly,
Trustee of INVESCO Global
Health Sciences Fund.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS
These directors are "interested persons" of IFG as defined in the Act, and they
are interested persons by virtue of the fact that he/she is an officer or
director of IFG, IDI or an affiliate of IFG.
Mark H. Williamson Chairman of the Board President and Chief Executive 48
4350 South Monaco Street (since 1999). Formerly, Officer AIM Investment
Denver, Colorado President (1998-2002); Management and Chief
and Chief Executive Executive Officer of the AIM
Age: 51 Officer (1998-2002). Division of AMVESCAP PLC
(2003-present). Formerly,
Chief Executive Officer,
Managed Products Division,
AMVESCAP PLC (2001-present).
Formerly, Chairman of the
Board (1998-2002), President
(1998-2002), and Chief
Executive Officer (1998-2002)
of INVESCO Funds Group, Inc.
and of INVESCO Distributors,
Inc. Formerly, Chief
Operating Officer and
Chairman of the Board of
INVESCO Global Health
Sciences Fund; formerly,
Chairman and Chief Executive
Officer of NationsBanc
Advisors, Inc.; and formerly,
Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham President (2003-present), President (2003-present) and 48 Director of INVESCO Funds
4350 South Monaco Street Chief Executive Officer Chief Executive Officer Group, Inc. and Chairman of
Denver, Colorado (2003-present) and (2003-present) of INVESCO the Board of INVESCO
Director (2001-present). Funds Group, Inc.; Distributors, Inc.
Age: 52 Formerly, Vice President Chairman of the Board (2003-
(2001-2002). present), President
(2003-present), and Chief
Executive Officer
(2003-present) of INVESCO
Distributors, Inc. Formerly,
Chief Operating Officer
(2002-2003) and Senior Vice
President (1999-2002) of
INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.;
and Formerly, Senior Vice
President of GT Global -
North America (1992-1998).
Richard W. Healey Director Senior Vice President of 40 Director of INVESCO Funds
4350 South Monaco Street (since 2000) INVESCO Funds Group, Inc.; Group, Inc. and INVESCO
Denver, Colorado Senior Vice President of Distributors, Inc.
INVESCO Distributors, Inc.
Age: 48 Formerly, Senior Vice
President of GT Global -
North America (1996-1998) and
The Boston Company
(1993-1996).
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Glen A. Payne Secretary Senior Vice President,
4350 South Monaco Street General Counsel and Secretary
Denver, Colorado of INVESCO Funds Group, Inc.;
Senior Vice President,
Age: 55 Secretary and General Counsel
of INVESCO Distributors, Inc.
Formerly, Secretary of
INVESCO Global Health
Sciences Fund; General
Counsel of INVESCO Trust
Company (1989-1998); and
employee of a U.S. regulatory
agency, Washington, D.C.
(1973-1989).
Ronald L. Grooms Chief Accounting Senior Vice President and Director of INVESCO Funds
4350 South Monaco Street Officer, Chief Treasurer of INVESCO Funds Group, Inc. and INVESCO
Denver, Colorado Financial Officer Group, Inc.; and Senior Vice Distributors, Inc.
and Treasurer President and Treasurer of
Age: 56 INVESCO Distributors, Inc.
Formerly, Treasurer and
Principal Financial and
Accounting Officer of INVESCO
Global Health Sciences Fund;
and Senior Vice President and
Treasurer of INVESCO Trust
Company (1988-1998).
William J. Galvin, Jr. Assistant Secretary Senior Vice President and Director of INVESCO Funds
4350 South Monaco Street Assistant Secretary of Group, Inc. and INVESCO
Denver, Colorado INVESCO Funds Group, Inc.; Distributors, Inc.
and Senior Vice President and
Age: 46 Assistant Secretary of
INVESCO Distributors, Inc.
Formerly, Trust Officer of
INVESCO Trust Company
(1995-1998).
Pamela J. Piro Assistant Treasurer Vice President and Assistant
4350 South Monaco Street Treasurer of INVESCO Funds
Denver, Colorado Group, Inc.; and Assistant
Treasurer of INVESCO
Age: 42 Distributors, Inc. Formerly,
Assistant Vice President
(1996-1997).
Tane T. Tyler Assistant Secretary Vice President and Assistant
4350 South Monaco Street (since 2002) General Counsel of INVESCO
Denver, Colorado Funds Group, Inc.
Age: 37
* Except as otherwise indicated, each individual has held the position(s) shown for at least the last five years.
The Statement of Additional Information ("SAI") includes additional information about Fund directors and is available, without
charge, upon request. To obtain a free copy of the current SAI, call 1-800-525-8085.
[INVESCO ICON] INVESCO(R)
1-800-525-8085
Personal Account Line: 1-800-424-8085
Advisor Services: 1-800-959-4246
invescofunds.com
INVESCO Distributors, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
Effective 7/1/03, A I M Distributors, Inc. became the distributor of the retail
INVESCO funds
11 Greenway Plaza, Suite 100 Houston, Texas 77046
This information must be preceded or accompanied by a current prospectus.
AMF 900472 7/03
APPENDIX III
AUGUST 31, 2002
ANNUAL REPORT
INVESCO BOND FUNDS, INC.
HIGH YIELD FUND
SELECT INCOME FUND
TAX-FREE BOND FUND
U.S. GOVERNMENT SECURITIES FUND
"...THE FUND PROVIDED SHAREHOLDERS WITH A REFUGE FROM THE YEAR'S EQUITY
STORM, THANKS TO OUR FOCUS ON LIQUIDITY, RELATIVE STABILITY, AND
PERFORMANCE OPPORTUNITIES."
SEE PAGE 9
[INVESCO ICON] INVESCO(R)
[PHOTOGRAPH OF MARK H. WILLIAMSON OMITTED]
FELLOW SHAREHOLDER:
BONDS CAN PROVIDE RELIEF IN A PERSISTENT BEAR MARKET
Back in March 2000, when the stock market first began to show signs of weakness,
many investors were convinced that any downturn would be brief. Who would have
guessed that, two-and-a-half years later, we'd still be staring down the bear?
Bear markets come and go, but we can take solace in the fact that, historically,
markets have always rebounded eventually. Investors with the discipline to
maintain a long-term focus rather than react to the latest headlines have, in a
sense, already won the battle with the bear.
History has proven time and time again that those who are willing to wait out
the downturns have been rewarded over the long term. And the market's
unpredictability underscores the importance of staying diversified.
Diversification may have fallen out of fashion during the stock boom of the late
1990s, but it is once again being given its due -- in large part because bonds
have provided some relief throughout the downturn.
Indeed, over the past year, bonds -- with the exception of high-yield securities
- - -- have handily led the market, with many posting gains. Investors' attraction
to investments considered to be relatively stable has fueled demand in today's
uncertain environment. Furthermore, interest rates have remained low, despite
premature speculation toward the end of the first quarter of 2002 that the
Federal Reserve might be on the verge of a tightening cycle.
You may be tempted to make adjustments to your portfolio if you think a stock
market recovery is around the corner. But I'd recommend taking the past year's
lessons to heart. Bonds will always have a place in a well-diversified
portfolio, and the securities markets will always be capable of surprising even
the most prescient investor.
Sincerely,
/s/ Mark H. Williamson
Mark H. Williamson
Chairman and CEO, INVESCO Funds Group, Inc.
"...THE ENVIRONMENT FOR MUNIS IMPROVED DRAMATICALLY, ULTIMATELY LEADING TO THEIR
OUTPERFORMING THE BROAD MARKET FOR THE FUND'S FISCAL YEAR." -- PAGE 7
TABLE OF CONTENTS
LETTER FROM THE CHAIRMAN 1
- --------------------------------------------------------------------------------
FUND REPORTS 3
- --------------------------------------------------------------------------------
AN INTERVIEW WITH BOB HICKEY 11
- --------------------------------------------------------------------------------
MARKET HEADLINES 13
- --------------------------------------------------------------------------------
INVESTMENT HOLDINGS 15
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS 32
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 42
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 49
- --------------------------------------------------------------------------------
OTHER INFORMATION 63
- --------------------------------------------------------------------------------
INVESCO BOND FUNDS, INC.
TOTAL RETURN
PERIODS ENDED 8/31/02*
Cumulative 10 years+ or Report
Fund (Inception) 6 months 1 year 5 years+ Since Inception ^ Page #
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND-CLASS A with sales charge (4/02) N/A N/A N/A (6.68%)^ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND-CLASS B with CDSC (4/02) N/A N/A N/A (8.64%)^ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND-CLASS C with CDSC (2/00) (1.35%) (19.85%) N/A (16.08%)^+ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND-CLASS K (12/00) 0.17% (18.38%) N/A (17.08%)^+ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND-INVESTOR CLASS (3/84) 0.13% (18.07%) (5.58%) 2.43% 3
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND-CLASS A with sales charge (4/02) N/A N/A N/A (2.98%)^ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND-CLASS B with CDSC (4/02) N/A N/A N/A (3.38%)^ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND-CLASS C with CDSC (2/00) (1.19%) (9.14%) N/A (0.93%)^+ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND-CLASS K (12/00) 0.09% (7.47%) N/A (3.18%)^+ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND-INVESTOR CLASS (1/77) 0.18% (7.45%) 1.99% 5.30% 5
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND-CLASS A with sales charge (4/02) N/A N/A N/A 1.33%^ 7
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND-CLASS B with CDSC (4/02) N/A N/A N/A 1.00%^ 7
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND-CLASS C with CDSC (2/00) 2.59% 3.12% N/A 13.21%^+ 7
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND-INVESTOR CLASS (8/81) 3.94% 4.89% 5.46% 5.77% 7
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND-CLASS A with sales charge (4/02) N/A N/A N/A 24.84%^** 9
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND-CLASS B with CDSC (4/02) N/A N/A N/A 2.56%^ 9
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND-CLASS C with CDSC (2/00) 3.91% 5.72% N/A 9.33%^+ 9
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND-INVESTOR CLASS (1/86) 5.31% 7.52% 7.51% 6.78% 9
- ------------------------------------------------------------------------------------------------------------------------------------
*PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Total return assumes
reinvestment of dividends and capital gain distributions. Investment return and
principal value will vary so that, when redeemed, an investor's shares may be
worth more or less than when purchased. The funds' Class A performance reflects
the maximum sales charge of 4.75%. The funds' Class B and Class C performance
reflects the deduction of the applicable contingent deferred sales charge (CDSC)
for the periods shown. The CDSC on Class B shares declines from 5% beginning at
the time of purchase to 0% at the beginning of the seventh year. The CDSC of
Class C shares is 1% for the first 13 months after purchase. The performance of
the fund's Investor Class, Class A, Class B, Class C and Class K shares will
differ due to the different sales charge structures and expenses. Investor Class
shares are closed to new investors.
+Average Annualized
^For funds or share classes introduced more recently
**Reflects large fluctuations in asset size and shareholder transactions
Performance information provided in this report does not reflect the deduction
of taxes shareholders pay on fund distributions or the redemption of fund
shares.
YOUR FUND'S REPORT
HIGH YIELD FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
For the 12-month period ended August 31, 2002, the value of High Yield
Fund-Investor Class shares declined 18.07%. Its benchmark, the Merrill Lynch
High Yield Master Trust Index, declined 6.97% over the same period. (Of course,
past performance is not a guarantee of future results.)(1),(2) For performance
of other share classes, please see page 2.
TELECOMMUNICATIONS BONDS DECLINED SHARPLY
The main detractor from the fund's performance during the period was its
position in telecommunications bonds. With the economy slowing, and investors
growing increasingly risk averse, many telecom companies faced a downturn in
sales and an inability to raise enough capital to sufficiently fund their
operations. In many cases, the business outlook had deteriorated so sharply that
several companies in the telecommunications arena declared bankruptcy.
- --------------------------------------------------------------------------------
HIGH YIELD FUND--
TOP 10 BOND HOLDINGS BY ISSUER
% OF TOTAL NET ASSETS AS OF 8/31/02
- --------------------------------------------------------------------------------
Star Choice Communications................................................ 6.07%
Chancellor Media of Los Angeles........................................... 5.21%
Level 3 Communications.................................................... 4.17%
Pride International....................................................... 2.62%
Niagra Mohawk Power....................................................... 2.36%
United Rentals............................................................ 2.11%
Madison River Capital LLC/Madison River Finance........................... 1.95%
Esat Telecom Group PLC.................................................... 1.76%
Western Resources......................................................... 1.50%
AMC Entertainment......................................................... 1.45%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
IMPROVING ECONOMY SUPPORTS SEVERAL HOLDINGS
Had it not been for the disproportionately poor showing in telecom, the fund's
performance would have been more in line with the broader high yield market.
Indeed, as the fund's telecom exposure decreased during the second half of the
period, the fund's relative performance improved dramatically, and it
outperformed the broader high yield market.
Many of our positions, including the fund's deep cyclical, casino, and health
care bonds, performed relatively well, supported by evidence of the improving
business climate. Individual standouts included bonds issued by Ackerly Group, a
media company that was recently acquired, and the fund's Chancellor Media of Los
Angeles bonds, which are serviced by Clear Channel Communications, which
acquired Chancellor several years ago. The bonds of Schuler Homes, whose
fundamentals continue to be supported by the resilient housing market, also
performed well.
OPTIMISM ABOUT ECONOMY AND PORTFOLIO'S PROSPECTS
Going forward, we are encouraged by the favorable earnings comparisons that many
companies face during the third and fourth quarters; last year's numbers should
be easy to beat. And, given the huge volume of liquidity that has been pumped
into the system over the last year, we anticipate the economy will continue to
improve.
We do not believe the Federal Reserve will lower interest rates again unless an
external event materializes that shakes consumer confidence, such as an invasion
of Iraq by the U.S. But even then, the economy could continue to build a head of
steam. Given that we believe we are at or near the bottom of the rate cycle, we
will continue to rely on our credit analysis to uncover companies that are best
positioned to capitalize on an economic rebound. This positioning could result
in a credit upgrade and concurrent upward price action.
LINE GRAPH: INVESCO HIGH YIELD FUND - INVESTOR CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO
High Yield Fund - Investor Class to the value of a $10,000 investment
in the Merrill Lynch High Yield Master Trust Index(2), assuming in each
case reinvestment of all dividends and capital gain distributions, for
the ten year period ended 8/31/02.
INVESCO High Yield Fund - Merrill Lynch High Yield Master
Investor Class Trust Index(2)
8/92 $10,000 $10,000
8/93 $11,433 $11,561
8/94 $11,476 $11,826
8/95 $12,752 $13,633
8/96 $14,203 $14,905
8/97 $16,940 $17,119
8/98 $17,692 $17,953
8/99 $18,848 $18,675
8/00 $19,392 $18,936
8/01 $15,520 $19,446
8/02 $12,716 $18,090
LINE GRAPH: INVESCO HIGH YIELD FUND - CLASS A & B GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Class A and the value of a $10,000 investment in INVESCO High Yield Fund
- - - Class B to the value of a $10,000 investment in the Merrill Lynch High Yield
Master Trust Index(2), assuming in each case reinvestment of all dividends and
capital gain distributions, and in the cases of INVESCO High Yield Fund - Class
A and Class B, inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 8/31/02.
INVESCO High Yield INVESCO High Yield Merrill Lynch High
Fund - Class A Fund - Class B Yield Master Trust Index(2)
4/02 $10,000 $10,000 $10,000
8/02 $ 9,332 $ 9,136 $ 9,238
LINE GRAPH: INVESCO HIGH YIELD FUND - CLASS C GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Class C to the value of a $10,000 investment in the Merrill Lynch High
Yield Master Trust Index(2), assuming in each case reinvestment of all dividends
and capital gain distributions, and in the case of INVESCO High Yield Fund -
Class C, inclusion of contingent deferred sales charge, for the period from
inception (2/00) through 8/31/02.
INVESCO High Yield Fund - Merrill Lynch High
Class C Yield Master Trust Index(2)
2/00 $10,000 $10,000
8/00 $ 9,948 $10,115
8/01 $ 7,889 $10,387
8/02 $ 6,402 $ 9,663
LINE GRAPH: INVESCO HIGH YIELD FUND - CLASS K GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Class K to the value of a $10,000 investment in the Merrill Lynch High
Yield Master Trust Index(2), assuming in each case reinvestment of all dividends
and capital gain distributions, for the period from inception (12/00) through
8/31/02.
INVESCO High Yield Fund - Merrill Lynch High
Class K Yield Master Trust Index(2)
12/00 $10,000 $10,000
8/01 $ 8,885 $10,986
8/02 $ 7,252 $10,220
PIE CHART: HIGH YIELD FUND
ASSET DIVERSIFICATION
AS OF 8/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
o Corporate Bonds-Domestic.............................. 71.76%
o Corporate Bonds-Foreign............................... 11.76%
o Common and Preferred Stocks & Warrants................ 5.08%
o Other................................................. 0.73%
o Net Cash & Cash Equivalents........................... 10.67%
(1)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(2)THE MERRILL LYNCH HIGH YIELD MASTER TRUST INDEX IS AN UNMANAGED INDEX
INDICATIVE OF THE HIGH YIELD BOND MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC FEES. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
ALTHOUGH THEY HAVE HIGHER RETURN POTENTIAL, HIGH YIELD BONDS ARE ALSO SUBJECT TO
GREATER RISKS, INCLUDING THE RISK OF DEFAULT, COMPARED TO HIGHER-RATED
SECURITIES.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF ROBERT J. HICKEY OMITTED]
ROBERT J. HICKEY
BOB HICKEY IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED HIS
BACHELOR'S DEGREE FROM THE UNIVERSITY OF WISCONSIN-MADISON, AND HIS MBA FROM THE
KELLOGG GRADUATE SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY. BEFORE JOINING
INVESCO FUNDS GROUP, BOB WORKED FOR VAN KAMPEN INVESTMENTS, WHERE HE SERVED AS
DIRECTOR OF CORPORATE BONDS. HE BEGAN HIS INVESTMENT CAREER IN 1989.
YOUR FUND'S REPORT
SELECT INCOME FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
For the 12-month period ended August 31, 2002, the value of Select Income
Fund-Investor Class shares declined 7.45%. This return lagged that of the Lehman
Government/Credit Bond Index, which rose 7.90% during the same period. (Of
course, past performance is not a guarantee of future results.)(3),(4) For
performance of other share classes, please see page 2.
TELECOMMUNICATIONS BONDS PERFORMED POORLY
The fund's poor relative showing was a function of its exposure to the
telecommunications sector. A variety of problems, from poor fundamental
prospects and bankruptcies to incidences of corporate malfeasance, kept this
group under pressure throughout the period. And the selling was not limited to
bonds of lower credit quality, as investment-grade telecom concerns, such as
AT&T Wireless Services, also declined.
LINE GRAPH: INVESCO SELECT INCOME FUND - INVESTOR CLASS GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Investor Class to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended 8/31/02.
INVESCO Select Income Fund - Lehman Government/Credit
Investor Class Bond Index(4)
8/92 $10,000 $10,000
8/93 $11,213 $11,257
8/94 $11,266 $10,995
8/95 $12,843 $12,258
8/96 $13,457 $12,714
8/97 $15,191 $13,963
8/98 $16,647 $15,558
8/99 $16,672 $15,604
8/00 $17,635 $16,741
8/01 $18,116 $18,844
8/02 $16,766 $20,332
But after a rough year for the group, the sector's outlook seems to be
brightening somewhat. Although the competitive landscape for the telecom sector
remains challenging, the industry may be coming to grips with its over-capacity
problems. Furthermore, the fundamental outlook for selected telecom companies
seems to be improving, as evidenced by a positive earnings report from Nextel
Communications. We're also encouraged by Warren Buffet's recent investment in
Level 3 Communications, a development that was interpreted by some market
observers as a sign that telecom may be oversold.
PIE CHART: SELECT INCOME FUND
ASSET DIVERSIFICATION
AS OF 8/31/02
[PIE CHART]
% OF TOTAL NET ASSETS
o Corporate Bonds-Domestic.............................. 65.77%
o U.S. Government Obligations........................... 8.55%
o Corporate Bonds-Foreign............................... 3.52%
o Mortgage-Backed Pass Thru Certificates................ 17.70%
o Asset-Backed Securities............................... 0.31%
o Common and Preferred Stocks & Warrants................ 0.28%
o Other................................................. 0.24%
o Net Cash & Cash Equivalents........................... 3.63%
HIGH YIELDS AND TREASURIES SUPPORTED PERFORMANCE
The fund's investments outside the telecom sector fared far better. For example,
the fund's non-telecom high yield bonds performed well, particularly holdings in
the steel, gaming and media sectors, all of which moved higher as the market
looked forward to an economic recovery. The fund's utility bonds also
contributed positively to performance, including bonds issued by Public Service
of New Mexico and Commonwealth Edison.
Elsewhere, the fund's position in Treasuries was buoyed by the Federal Reserve's
easing campaign, as well as by intense volatility in equity markets, leading
shell-shocked investors to seek investments believed to be relatively stable.
- --------------------------------------------------------------------------------
SELECT INCOME FUND--
TOP 10 BOND HOLDINGS BY ISSUER
% OF TOTAL NET ASSETS AS OF 8/31/02
- --------------------------------------------------------------------------------
Freddie Mac.............................................................. 14.75%
US Treasury Notes........................................................ 8.55%
Chancellor Media of Los Angeles.......................................... 8.36%
Auburn Hills Trust....................................................... 4.37%
Public Service of New Mexico............................................. 4.00%
Commonwealth Edison...................................................... 3.22%
Fannie Mae............................................................... 2.95%
Cleveland Electric Illuminating.......................................... 2.66%
US WEST Communications................................................... 1.89%
Duquesne Light........................................................... 1.72%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
ECONOMY APPEARS ON TRACK FOR A MODERATE RECOVERY
Going forward, we continue to believe the foundation has been laid for a
moderate expansion. And, although the economic data has not been as encouraging
as we would like, we do not believe the Federal Reserve will cut interest rates
again. We continue to believe that we are at the bottom of the rate cycle and
therefore have shortened the duration of the fund. In addition, we will continue
to look for ways to decrease risk, while using our thorough credit analysis and
tactical moves to explore opportunities that might enhance the fund's yield.
LINE GRAPH: INVESCO SELECT INCOME FUND - CLASS A & B GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Class A and the value of a $10,000 investment in INVESCO Select
Income Fund - Class B to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the cases of INVESCO Select
Income Fund - Class A and Class B, inclusion of front-end sales charge and
contingent deferred sales charge, respectively, for the period since inception
(4/02) through 8/31/02.
INVESCO Select Income INVESCO Select Income Lehman Government/
Fund - Class A Fund - Class B Credit Bond Index(4)
4/02 $10,000 $10,000 $10,000
8/02 $ 9,702 $ 9,662 $10,736
LINE GRAPH: INVESCO SELECT INCOME FUND - CLASS C GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Class C to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the case of INVESCO Select
Income Fund - Class C, inclusion of contingent deferred sales charge, for the
period since inception (2/00) through 8/31/02.
INVESCO Select Income Fund - Lehman Government/Credit
Class C Bond Index(4)
2/00 $10,000 $10,000
8/00 $10,424 $10,548
8/01 $10,629 $11,873
8/02 $ 9,764 $12,811
LINE GRAPH: INVESCO SELECT INCOME FUND - CLASS K GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Class K to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, for the period since inception (12/00)
through 8/31/02.
INVESCO Select Income Fund - Lehman Government/Credit
Class K Bond Index(4)
12/00 $10,000 $10,000
8/01 $10,225 $10,957
8/02 $ 9,461 $11,823
(3)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE.
(4)THE LEHMAN GOVERNMENT/CREDIT BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF
THE OVERALL DOMESTIC FIXED-INCOME MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC FEES. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
ALTHOUGH THEY HAVE HIGHER RETURN POTENTIAL, HIGH YIELD BONDS ARE ALSO SUBJECT TO
GREATER RISKS, INCLUDING THE RISK OF DEFAULT, COMPARED TO HIGHER-RATED
SECURITIES.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF ROBERT J. HICKEY OMITTED]
ROBERT J. HICKEY
BOB HICKEY IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED HIS
BACHELOR'S DEGREE FROM THE UNIVERSITY OF WISCONSIN-MADISON, AND HIS MBA FROM THE
KELLOGG GRADUATE SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY. BEFORE JOINING
INVESCO FUNDS GROUP, BOB WORKED FOR VAN KAMPEN INVESTMENTS, WHERE HE SERVED AS
DIRECTOR OF CORPORATE BONDS. HE BEGAN HIS INVESTMENT CAREER IN 1989.
[PHOTOGRAPH OF RICHARD HINDERLIE OMITTED]
RICHARD HINDERLIE
A VICE PRESIDENT OF INVESCO FUNDS GROUP, DICK HINDERLIE RECEIVED HIS BA IN
ECONOMICS FROM PACIFIC LUTHERAN UNIVERSITY AND HIS MBA FROM ARIZONA STATE
UNIVERSITY. HE BEGAN HIS INVESTMENT CAREER IN 1973, AND HAS EXTENSIVE EXPERIENCE
IN FIXED-INCOME ANALYSIS AND PORTFOLIO MANAGEMENT.
YOUR FUND'S REPORT
TAX-FREE BOND FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
For the 12-month period ended August 31, 2002, the value of Tax Free Bond
Fund-Investor Class shares rose 4.89%, trailing the 6.24% gain posted by the
Lehman Municipal Bond Index over the same period. (Of course, past performance
is not a guarantee of future results.)(5),(6) For performance of other share
classes, please see page 2.
MUNIS RISE ABOVE VOLATILE CONDITIONS
Like all securities this past year, municipal bonds were subject to an extremely
volatile market. The first major event of the reporting period occurred on 9/11,
the date of the terrorist attacks. A number of sectors were negatively affected
by the devastation of that day, particularly the travel industry. Even stadium
bonds, dependent on car reservations and hotel taxes, fell under pressure. Not
surprisingly, we also saw many of our New York holdings suffer losses, though
virtually all of them have since recovered.
LINE GRAPH: INVESCO TAX-FREE BOND FUND - INVESTOR CLASS GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Investor Class to the value of a $10,000 investment in the Lehman
Municipal Bond Index(6), assuming in each case reinvestment of all dividends and
capital gain distributions, for the ten year period ended 8/31/02.
INVESCO Tax-Free Bond Fund - Lehman Municipal
Investor Class Bond Index(4)
8/92 $10,000 $10,000
8/93 $11,229 $11,220
8/94 $11,122 $11,236
8/95 $11,819 $12,231
8/96 $12,504 $12,872
8/97 $13,439 $14,061
8/98 $14,423 $15,278
8/99 $14,279 $15,354
8/00 $15,180 $16,394
8/01 $16,710 $18,064
8/02 $17,527 $19,191
Beginning in early November, we saw a significant rise in interest rates,
spurred by investors' belief that the economy was improving and business
activity rebounding from the lows of September. As a result, bear-market
conditions for municipal bonds took hold for about two months, a time during
which short-term rates headed almost 200 basis points higher and long-term rates
which rose 75 to 100 basis points. This change in sentiment drove money out of
more stable investments, notably bonds, and into more aggressive securities such
as stocks. In particular, this rotation hurt bonds with short maturities, and
municipals were further hampered as a flood of new issuances temporarily
distorted the supply and demand balance.
By early January, however, sentiment was beginning to change once more, and the
environment for munis improved dramatically, ultimately leading to their
outperforming the broad market for the fund's fiscal year. Demand for more
defensive investments escalated sharply, and short-term interest rates
experienced a steep drop, fueling a sustained rally in short- and
intermediate-term bonds.
STRONG DEMAND FOR MUNIS PERSISTS
Over the course of the year -- particularly late in 2001 -- some geographical
regions struggled with budget problems. For example, in Allegheny County,
Pennsylvania, where recently bankrupted U.S. Airways is based, increases in
unemployment as well as budgeting difficulties have hurt that area's municipal
bonds. However, by the end of the reporting period, it became clear that with
demand so strong, investors were downplaying most budgetary concerns. For our
part, we have consistently worked to avoid any problem areas, focusing instead
on stronger areas such as Texas. As one of the country's largest issuers, Texas
also offers superior yields thanks to the state's lack of an income tax.
This was also a record year for new issues, which reached nearly $300 billion.
Ordinarily, interest rates rise when there is such a significant increase in
supply. Yet interest rates failed to fall into the normal pattern, instead
moving lower during the year. In our opinion, this is another indication of how
strong demand has been for municipal securities.
- --------------------------------------------------------------------------------
TAX-FREE BOND FUND - TOP 10 STATES
% OF TOTAL NET ASSETS AS OF 8/31/02
- --------------------------------------------------------------------------------
Texas.................................................................... 21.24%
Indiana.................................................................. 11.78%
Illinois................................................................. 8.85%
New York................................................................. 6.92%
Massachusetts............................................................ 5.89%
Louisiana................................................................ 5.53%
Michigan................................................................. 4.35%
Ohio..................................................................... 3.70%
New Mexico............................................................... 2.75%
Wisconsin................................................................ 2.54%
- --------------------------------------------------------------------------------
CAPITAL PRESERVATION REMAINS GOAL
Although the fund underperformed its benchmark during the period, we are
generally pleased with our showing. We are less concerned with outperforming the
index than we are with maintaining a relatively stable net asset value and
delivering tax-advantaged income to our shareholders. Keeping this goal of
capital preservation paramount, we're willing to accept periods of modest
underperformance if it means our investors can be confident their principal is
relatively safe. That is not to say that we are satisfied with the current
yield. On the contrary, we would like to increase the dividend as much as we can
without exposing our shareholders to undue risk. This will remain our secondary
goal as we move ahead.
PIE CHART: TAX-FREE BOND FUND CREDIT
RATINGS ON LONG-TERM BOND
HOLDINGS AS OF 8/31/02
[PIE CHART]
% OF LONG-TERM BOND HOLDINGS
o Aaa................................................. 66.09%
o Aa.................................................. 16.12%
o A................................................... 13.72%
o Baa................................................. 1.92%
o NR.................................................. 2.15%
LINE GRAPH: INVESCO TAX-FREE BOND FUND - CLASS A & B GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Class A and the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Class B to the value of a $10,000 investment in the Lehman Municipal
Bond Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the cases of INVESCO Tax-Free Bond Fund - Class A and
Class B, inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 8/31/02.
INVESCO Tax-Free Bond INVESCO Tax-Free Bond Lehman Municipal
Fund - Class A Fund - Class B Bond Index(4)
4/02 $10,000 $10,000 $10,000
8/02 $10,133 $10,100 $10,625
LINE GRAPH: INVESCO TAX-FREE BOND FUND - CLASS C GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Class C to the value of a $10,000 investment in the Lehman Municipal
Bond Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Tax-Free Bond Fund - Class C,
inclusion of contingent deferred sales charge, for the period from inception
(2/00) through 8/31/02.
INVESCO Tax-Free Bond Fund - Lehman Municipal
Class C Bond Index(6)
2/00 $10,000 $10,000
8/00 $10,686 $10,679
2/01 $13,172 $11,767
2/02 $13,715 $12,501
(5)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE. INCOME FROM TAX-FREE BOND FUND MAY BE SUBJECT TO STATE AND LOCAL
TAXES, AS WELL AS TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
(6)THE LEHMAN MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF THE BROAD
TAX-EXEMPT BOND MARKET. THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE
DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND
INCLUDING FRONT-END SALES CHARGES AND CDSC FEES. INVESTORS CANNOT INVEST
DIRECTLY IN ANY MARKET INDEX.
FUND MANAGEMENT
[PHOTOGRAPH OF RICHARD A. BERRY OMITTED]
RICHARD A. BERRY, CFA
RICHARD BERRY IS SENIOR VICE PRESIDENT AT AIM CAPITAL MANAGEMENT, INC. HE IS
LEAD MANAGER OF INVESCO TAX-FREE BOND FUND. HE BEGAN HIS INVESTMENT CAREER IN
1968, AND HAS WORKED FOR AIM SINCE 1987. HE HAS A BA AND MBA FROM TEXAS
CHRISTIAN UNIVERSITY, AND IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER.
[PHOTOGRAPH OF STEPHEN D. TURMAN OMITTED]
STEPHEN D. TURMAN, CFA
STEPHEN D. TURMAN, VICE PRESIDENT AND PORTFOLIO MANAGER OF AIM, IS THE
CO-PORTFOLIO MANAGER OF INVESCO TAX-FREE BOND FUND. STEPHEN JOINED AIM IN 1985
AND MANAGES SEVERAL OTHER AIM FIXED-INCOME FUNDS. STEPHEN IS A CHARTERED
FINANCIAL ANALYST CHARTERHOLDER AND HOLDS A BBA IN FINANCE FROM THE UNIVERSITY
OF TEXAS AT ARLINGTON.
YOUR FUND'S REPORT
U.S. GOVERNMENT SECURITIES FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
For the 12-month period ended August 31, 2002, the value of U.S. Government
Securities Fund-Investor Class shares rose 7.52%. This return underperformed
that of the Lehman Government Long Bond Index, which gained 11.04% over the same
period. (Of course, past performance is not a guarantee of future
results.)(7),(8) For performance of other share classes, please see page 2.
TREASURIES SHINE IN A CHALLENGING YEAR
In a year clouded by the 9/11 terrorist attacks, a raft of corporate accounting
scandals, violence in the Middle East, and tepid corporate spending, investors
understandably sought investments noteworthy for their stability. As a result,
Treasuries fared relatively well, advancing in response to this heightened
demand for securities deemed to be safe havens.
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND--
TOP BOND HOLDINGS BY ISSUER
% OF TOTAL NET ASSETS AS OF 8/31/02
- --------------------------------------------------------------------------------
US Treasury Notes........................................................ 24.68%
US Treasury Bonds........................................................ 23.50%
Freddie Mac.............................................................. 19.77%
Government National Mortgage Association I............................... 18.56%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
PIE CHART: U.S. GOVERNMENT SECURITIES FUND
ASSET DIVERSIFICATION
AS OF 8/31/02
[PIE CHART]
% OF TOTAL ASSETS
o U.S. Government Obligations......................... 48.19%
o U.S. Government Agency Obligations.................. 38.33%
o Net Cash & Cash Equivalents......................... 13.48%
The Federal Reserve's actions also supported Treasuries, as the Fed implemented
four interest rate cuts during the first four months of the period before opting
to hold rates steady through August 2002. Although there was some discussion of
a return to a Fed tightening cycle when gross domestic product (GDP) growth
surged in the first quarter of 2002 -- hampering fixed-income securities for a
brief period -- this notion lost momentum once it became clear that a sustained
economic turnaround remained distant. Under such conditions, Treasuries
typically flourish, and this trend held true throughout most of the year, with
yields moving substantially lower overall.
Against this backdrop, the fund provided shareholders with a refuge from the
year's equity storm, thanks to our focus on liquidity, relative stability, and
performance opportunities. By mixing short, intermediate, and long maturity
Treasury notes with mortgage-backed securities sponsored by government agencies,
the fund has offered an attractive alternative to the slumping stock market, as
well as a means for diversifying assets in a volatile environment.
RISK MANAGEMENT A TOP PRIORITY
Investing in fixed-income markets requires addressing two types of risk: credit
risk and interest rate risk. With respect to credit quality, throughout the year
the fund continued to focus on its objective of investing in securities backed
by the U.S. government, and therefore, most attractive in times of economic and
financial stress.
The risk of rising interest rates, however, is more difficult to manage,
especially with rates much closer to a long-term low than a generalized high
during the year. To minimize the negative impact of any future rate increases,
we continued to blend mortgage-backed securities, which offer a higher yield and
lower price volatility than equivalent U.S. Treasuries, into the portfolio. We
also increased the fund's percentage of cash and short-term maturities following
episodes of extreme price gains in the bond market. Finally, we often invested
across the yield curve on the heels of strong downside moves in interest rates
to diversify the portfolio so that any one sector of the yield curve would not
unduly affect the fund's performance.
Although this cautious approach contributed to the fund's underperformance
relative to its benchmark index for the year, it resulted in a reasonable yield
without sacrificing flexibility. Indeed, we expect to continue with these risk
management tactics in preparation for any change in the interest rate climate
going forward.
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS GROWTH OF
$10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Investor Class to the value of a $10,000 investment
in the Lehman Government Long Bond Index(8), assuming in each case reinvestment
of all dividends and capital gain distributions, for the ten year period ended
8/31/02.
INVESCO U.S. Government Securities Lehman Government Long
Fund - Investor Class Bond Index(8)
8/92 $10,000 $10,000
8/93 $11,355 $12,200
8/94 $10,613 $11,279
8/95 $11,926 $13,201
8/96 $12,083 $13,394
8/97 $13,414 $15,188
8/98 $15,391 $18,354
8/99 $14,869 $17,438
8/00 $16,225 $19,464
8/01 $17,920 $21,825
8/02 $19,267 $24,234
PREPARED FOR ANY MARKET
In today's volatile environment, gauging the market's next direction is a
challenge. On the one hand, bonds' performance could stall if economic measures
show signs of strength, especially in employment and/or capital spending. This
in turn could invigorate the stock market and cause investors to shift from
bonds to stocks. Other potential stumbling blocks include inflation -- currently
a non-issue and likely to remain one until the risk of deflation dissipates --
an end to the Fed's easing actions, and government-led solutions to the recent
problems with corporate wrongdoing, which have lessened the extent of the
flight-to-quality movement in the bond market.
However, indicators pointing to the potential for continued strength in
fixed-income securities are equally compelling. Questions regarding the
possibility of a double-dip recession, deflationary risk, a lingering bear
market in stocks, and the next step in the war on terrorism are all
uncertainties affecting investor sentiment. In addition, there is the chance
that, should the economy continue to wilt, the Fed could lower interest rates
further. Depending on how and when these issues are resolved, we could see bonds
maintain their strong appeal.
Striking a balance between these factors is a delicate yet crucial task in
considering the moving targets of shareholder flows, fundamental economic
measures, technical considerations, coupon yield competitiveness, and NAV
performance. Overall, we have sought to position the fund with the flexibility
to respond to any of these risks and/or opportunities as they present
themselves.
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - CLASS A & B GROWTH OF
$10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Class A(9) and the value of a $10,000 investment in
INVESCO U.S. Government Securities Fund - Class B to the value of a $10,000
investment in the Lehman Government Long Bond Index(8), assuming in each case
reinvestment of all dividends and capital gain distributions, and in the cases
of INVESCO U.S. Government Securities Fund - Class A and Class B, inclusion of
front-end sales charge and contingent deferred sales charge, respectively, for
the period since inception (4/02) through 8/31/02.
INVESCO U.S. Government INVESCO U.S. Government Lehman Government
Securities Fund - Securities Fund - Long Bond Index(8)
Class A(9) Class B
4/02 $10,000 $10,000 $10,000
8/02 $12,484 $10,256 $11,419
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - CLASS C GROWTH OF
$10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Class C to the value of a $10,000 investment in the
Lehman Government Long Bond Index(8), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the case of INVESCO U.S.
Government Securities Fund - Class C, inclusion of contingent deferred sales
charge, for the period since inception (2/00) through 8/31/02.
INVESCO U.S. Government Securities Lehman Government Long
Fund - Class C Bond Index(8)
2/00 $10,000 $10,000
8/00 $10,764 $10,850
2/01 $11,758 $12,166
2/02 $12,548 $13,509
(7)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC FEES. THE
CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING
EXPENSES, BUT THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS
PERFORMANCE. FUND SHARES ARE NEITHER ISSUED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
(8)THE LEHMAN GOVERNMENT LONG BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF THE
LONGER-TERM GOVERNMENT BOND MARKET. THE INDEX IS NOT MANAGED; THEREFORE, ITS
PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH
THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC FEES. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
(9)GROWTH OF $10,000 REFLECTS LARGE FLUCTUATIONS IN ASSET SIZE AND SHAREHOLDER
TRANSACTIONS.
FUND MANAGEMENT
[PHOTOGRAPH OF RICHARD HINDERLIE OMITTED]
RICHARD HINDERLIE
DICK HINDERLIE IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED HIS BA IN
ECONOMICS FROM PACIFIC LUTHERAN UNIVERSITY AND HIS MBA FROM ARIZONA STATE
UNIVERSITY. HE BEGAN HIS INVESTMENT CAREER IN 1973, AND HAS EXTENSIVE EXPERIENCE
IN FIXED-INCOME ANALYSIS AND PORTFOLIO MANAGEMENT.
QUESTIONS & ANSWERS
AN INTERVIEW WITH PORTFOLIO MANAGER BOB HICKEY
[PHOTOGRAPH OF BOB HICKEY OMITTED]
BOB HICKEY IS A VICE PRESIDENT AT INVESCO FUNDS GROUP AND MANAGES INVESCO HIGH
YIELD FUND AND INVESCO SELECT INCOME FUND
THE ECONOMY REMAINS ON TRACK
BOB, SOME OBSERVERS SUGGEST THAT THE ECONOMY IS HEADED BACK INTO RECESSION.
WHAT'S THE BASIS FOR THEIR PESSIMISM?
BOB HICKEY: Recent economic data has not been overly encouraging. Last summer's
numbers on manufacturing were somewhat soft, while the latest gross domestic
product figures suggest that business is not improving as much as some had
hoped. And although the unemployment rate has held relatively steady, job growth
has been minimal. Recent retail sales figures and readings on consumer
confidence suggest American consumers, who had continued to spend confidently
despite this downturn, are starting to appear stretched.
These data points have prompted many to wonder whether the economy is headed
toward a second dip into recession.
DO YOU AGREE WITH THAT ASSESSMENT?
BOB HICKEY: No, I continue to believe that the foundation has been laid for a
moderate economic recovery. Consider that interest rates continue to float near
40-year lows. And the Federal Reserve has made it clear that, if the economy
continues to show signs of weakness, it won't hesitate to take action.
Furthermore, inflation remains remarkably benign. Our conversations with
corporate managers reveal that most companies have little to no pricing power,
which means we likely won't have to contend with price increases anytime soon.
These trends open the door for the Fed to remain vigilant and give Chairman Alan
Greenspan and his colleagues the wiggle room they need to ensure that the
expansion gains traction.
So, while recent data have painted an unclear picture of the economy's health,
it's important to remember that periods of economic improvement are notoriously
choppy. It's perfectly normal for an expansion to resume in fits and starts.
That's not to say that risks don't exist. After all, the Fed's active policy arm
just altered its risk directive, saying that the biggest threat to the economy
remains recession. But I think we'll see the business climate continue to
improve.
WHAT ARE SOME OF THE RISKS WE NEED TO BE AWARE OF?
BOB HICKEY: In our opinion, the most significant risk to the economy lies in
external factors. Let's face it: Our country changed on September 11, 2001. And
the threat of terrorism will be an uncertainty for the foreseeable future. I
think another attack could temporarily derail the expansion. Sure, we would be
fine over the long run. But, during the short term, uncertainty could prolong
the current economic weakness. I also wonder what kind of impact a U.S. invasion
of Iraq might have on the economy, particularly if the conflict were to
escalate.
Barring these external developments, however, we continue to think that the
economy is on track. Even if some of these scenarios develop, the recovery could
still endure. And we don't believe the Fed will need to ease interest rates
again this year.
YOU SEEM FAIRLY CONFIDENT THAT WE'RE AT THE BOTTOM OF THE INTEREST RATE CYCLE.
IF THE NEXT FED MOVE IS TO RAISE RATES, HOW DO YOU MAKE MONEY WHEN BOND PRICES
ARE DECLINING?
BOB HICKEY: There are several strategies you can employ. For example, as
business improves, corporate sales and earnings also improve. Consequently, the
default rate generally declines, allowing you to move out on the risk spectrum.
By moving farther out, yields generally improve. Just as an improving economy
leads to a decline in default rates, corporate balance sheets and interest
coverage also improve. So it becomes more likely that companies will be able to
successfully service their debt, which can lead to credit rating upgrades and
upward price action for those bonds.
There are other approaches as well. For example, we can shorten portfolio
duration and employ other tactical moves. But credit analysis continues to be
our area of focus. We want to find and invest in those companies with the
potential to receive a credit rating upgrade.
DO YOU ANTICIPATE THAT YOUR BOND PORTFOLIOS WILL BECOME MORE CONCENTRATED IN THE
COMING MONTHS?
BOB HICKEY: Not significantly. Although we are excited about several
opportunities, we continue to be cautious. With this in mind, we'll keep the
funds diversified across industries and maturities, with the goal of delivering
superior risk-adjusted returns.
"...WHILE RECENT DATA HAS PAINTED AN UNCLEAR PICTURE OF THE ECONOMY'S HEALTH,
IT'S IMPORTANT TO REMEMBER THAT PERIODS OF ECONOMIC IMPROVEMENT ARE NOTORIOUSLY
CHOPPY."
MARKET HEADLINES
MARKET OVERVIEW:
SEPTEMBER 2001 THROUGH AUGUST 2002
The 12-month period ended August 31, 2002, began with the horrific events of
September 11, 2001. As the country and its financial markets attempted to digest
the unprecedented tragic events, the third calendar quarter concluded as the
worst three-month period for stocks since the fall of 1987. Many businesses took
an unexpected blow -- most notably airlines, insurers, and growth companies hurt
by the sudden rotation into more defensive investments.
Bonds, on the other hand, were aided by investor anxiety over the struggling
stock market -- which spurred a flight to investments believed to be "safe
havens." Some stocks in more defensive areas, such as consumer staples, also
managed to weather the downturn admirably.
Market tone improved dramatically in October. Successful U.S. military action in
Afghanistan and another Federal Reserve interest rate cut offset the concern
accompanying a rash of anthrax scares. Confidence in our financial system and
government seemingly grew by the day, and stocks -- particularly growth and
technology stocks -- rallied throughout the fourth quarter. Also encouraging
were positive statements from a number of companies suggesting they had started
to see business activity pick up.
After cutting rates again in November, the Fed implemented its final rate cut of
the cycle in December, bringing the federal funds rate to a low of 1.75%. But
there was also negative news. Energy trading giant Enron Corp came under intense
scrutiny, as questionable accounting practices undermined its business and
investor support. The aftermath of the Enron scandal rippled through the market
in January, which fell prey to growing concerns over accounting methods in
general. Although stocks initially rebounded from the seed of doubt planted by
the Enron meltdown, the recovery was short-lived, as spring saw that seed
germinate.
Indeed, the first half of 2002 was peppered with repeated reports of corporate
accounting scandals. The period saw such corporate giants as WorldCom Inc and
Qwest Communications International come under fire for questionable accounting
that, in some instances, crossed the line into fraud. Combined, these
announcements led to a crisis in confidence on the part of investors.
Meanwhile, the stream of positive economic data continued, but investors instead
chose to focus on the preponderance of negative news. Fundamentally, corporate
profits had yet to benefit from the improving business climate. Also capturing
investors' attention were rising geopolitical tensions, including frequent
suicide bombings along the West Bank and hostile posturing between nuclear
rivals India and Pakistan. By summer, the Bush administration appeared to be
seeking support for an attack on Iraq, which only added to the market's
anxieties.
During July, investors appeared to respond by opting out of stocks altogether.
At times, the selling was so widespread and indiscriminate that some observers
wondered if the bear market had finally found its bottom. Indeed, during that
month and well into August, stocks enjoyed a sharp (albeit choppy) rally,
prompting speculation that the worst was finally behind us.
There were reasons for optimism. For one thing, the second calendar quarter's
corporate earnings reports generally exceeded depressed expectations. And
government regulators appeared to be taking steps to restore public confidence
in corporate accounting, notably mandating that top executives of America's
largest companies certify under oath that their financial statements
legitimately reflect their businesses' health. Corporate America also took steps
to win back the public's trust, when several high-profile companies announced
they would treat option compensation as an expense.
However, by the end of August, the rally had stalled in response to an influx of
tepid economic data. Specifically, investors found little comfort in the
relatively weak report tracking consumer confidence, and while the manufacturing
and non-manufacturing sectors (as reported by the Institute for Supply
Management) continued to grow, they did so at a slower pace than we saw earlier
in the year. In addition, anxiety over the approaching anniversary of 9/11 and
increased press coverage of the U.S.'s intentions toward Iraq further dampened
the mood. Following such a volatile summer, investors will be closely monitoring
third-quarter earnings and the latest economic data to determine whether we are
drawing any closer to the long-awaited recovery.
"DURING JULY, INVESTORS APPEARED TO RESPOND BY OPTING OUT OF STOCKS ALTOGETHER.
AT TIMES, THE SELLING WAS SO WIDESPREAD AND INDISCRIMINATE THAT SOME OBSERVERS
WONDERED IF THE BEAR MARKET HAD FINALLY FOUND ITS BOTTOM."
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO BOND FUNDS, INC.
AUGUST 31, 2002
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND
82.82 FIXED INCOME SECURITIES -- CORPORATE BONDS
0.50 AEROSPACE & DEFENSE
L-3 Communications, Sr Sub Notes(a), 7.625%, 6/15/2012 $ 1,275,000 $ 1,319,625
===========================================================================================================================
0.48 AIR FREIGHT & COURIERS
Petroleum Helicopters, Sr Secured Notes, Series B, 9.375%, 5/1/2009 $ 1,250,000 1,268,750
===========================================================================================================================
4.97 ALTERNATIVE CARRIERS
Allegiance Telecom, Sr Discount Step-Up Notes, Series B, Zero
Coupon(b), 2/15/2008 $ 22,840,000 2,112,700
Level 3 Communications, Sr Secured Notes, Sr Discount
Step-Up, Zero Coupon(b), 12/1/2008 $ 27,710,000 11,084,000
===========================================================================================================================
13,196,700
1.94 AUTO PARTS & EQUIPMENT
Dana Corp, Sr Notes(a), 10.125%, 3/15/2010 $ 1,800,000 1,791,000
Lear Corp, Gtd Sr Notes, Series B, 7.960%, 5/15/2005 $ 1,000,000 1,035,000
Metaldyne Corp, Sr Sub Notes(a), 11.000%, 6/15/2012 $ 1,275,000 1,118,813
Universal Compression, Sr Discount Step-Up Notes, Zero Coupon(b),
2/15/2008 $ 1,280,000 1,217,600
===========================================================================================================================
5,162,413
7.89 BROADCASTING -- RADIO/TV
Chancellor Media of Los Angeles, Sr Sub Notes, Series B, 8.125%,
12/15/2007 $ 13,975,000 13,852,719
Corus Entertainment, Sr Sub Notes, 8.750%, 3/1/2012 CA $ 1,800,000 1,813,500
Fox Family Worldwide, Sr Discount Notes, 9.275%, 11/1/2007 $ 1,050,000 999,994
Paxson Communications, Sr Discount Step-Up Notes, Zero Coupon(b),
1/15/2009 $ 1,000,000 470,000
Sinclair Broadcast Group, Gtd Sr Sub Notes, 8.750%, 12/15/2011 $ 2,500,000 2,543,750
XM Satellite Radio, Sr Secured Notes, 14.000%, 3/15/2010 $ 3,750,000 1,284,375
===========================================================================================================================
20,964,338
1.14 BUILDING PRODUCTS
Schuler Homes, Sr Sub Exchange Notes, 10.500%, 7/15/2011 $ 3,000,000 3,015,000
===========================================================================================================================
8.44 CABLE & SATELLITE OPERATORS
Adelphia Communications, Sr Notes(c)(d), 10.250%, 6/15/2011 $ 1,750,000 603,750
Century Communications, Sr Notes(d)(e), 9.500%, 3/1/2005 $ 925,000 235,875
Charter Communications Holdings LLC/Charter Communications
Holdings Capital, Sr Notes, 8.250%, 4/1/2007 $ 1,500,000 1,035,000
EchoStar DBS, Sr Notes(a), 9.125%, 1/15/2009 $ 1,500,000 1,462,500
Renaissance Media Group LLC, Gtd Sr Discount Step-Up Notes,
Zero Coupon(b), 4/15/2008 $ 3,498,000 2,973,300
Star Choice Communications, Sr Secured Notes, 13.000%, 12/15/2005 CA $ 16,114,000 16,114,000
===========================================================================================================================
22,424,425
6.18 CASINOS & GAMING
Argosy Gaming, Sr Sub Notes, 9.000%, 9/1/2011 $ 1,225,000 1,264,812
Chumash Casino & Resort Enterprise, Sr Notes(a), 9.000%, 7/15/2010 $ 1,700,000 1,751,000
Hollywood Casino, Sr Secured Notes, 11.250%, 5/1/2007 $ 3,200,000 3,480,000
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Hollywood Park/Hollywood Park Operating, Sr Sub Notes,
Series B, 9.500%, 8/1/2007 $ 1,700,000 $ 1,547,000
Mandalay Resort Group, Sr Notes, 9.500%, 8/1/2008 $ 1,000,000 1,082,500
Park Place Entertainment, Sr Sub Notes, 8.125%, 5/15/2011 $ 3,615,000 3,673,744
Penn National Gaming, Sr Sub Notes, Series B, 11.125%, 3/1/2008 $ 1,845,000 1,992,600
Resorts International Hotel & Casino, 1st Mortgage, 11.500%, 3/15/2009 $ 1,800,000 1,622,250
===========================================================================================================================
16,413,906
0.47 CONSTRUCTION & FARM MACHINERY
Terex Corp, Sr Sub Notes, 9.250%, 7/15/2011 $ 1,260,000 1,237,950
===========================================================================================================================
0.86 DISTRIBUTORS
Herbalife International, Sr Sub Notes(a), 11.750%, 7/15/2010 $ 425,000 420,750
United Auto Group, Sr Sub Notes(a), 9.625%, 3/15/2012 $ 1,850,000 1,868,500
===========================================================================================================================
2,289,250
1.62 DIVERSIFIED CHEMICALS
Huntsman International LLC, Sr Notes(a), 9.875%, 3/1/2009 $ 1,250,000 1,281,250
Johnson Diversey, Sr Sub Notes(a), Series A, 9.625%, 5/15/2012 $ 1,000,000 990,000
Lyondell Chemical, Gtd Sr Secured Notes
11.125%, 7/15/2012 $ 1,000,000 1,030,000
Series B, 9.875%, 5/1/2007 $ 1,000,000 990,000
===========================================================================================================================
4,291,250
1.95 DIVERSIFIED FINANCIAL SERVICES
Madison River Capital LLC/Madison River Finance, Sr Notes,
Series B, 13.250%, 3/1/2010 $ 8,500,000 5,185,000
===========================================================================================================================
3.18 ELECTRIC UTILITIES & REFUNDING
Consumers Energy, 1st & Refunding Mortgage, 7.375%, 9/15/2023 $ 1,840,000 1,649,433
Mission Energy Holding, Sr Secured Notes, 13.500%, 7/15/2008 $ 1,275,000 535,500
Niagara Mohawk Power, 1st Mortgage, 9.750%, 11/1/2005 $ 5,375,000 6,265,595
===========================================================================================================================
8,450,528
1.00 ENVIRONMENTAL SERVICES
Allied Waste North America, Gtd Sr Secured Notes, 8.875%, 4/1/2008 $ 850,000 854,250
IESI Corp, Sr Sub Notes(a), 10.250%, 6/15/2012 $ 515,000 489,250
Synagro Technologies, Sr Sub Notes(a), 9.500%, 4/1/2009 $ 1,280,000 1,318,400
===========================================================================================================================
2,661,900
0.49 FOOD DISTRIBUTORS
Roundy's Inc, Sr Sub Notes(a), 8.875%, 6/15/2012 $ 1,275,000 1,287,750
===========================================================================================================================
0.35 FOOD RETAIL
Pathmark Stores, Gtd Sr Sub Notes, 8.750%, 2/1/2012 $ 1,000,000 940,000
===========================================================================================================================
0.28 FOREST PRODUCTS
Pope & Talbot, Sr Notes(a), 8.375%, 6/1/2013 $ 850,000 748,000
===========================================================================================================================
0.58 HEALTH CARE EQUIPMENT
Advanced Medical Optics, Sr Sub Notes(a), 9.250%, 7/15/2010 $ 1,560,000 1,540,500
===========================================================================================================================
2.01 HEALTH CARE FACILITIES
Extendicare Health Services, Sr Notes(a), 9.500%, 7/1/2010 $ 2,145,000 2,134,275
Hanger Orthopedic Group, Sr Notes, 10.375%, 2/15/2009 $ 1,000,000 1,050,000
United Surgical Partners Holdings, Sr Sub Notes, 10.000%, 12/15/2011 $ 2,100,000 2,152,500
==========================================================================================================================
5,336,775
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
0.40 HEALTH CARE SUPPLIES
Medquest Inc, Sr Sub Notes(a), 11.875%, 8/15/2012 $ 1,065,000 $ 1,057,012
============================================================================================================================
0.37 HOMEBUILDING
Standard Pacific, Sr Notes, 8.500%, 4/1/2009 $ 1,000,000 980,000
============================================================================================================================
0.60 HOME FURNISHINGS
Simmons Co, Sr Sub Notes, Series B, 10.250%, 3/15/2009 $ 1,500,000 1,593,750
============================================================================================================================
0.71 HOTELS
Host Marriott LP, Sr Notes, Series I, 9.500%, 1/15/2007 $ 1,000,000 1,016,250
John Q Hammons Hotels LP/John Q Hammons Hotels Finance III,
1st Mortgage
Series B, 8.875%, 5/15/2012 $ 900,000 873,000
============================================================================================================================
1,889,250
0.16 INDUSTRIAL MACHINERY
JLG Industries, Sr Sub Notes(a), 8.375%, 6/15/2012 $ 450,000 432,000
============================================================================================================================
7.07 INTEGRATED TELECOMMUNICATION SERVICES
Block Communications, Sr Sub Notes(a), 9.250%, 4/15/2009 $ 2,250,000 2,235,937
CFW Communications, Sr Notes, 13.000%, 8/15/2010 $ 7,250,000 2,718,750
COLT Telecom Group PLC, Sr Discount Notes, 12.000%, 12/15/2006 UK $ 4,873,000 3,130,903
Crown Castle International, Sr Notes, 9.375%, 8/1/2011 $ 4,500,000 2,812,500
Diamond Cable Communications PLC, Sr Discount Notes
11.750%(d)(f), 12/15/2005 UK $ 8,080,000 1,252,400
10.750%(d)(f), 2/15/2007 UK $ 8,455,000 1,310,525
Esprit Telecom Group PLC, Sr Notes(g), 11.500%, 12/15/2007 UK $ 8,250,000 825
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 2,600,000 2,002,000
MetroNet Communications, Sr Discount Step-Up Notes, Zero
Coupon(b), 6/15/2008 CA $ 31,995,000 2,959,538
NEXTLINK Communications LLC
Sr Discount Step-Up Notes, Zero Coupon(b), 4/15/2008 $ 10,600,000 106,000
Sr Notes
10.750%(d), 11/15/2008 $ 5,650,000 56,500
9.625%(d), 10/1/2007 $ 3,825,000 38,250
NEXTLINK Communications LLC/NEXTLINK Capital, Sr Notes(d),
12.500%, 4/15/2006 $ 16,065,000 160,650
===========================================================================================================================
18,784,778
2.33 INTEGRATED TELECOMMUNICATION SERVICES -- LONG DISTANCE
Esat Telecom Group PLC, Sr Notes, Series B, 11.875%, 12/1/2008 IE $ 4,000,000 4,683,904
Qwest Corp, Notes(a), 8.875%, 3/15/2012 $ 1,745,000 1,518,150
===========================================================================================================================
6,202,054
1.10 LEISURE FACILITIES
Regal Cinemas, Sr Sub Notes(a), 9.375%, 2/1/2012 $ 1,000,000 1,025,000
Six Flags, Sr Notes, 8.875%, 2/1/2010 $ 2,200,000 1,908,500
===========================================================================================================================
2,933,500
0.35 MANAGED HEALTH CARE
Rotech Healthcare, Sr Sub Notes(a), 9.500%, 4/1/2012 $ 1,100,000 918,500
===========================================================================================================================
1.45 MOVIES & ENTERTAINMENT
AMC Entertainment, Sr Sub Notes, 9.875%, 2/1/2012 $ 4,200,000 3,864,000
===========================================================================================================================
1.86 MULTI-UTILITIES
Aquila Inc, Sr Notes(a), 11.875%, 7/1/2012 $ 1,250,000 950,000
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Western Resources, Notes, 6.250%, 8/15/2018 $ 4,105,000 $ 3,981,604
===========================================================================================================================
4,931,604
2.62 OIL & GAS DRILLING
Pride International, Sr Notes, 10.000%, 6/1/2009 $ 6,500,000 6,955,000
===========================================================================================================================
1.37 OIL & GAS EQUIPMENT & SERVICES
Gulfmark Offshore, Gtd Sr Notes, 8.750%, 6/1/2008 $ 3,600,000 3,636,000
===========================================================================================================================
2.91 OIL & GAS EXPLORATION & PRODUCTION
Comstock Resources, Sr Notes(a), 11.250%, 5/1/2007 $ 2,000,000 2,060,000
Forest Oil, Sr Notes, 8.000%, 6/15/2008 $ 2,995,000 3,054,900
Parker & Parsley Petroleum, Sr Notes, 8.875%, 4/15/2005 $ 2,550,000 2,626,554
===========================================================================================================================
7,741,454
1.28 OIL & GAS REFINING & MARKETING
Tesoro Petroleum, Sr Sub Notes(a), 9.625%, 4/1/2012 $ 2,350,000 1,727,250
Vintage Petroleum, Sr Notes, 8.250%, 5/1/2012 $ 1,685,000 1,685,000
===========================================================================================================================
3,412,250
1.57 PAPER PACKAGING
Appleton Papers, Sr Sub Notes, Series B, 12.500%, 12/15/2008 $ 2,350,000 2,432,250
Graphic Packaging, Gtd Sr Sub Notes(a), 8.625%, 2/15/2012 $ 1,700,000 1,725,500
===========================================================================================================================
4,157,750
0.94 PAPER PRODUCTS
Bear Island Paper LLC/Bear Island Finance II, Sr Secured Notes,
Series B, 10.000%, 12/1/2007 $ 2,200,000 1,848,000
Georgia-Pacific Corp, Notes, 8.125%, 5/15/2011 $ 700,000 640,500
===========================================================================================================================
2,488,500
0.79 PERSONAL PRODUCTS
Alderwoods Group, Gtd Notes, 12.250%, 1/2/2009 $ 2,140,000 2,097,200
===========================================================================================================================
0.85 PHARMACEUTICALS
aaiPharma Inc, Gtd Sr Sub Notes, 11.000%, 4/1/2010 $ 2,550,000 2,256,750
===========================================================================================================================
0.91 PUBLISHING & PRINTING
Mail-Well Inc, Sr Notes(a), 9.625%, 3/15/2012 $ 2,275,000 1,569,750
PRIMEDIA Inc, Sr Notes, 10.250%, 6/1/2004 $ 1,000,000 850,000
===========================================================================================================================
2,419,750
0.58 REAL ESTATE INVESTMENT TRUSTS
Ventas Realty LP/Ventas Capital, Sr Notes, 8.750%, 5/1/2009 $ 1,525,000 1,540,250
===========================================================================================================================
0.38 REAL ESTATE MANAGEMENT & DEVELOPMENT
Corrections Corp of America, Sr Notes(a), 9.875%, 5/1/2009 $ 1,000,000 1,020,000
===========================================================================================================================
1.09 SPECIALTY CHEMICALS
IMC Global, Sr Notes, 11.250%, 6/1/2011 $ 1,450,000 1,566,000
Millennium America, Sr Notes(a), 9.250%, 6/15/2008 $ 1,285,000 1,336,400
===========================================================================================================================
2,902,400
2.44 SPECIALTY STORES
Cole National Group, Sr Sub Notes, 8.875%, 5/15/2012 $ 900,000 891,000
United Rentals, Gtd Sr Sub Notes, Series B, 8.800%, 8/15/2008 $ 6,035,000 5,597,463
===========================================================================================================================
6,488,463
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
0.98 STEEL
Alltrista Corp, Sr Sub Notes(a), 9.750%, 5/1/2012 $ 1,550,000 $ 1,503,500
Steel Dynamics, Sr Notes(a), 9.500%, 3/15/2009 $ 1,065,000 1,091,625
===========================================================================================================================
2,595,125
0.34 TEXTILES
Collins & Aikman Floorcoverings, Sr Sub Notes(a), 9.750%, 2/15/2010 $ 900,000 901,125
===========================================================================================================================
3.04 WIRELESS TELECOMMUNICATION SERVICES
McCaw International Ltd, Sr Discount Notes(g), 13.000%, 4/15/2007 $ 7,200,000 108,000
Nextel Communications, Sr Serial Notes
9.500%, 2/1/2011 $ 800,000 608,000
9.375%, 11/15/2009 $ 1,305,000 1,017,900
Nextel International, Sr Notes(d), 12.750%, 8/1/2010 $ 6,000,000 90,000
Rural Cellular, Sr Sub Notes, 9.750%, 1/15/2010 $ 3,425,000 1,935,125
UbiquiTel Operating, Sr Sub Discount Step-Up Notes, Zero
Coupon(b), 4/15/2010 $ 3,800,000 266,000
US Unwired, Gtd Sr Sub Discount Step-Up Notes, Series B,
Zero Coupon(b), 11/1/2009 $ 4,575,000 1,052,250
VoiceStream Wireless, Sr Notes, 10.375%, 11/15/2009 $ 2,999,000 2,999,000
===========================================================================================================================
8,076,275
TOTAL FIXED INCOME SECURITIES (AMORTIZED COST $355,822,113) 220,008,800
===========================================================================================================================
0.07 COMMON STOCKS & WARRANTS
0.00 BROADCASTING -- RADIO/TV
XM Satellite Radio Warrants(a)(h)(Exp 2010) 3,750 2,250
===========================================================================================================================
0.06 INTEGRATED TELECOMMUNICATION SERVICES
Focal Communications(h) 132,775 135,430
McLeodUSA Inc Class A Warrants(h)(i)(Exp 2007) 117,164 10,545
===========================================================================================================================
145,975
0.01 INTEGRATED TELECOMMUNICATION SERVICES -- LONG DISTANCE
Ntelos Inc Warrants(a)(h)(Exp 2010) 16,500 30,937
STARTEC Global Communications Warrants(h)(Exp 2008) 3,850 38
===========================================================================================================================
30,975
0.00 INTERNET SOFTWARE & SERVICES
Wam!Net Warrants(a)(h)(Exp 2005) 17,100 171
===========================================================================================================================
TOTAL COMMON STOCKS & WARRANTS (COST $10,250,464) 179,371
===========================================================================================================================
5.01 PREFERRED STOCKS
0.00 ALTERNATIVE CARRIERS
Global Crossing Holdings Ltd, Sr Exchangeable Pfd(j), 10.500% BD 76,011 760
Global Crossing Ltd, Conv Pfd(j), 6.750% BD 23,750 1,187
===========================================================================================================================
1,947
0.20 BROADCASTING -- RADIO/TV
Cumulus Media, Exchangeable Pfd, Series A Shrs(k), 13.750% 500 537,500
===========================================================================================================================
0.09 INTEGRATED TELECOMMUNICATION SERVICES
McLeodUSA Inc, Conv Pfd, Series A Shrs(h)(i), 2.500% 52,873 117,907
XO Communications, Sr Exchangeable Pfd, 14.000% 110,675 110,675
===========================================================================================================================
228,582
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
0.81 MOVIES & ENTERTAINMENT
CSC Holdings
Conv Pfd, Series H Shrs, 11.750% 18,000 $ 1,098,000
Pfd, Series M Shrs, 11.125% 17,750 1,065,000
===========================================================================================================================
2,163,000
0.07 TEXTILES
Anvil Holdings, Sr Exchangeable Pfd, Series B Shrs, 13.000% 10,866 195,588
===========================================================================================================================
3.84 WIRELESS TELECOMMUNICATION SERVICES
Nextel Communications, Exchangeable Pfd, Series E Shrs(k), 11.125% 19,250 10,202,500
===========================================================================================================================
TOTAL PREFERRED STOCKS (COST $35,733,101) 13,329,117
===========================================================================================================================
0.73 OTHER SECURITIES -- ELECTRIC UTILITIES
Alliant Energy Resources, Sr Sub Exchangeable Step-Down
Notes(a), PAY PHONES(l) 7.250%(m), 2/1/2030 (Each shr
exchangeable for 2.5 shrs McLeodUSA Inc(i) cmn stk)
(Cost $5,031,000) 76,000 1,947,500
===========================================================================================================================
10.30 SHORT-TERM INVESTMENTS
0.71 CORPORATE BONDS
0.38 ENVIRONMENTAL SERVICES
Browning-Ferris Industries, Sr Notes, 6.100%, 1/15/2003 $ 1,000,000 995,066
===========================================================================================================================
0.33 MULTI-UTILITIES
AES Corp, Sr Notes, 8.750%, 12/15/2002 $ 1,000,000 880,000
===========================================================================================================================
TOTAL CORPORATE BONDS (Amortized Cost $1,911,981) 1,875,066
===========================================================================================================================
9.59 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 8/30/2002
due 9/3/2002 at 1.810%, repurchased at $5,489,104
(Collateralized by Fannie Mae, Benchmark Notes, due
11/17/2011 at 5.000%, value $5,599,813) $ 5,488,000 5,488,000
Repurchase Agreement with State Street dated 8/30/2002
due 9/3/2002 at 1.810%, repurchased at $20,004,022
(Collateralized by Federal Home Loan Bank, Notes, due
5/14/2004 at 3.375%, value $20,413,498) $ 20,000,000 20,000,000
===========================================================================================================================
TOTAL REPURCHASE AGREEMENTS (Cost $25,488,000) 25,488,000
===========================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $27,399,981) 27,363,066
===========================================================================================================================
98.93 TOTAL INVESTMENTS AT VALUE
(Amortized Cost $434,236,659) 262,827,854
===========================================================================================================================
1.07 OTHER ASSETS LESS LIABILITIES 2,831,377
===========================================================================================================================
100.00 NET ASSETS AT VALUE $ 265,659,231
===========================================================================================================================
SELECT INCOME FUND
94.69 FIXED INCOME SECURITIES
8.55 US GOVERNMENT OBLIGATIONS
US Treasury Notes, 5.750%, 8/15/2010 (Amortized Cost $25,796,781) $ 25,000,000 $ 28,074,225
===========================================================================================================================
17.70 US GOVERNMENT AGENCY OBLIGATIONS
Fannie Mae, Gtd Mortgage Pass-Thru Certificates, 6.000%, 2/1/2017 $ 9,366,836 9,700,340
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Freddie Mac, Gold, Participation Certificates
6.000%, 2/1/2017 $ 14,402,162 $ 14,910,447
6.000%, 4/1/2017 $ 13,956,998 14,449,573
5.500%, 12/1/2016 $ 18,622,387 19,064,930
===========================================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Amortized Cost $56,252,476) 58,125,290
===========================================================================================================================
0.32 ASSET BACKED SECURITIES -- AIRLINES
Delta Air Lines, Pass-Thru Certificates, Series 2002-1,
Class C, 7.779%, 1/2/2012 (Cost $1,050,000) $ 1,050,000 1,031,878
===========================================================================================================================
68.12 CORPORATE BONDS
6.11 AUTOMOBILE MANUFACTURERS
Auburn Hills Trust, Gtd Exchangeable Certificates, 12.375%, 5/1/2020 $ 9,500,000 14,347,603
Ford Motor Credit, Global Landmark Securities, 7.250%, 10/25/2011 $ 3,900,000 3,748,848
General Motors Acceptance, Sr Notes, 7.000%, 2/1/2012 $ 1,975,000 1,979,841
===========================================================================================================================
20,076,292
10.28 BROADCASTING -- RADIO/TV
Chancellor Media of Los Angeles
Gtd Sr Sub Notes, Series B, 8.750%, 6/15/2007 $ 8,000,000 8,010,000
Sr Sub Notes, Series B, 8.125%, 12/15/2007 $ 19,595,000 19,423,544
Clear Channel Communications, Sr Notes, 6.000%, 11/1/2006 $ 2,500,000 2,410,215
Fox Family Worldwide, Sr Notes, 9.250%, 11/1/2007 $ 3,750,000 3,918,750
===========================================================================================================================
33,762,509
0.51 CABLE & SATELLITE OPERATORS
Century Communications, Sr Notes(d)(e), 9.500%, 3/1/2005 $ 900,000 229,500
EchoStar DBS, Sr Notes(a), 9.125%, 1/15/2009 $ 1,500,000 1,462,500
===========================================================================================================================
1,692,000
0.95 CASINOS & GAMING
Argosy Gaming, Sr Sub Notes, 9.000%, 9/1/2011 $ 1,475,000 1,522,937
Penn National Gaming, Sr Sub Notes, Series B, 11.125%, 3/1/2008 $ 1,475,000 1,593,000
===========================================================================================================================
3,115,937
0.44 CONSTRUCTION & FARM MACHINERY
Terex Corp, Sr Sub Notes, 9.250%, 7/15/2011 $ 1,465,000 1,439,363
===========================================================================================================================
0.35 CONSUMER FINANCE
Household Finance, Notes, 5.750%, 1/30/2007 $ 1,150,000 1,149,002
===========================================================================================================================
0.56 DIVERSIFIED FINANCIAL SERVICES
Verizon Global Funding, Notes, 6.875%, 6/15/2012 $ 1,890,000 1,829,148
===========================================================================================================================
25.12 ELECTRIC UTILITIES
Cleveland Electric Illuminating
1st Mortgage, Series B, 9.500%, 5/15/2005 $ 4,477,000 4,501,471
Secured Notes, Series D, 7.880%, 11/1/2017 $ 4,000,000 4,220,544
CMS Energy, Sr Notes, Series B, 6.750%, 1/15/2004 $ 4,900,000 4,067,000
Commonwealth Edison, 1st Mortgage
Series 83, 8.000%, 5/15/2008 $ 6,100,000 7,195,499
Series 86, 8.375%, 9/15/2022 $ 3,250,000 3,366,909
Consumers Energy, 1st & Refunding Mortgage, 7.375%, 9/15/2023 $ 5,950,000 5,333,764
Duquesne Light, 1st Collateral Trust, 7.550%, 6/15/2025 $ 5,580,000 5,650,520
El Paso Electric, 1st Mortgage, Series D, 8.900%, 2/1/2006 $ 4,755,000 4,910,417
Metropolitan Edison, Secured Medium-Term Notes, Series B,
6.970%, 10/19/2023 $ 3,500,000 3,069,927
New York State Electric & Gas, 1st Mortgage, 8.300%, 12/15/2022 $ 4,800,000 4,992,907
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power, 1st Mortgage, 9.750%, 11/1/2005 $ 4,232,000 $ 4,933,208
Pacific Gas & Electric, 1st Refunding Mortgage, Series 92D,
8.250%, 11/1/2022 $ 2,223,000 2,067,390
Pennsylvania Power, 1st Mortgage, 8.500%, 7/15/2022 $ 2,000,000 2,032,906
Potomac Edison, 1st Mortgage, 8.000%, 12/1/2022 $ 5,200,000 5,391,121
Public Service of New Mexico, Sr Notes
Series A, 7.100%, 8/1/2005 $ 11,375,000 12,110,360
Series B, 7.500%, 8/1/2018 $ 1,000,000 1,012,286
Texas Utilities Electric, 1st Mortgage & Collateral Trust
8.750%, 11/1/2023 $ 5,000,000 5,234,925
7.625%, 7/1/2025 $ 348,000 354,047
Toledo Edison, Secured Medium-Term Notes, Series A, 9.220%,
12/15/2021 $ 1,975,000 2,034,967
===========================================================================================================================
82,480,168
0.10 ENVIRONMENTAL SERVICES
IESI Corp, Sr Sub Notes(a), 10.250%, 6/15/2012 $ 360,000 342,000
===========================================================================================================================
0.73 FOOD RETAIL
Safeway Inc, Notes, 3.800%, 8/15/2005 $ 2,390,000 2,391,264
===========================================================================================================================
0.62 GAS UTILITIES
Consolidated Natural Gas, Sr Notes, Series B, 5.375%, 11/1/2006 $ 1,980,000 2,033,290
===========================================================================================================================
0.28 HEALTH CARE EQUIPMENT
Advanced Medical Optics, Sr Sub Notes(a), 9.250%, 7/15/2010 $ 950,000 938,125
===========================================================================================================================
1.03 HEALTH CARE FACILITIES
Tenet Healthcare, Sr Notes, 6.500%, 6/1/2012 $ 815,000 861,251
United Surgical Partners Holdings, Sr Sub Notes, 10.000%, 12/15/2011 $ 2,450,000 2,511,250
===========================================================================================================================
3,372,501
1.36 HOTELS
Hilton Hotels, Sr Notes, 7.200%, 12/15/2009 $ 3,650,000 3,456,871
Host Marriott LP, Sr Notes, Series I, 9.500%, 1/15/2007 $ 1,000,000 1,016,250
===========================================================================================================================
4,473,121
0.39 INDUSTRIAL GASES
Praxair Inc, Notes, 4.750%, 7/15/2007 $ 1,225,000 1,266,202
===========================================================================================================================
0.11 INDUSTRIAL MACHINERY
JLG Industries, Sr Sub Notes(a), 8.375%, 6/15/2012 $ 375,000 360,000
===========================================================================================================================
1.90 INTEGRATED OIL & GAS
Marathon Oil, Notes, 5.375%, 6/1/2007 $ 1,000,000 1,042,090
Texaco Capital, Gtd Notes, 5.500%, 1/15/2009 $ 4,900,000 5,201,835
===========================================================================================================================
6,243,925
1.99 INTEGRATED TELECOMMUNICATION SERVICES
COLT Telecom Group PLC, Sr Discount Notes, 12.000%, 12/15/2006 $ 2,070,000 1,329,975
Esprit Telecom Group PLC, Sr Notes(g), 11.500%, 12/15/2007 $ 1,500,000 150
MetroNet Communications, Sr Discount Step-Up Notes, Zero
Coupon(b), 6/15/2008 $ 40,880,000 3,781,400
NEXTLINK Communications LLC/NEXTLINK Capital, Sr Notes(d),
12.500%, 4/15/2006 $ 4,915,000 49,150
Verizon Maryland, Deb, Series A, 6.125%, 3/1/2012 $ 1,410,000 1,378,814
===========================================================================================================================
6,539,489
4.84 INTEGRATED TELECOMMUNICATION SERVICES -- LONG DISTANCE
Esat Telecom Group PLC, Sr Notes, Series B, 11.875%, 12/1/2008 $ 4,800,000 5,620,685
Sprint Capital, Gtd Notes, 7.625%, 1/30/2011 $ 4,675,000 3,940,899
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Teleglobe Inc, Gtd Deb(d), 7.700%, 7/20/2029 $ 7,800,000 $ 117,000
US WEST Communications, Notes, 5.650%, 11/1/2004 $ 7,125,000 6,198,750
===========================================================================================================================
15,877,334
0.58 MOVIES & ENTERTAINMENT
AOL Time Warner, Notes
6.875%, 5/1/2012 $ 1,695,000 1,527,086
6.750%, 4/15/2011 $ 400,000 365,018
===========================================================================================================================
1,892,104
1.87 MULTI-UTILITIES
Aquila Inc, Sr Notes(a), 11.875%, 7/1/2012 $ 1,595,000 1,212,200
Avista Corp, 1st Mortgage, 7.750%, 1/1/2007 $ 3,000,000 3,031,380
Western Resources, Sr Notes, 7.125%, 8/1/2009 $ 2,194,000 1,896,744
===========================================================================================================================
6,140,324
0.51 OIL & GAS EXPLORATION & PRODUCTION
Parker & Parsley Petroleum, Sr Notes, 8.250%, 8/15/2007 $ 1,665,000 1,680,383
===========================================================================================================================
0.55 OIL & GAS REFINING & MARKETING
Vintage Petroleum, Sr Notes, 8.250%, 5/1/2012 $ 1,800,000 1,800,000
===========================================================================================================================
1.51 PAPER PACKAGING
Appleton Papers, Sr Sub Notes, Series B, 12.500%, 12/15/2008 $ 790,000 817,650
Chesapeake Corp, Deb, 7.200%, 3/15/2005 $ 4,400,000 4,136,000
===========================================================================================================================
4,953,650
0.15 PAPER PRODUCTS
Georgia-Pacific Corp, Notes, 8.125%, 5/15/2011 $ 535,000 489,525
===========================================================================================================================
0.58 PUBLISHING & PRINTING
Mail-Well Inc, Sr Notes(a), 9.625%, 3/15/2012 $ 2,740,000 1,890,600
===========================================================================================================================
0.38 RAILROADS
Burlington Northern Santa Fe, Notes, 5.900%, 7/1/2012 $ 1,205,000 1,259,670
===========================================================================================================================
0.56 REAL ESTATE INVESTMENT TRUSTS
Ventas Realty LP/Ventas Capital, Sr Notes, 8.750%, 5/1/2009 $ 1,825,000 1,843,250
===========================================================================================================================
0.48 SPECIALTY CHEMICALS
IMC Global, Sr Notes, 11.250%, 6/1/2011 $ 1,450,000 1,566,000
===========================================================================================================================
0.29 STEEL
Alltrista Corp, Sr Sub Notes(a), 9.750%, 5/1/2012 $ 985,000 955,450
===========================================================================================================================
2.99 WIRELESS TELECOMMUNICATION SERVICES
AT&T Wireless Services, Sr Serial Notes
8.125%, 5/1/2012 $ 2,495,000 2,133,225
6.875%, 4/18/2005 $ 1,500,000 1,350,000
Nextel Communications, Sr Serial Notes, 9.375%, 11/15/2009 $ 3,205,000 2,499,900
Rogers Cantel, Sr Secured Deb, 9.750%, 6/1/2016 $ 1,325,000 834,750
VoiceStream Wireless, Sr Notes, 10.375%, 11/15/2009 $ 3,000,000 3,000,000
===========================================================================================================================
9,817,875
TOTAL CORPORATE BONDS (Amortized Cost $277,365,626) 223,670,501
===========================================================================================================================
TOTAL FIXED INCOME SECURITIES (AMORTIZED COST $360,464,883) 310,901,894
===========================================================================================================================
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
0.00 WARRANTS
0.00 INTEGRATED TELECOMMUNICATION SERVICES
McLeodUSA Inc Class A Warrants(h)(i) (Exp 2007) 17,844 $ 1,606
===========================================================================================================================
0.00 INTEGRATED TELECOMMUNICATION SERVICES -- LONG DISTANCE
Ntelos Inc Warrants(a)(h) (Exp 2010) 3,750 7,031
===========================================================================================================================
TOTAL WARRANTS (COST $48,851) 8,637
===========================================================================================================================
0.28 PREFERRED STOCKS
0.00 ALTERNATIVE CARRIERS
Global Crossing Ltd, Conv Pfd(j), 6.750% 9,000 450
===========================================================================================================================
0.01 INTEGRATED TELECOMMUNICATION SERVICES
McLeodUSA Inc, Conv Pfd, Series A Shrs(h)(i), 2.500% 8,052 17,956
===========================================================================================================================
0.27 MOVIES & ENTERTAINMENT
CSC Holdings, Conv Pfd, Series H Shrs, 11.750% 14,600 890,600
===========================================================================================================================
TOTAL PREFERRED STOCKS (COST $3,080,312) 909,006
===========================================================================================================================
0.24 OTHER SECURITIES -- ELECTRIC UTILITIES
Alliant Energy Resources, Sr Sub Exchangeable Step-Down Notes(a),
PAY PHONES(l) 7.250%(m), 2/15/2030 (Each shr exchangeable for
2.5 shrs McLeodUSA Inc(i) cmn stk) (Cost $1,873,125) 30,000 768,750
===========================================================================================================================
3.40 SHORT-TERM INVESTMENTS
1.16 CORPORATE BONDS
0.09 CABLE & SATELLITE OPERATORS
Adelphia Communications, Sr Notes(c)(d), 9.250%, 10/1/2002 $ 850,000 282,625
===========================================================================================================================
1.07 MULTI-UTILITIES
AES Corp, Sr Notes, 8.750%, 12/15/2002 $ 4,000,000 3,520,000
===========================================================================================================================
TOTAL CORPORATE BONDS (Amortized Cost $4,821,574) 3,802,625
===========================================================================================================================
2.24 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 8/30/2002 due
9/3/2002 at 1.810%, repurchased at $7,367,481 (Collateralized
by Fannie Mae, Benchmark Notes, due 11/17/2011 at 5.000%, value
$7,513,189) (Cost $7,366,000) $ 7,366,000 7,366,000
===========================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $12,187,574) 11,168,625
===========================================================================================================================
98.61 TOTAL INVESTMENTS AT VALUE
(Amortized Cost $377,654,745) 323,756,912
===========================================================================================================================
1.39 OTHER ASSETS LESS LIABILITIES 4,571,383
===========================================================================================================================
100.00 NET ASSETS AT VALUE $ 328,328,295
===========================================================================================================================
TAX-FREE BOND FUND
96.75 MUNICIPAL BONDS
1.22 ALABAMA
Jefferson Cnty, Alabama (FSA Insured), Ltd Oblig School Warrants,
Series 2000, 5.500%, 2/15/2020 $ 1,250,000 $ 1,327,550
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Lauderdale Cnty & Florence City Hlth Care Auth, Alabama
(Coffee Health Group) (MBIA Insured), Rev, Series 2000-A,
6.000%, 7/1/2029 $ 1,000,000 $ 1,092,020
===========================================================================================================================
2,419,570
1.12 ALASKA
Alaska Hsg Fin (MBIA Insured), State Bldg Lease, Series 1999,
5.750%, 4/1/2017 $ 2,000,000 2,118,060
Alaska Indl Dev & Export Auth, Ref Revolving Fund, Series 1994A,
Lots 1-29, 5.700%, 4/1/2004 $ 85,000 89,992
===========================================================================================================================
2,208,052
2.20 ARIZONA
Arizona Edl Ln Mktng (Student Lns Insured), Edl Ln Rev,
Series 1992B, 7.000%, 3/1/2005 $ 1,000,000 1,017,050
Phoenix Civic Impt, Arizona (FGIC Insured), Jr Lien Wastewtr
System Rev, Series 2000, 5.700%,
7/1/2008 $ 1,055,000 1,199,925
7/1/2009 $ 1,275,000 1,458,906
Pima Cnty Indl Dev Auth, Arizona (Radisson City Ctr Hotel Proj),
Ref Rev, 6.500%,
12/1/2007 $ 325,000 329,469
12/1/2008 $ 345,000 350,630
===========================================================================================================================
4,355,980
0.26 ARKANSAS
North Little Rock Hlth Facils Brd, Arkansas (Baptist Hlth),
Hlth Care Rev, Series 2001, 5.700%, 7/1/2022 $ 500,000 517,295
===========================================================================================================================
1.71 CALIFORNIA
Big Bear Lake Dept of Wtr & Pwr, California (MBIA Insured),
Wtr Rev Ref, Series 1996, 6.000%, 4/1/2022 $ 2,000,000 2,356,180
Los Angeles Cmnty Redev Agy, California (Cinerama Dome Pub
Pkg Proj) (ACA Insured), Pkg System Rev, Series 2000A, 5.750%,
7/1/2026 $ 1,000,000 1,038,620
===========================================================================================================================
3,394,800
1.20 COLORADO
Clear Creek Cnty, Colorado (School Dist RE-1) (FSA Insured),
Gen Oblig Ref, Series 2002, 5.000%, 12/1/2019 $ 500,000 520,925
El Paso Cnty, Colorado (El Paso Cnty School Dist #2 - Harrison)
(FGIC Insured), Gen Oblig, Series 2001, 5.250%, 12/1/2026 $ 1,000,000 1,025,180
Montrose Cnty Bldg Auth, Colorado, Ctfs of Participation,
Series 1994, 6.350%, 6/15/2006 $ 300,000 322,053
Univ of Colorado Hosp Auth, Rev, Series 2001A, 5.600%, 11/15/2031 $ 500,000 508,785
===========================================================================================================================
2,376,943
0.62 DISTRICT OF COLUMBIA
District of Columbia, Gen Oblig Ref, Series 1994A-3, 5.200%,
6/1/2003 $ 10,000 10,286
District of Columbia (George Washington Univ Issue) (MBIA
Insured), Univ Rev, Series 2001A, 5.125%, 9/15/2031 $ 1,000,000 1,002,680
District of Columbia (Mandarin Oriental Hotel Proj) (FSA
Insured), Tax Increment Rev, Series 2002, 5.250%, 7/1/2022 $ 200,000 205,770
===========================================================================================================================
1,218,736
0.62 FLORIDA
Escambia Cnty Hlth Care Facils Auth, Florida (VHA Prog) (AMBAC
Insured), Hlth Care Facil Rev, Series 2000A, 5.950%, 7/1/2020 $ 1,000,000 1,152,370
Miami Beach Redev Agency, Florida (City Ctr/Historic Convention Vlg),
Tax Increment Rev, Series 1993, 5.100%, 12/1/2003 $ 80,000 83,047
===========================================================================================================================
1,235,417
1.04 GEORGIA
Gwinnett Cnty Wtr & Sewerage Auth, Georgia, Rev, Series 2002,
5.250%, 8/1/2024 $ 2,000,000 2,064,520
===========================================================================================================================
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
7.99 ILLINOIS
Boone McHenry & DeKalb Cntys, Illinois (Cmnty Unit School Dist
#100 (Belvidere))(FSA Insured), Gen Oblig, Series 1997, Cap
Appreciation Rev, 12/1/2010 $ 2,720,000 $ 1,960,902
Chicago, Illinois (AMBAC Insured), Gen Oblig, Ref Rev, Series
1993B, 5.125%, 1/1/2022 $ 2,565,000 2,682,374
Chicago, Illinois (FGIC Insured), Gen Oblig, Proj & Ref Rev,
Series 2000C, 5.500%, 1/1/2040 $ 1,000,000 1,031,110
Chicago, Illinois (Peoples Gas Light & Coke), Gas Supply Rev,
1st & Ref Mtg, Medium-Term Notes, Series CC, 6.875%, 3/1/2015 $ 2,875,000 2,974,993
Illinois Dept Cent Mgmt Svcs (MBIA Insured), Ctfs of Participation,
Series 1999, 5.850%, 7/1/2019 $ 1,750,000 1,900,500
Illinois Dev Fin Auth (Catholic Charities Hsg Dev Proj), Rev,
Series 1995, 6.350%, 1/1/2025 $ 1,500,000 1,497,765
Illinois Edl Facils Auth (Robert Morris College) (MBIA Insured),
Rev, Series 2000, 5.750%, 6/1/2020 $ 1,305,000 1,397,512
Metro Pier & Exposition Auth, Illinois (McCormick Pl Expansion
Proj) (MBIA Insured), Series 2002A, 5.000%, 12/15/2028 $ 1,000,000 994,330
Will Cnty, Illinois (School Dist #122) (FSA Insured), Gen Oblig,
Series 2000A, 6.500%, 11/1/2014 $ 1,165,000 1,384,090
===========================================================================================================================
15,823,576
11.78 INDIANA
DeKalb Cnty Redev Auth, Indiana (Mini-Mill Loc Pub Impt Proj), Rev,
Series A 1995, 6.500%, 1/15/2014 $ 900,000 968,031
Greencastle Multi-School Building, Indiana (Putnam Cnty) (FGIC
Insured), 1st Mtg Ref, Series 2002, 5.000%, 1/10/2024 $ 1,500,000 1,503,585
Hamilton Southeastern Cumberland Campus School Bldg, Indiana
(Hamilton Cnty) (AMBAC Insured), 1st Mtg, Series 2001, 5.125%,
1/15/2023 $ 1,000,000 1,013,170
Indiana Bd Bank (Hendricks Cmnty Fing Hosp Prog) (AMBAC Insured),
Special Prog Rev, Series 2002D, 5.250%, 4/1/2026 $ 500,000 508,390
Indiana Transn Fin Auth, Airport Facils Lease Rev, Series A,
6.750%, 11/1/2011 $ 1,500,000 1,542,810
Indianapolis, Indiana (MBIA Insured), Thermal Energy System Rev,
Series 2001A, 5.000%, 10/1/2011 $ 2,500,000 2,739,275
Mt Vernon of Hancock Cnty Multi-School Bldg, Indiana (Hancock Cnty),
1st Mtg, Series 2001A, 5.450%, 7/15/2022 $ 1,000,000 1,032,750
Northern Wells Cmnty School Bldg, Indiana (Wells Cnty)
(FGIC Insured), 1st Mtg, Series 2002, 5.400%, 7/15/2023 $ 500,000 519,900
Petersburg, Indiana (Indiana Pwr & Light Proj), PCR Ref, Series
1991, 5.750%, 8/1/2021 $ 1,500,000 1,420,005
(MBIA Insured), PCR Ref, Series 1993B, 5.400%, 8/1/2017 $ 9,850,000 10,997,525
St Joseph Cnty Hosp Auth, Indiana (Memorial Hlth System)
(AMBAC Insured), Hlth System Rev, Series 2000, 5.625%, 8/15/2033 $ 1,000,000 1,084,930
===========================================================================================================================
23,330,371
0.53 KANSAS
Overland Park Dev, Kansas (Overland Park Convention Ctr
Hotel Proj), 1st Tier Rev, Series 2000A, 7.375%, 1/1/2032 $ 1,000,000 1,042,200
===========================================================================================================================
5.53 LOUISIANA
Lafayette, Louisiana (FGIC Insured), Pub Impt Sales Tax Rev,
Series 2000A, 5.500%, 3/1/2023 $ 1,000,000 1,054,150
Louisiana Loc Govt Envir Facils Cmnty Dev Auth, (Bossier Parish
Cmnty College-Campus Facils Proj)(MBIA Insured), Rev, Series
2002, 5.125%, 12/1/2024 $ 1,000,000 1,012,760
Louisiana Loc Govt Envir Facils Cmnty Dev Auth, (Cap Proj & Equip
Acquisition Prog), Rev, (ACA Insured), Series 2000, 6.550%,
9/1/2025 $ 6,000,000 6,674,400
(AMBAC Insured), Series 2000A, 6.300%, 7/1/2030 $ 1,000,000 1,167,700
(Parking Facils Garage Proj) (AMBAC Insured), Rev, Series 2001A,
5.200%, 10/1/2020 $ 760,000 789,678
Louisiana Pub Facils Auth (Dillard Univ Proj) (AMBAC Insured),
Subordinate Rev, Series 2002B, 5.300%, 8/1/2026 $ 250,000 256,265
===========================================================================================================================
10,954,953
0.25 MARYLAND
Anne Arundel Cnty, Maryland (Parole Town Ctr Proj), Tax Increment Fing,
Series 2002, 5.000%, 7/1/2012 $ 500,000 502,575
===========================================================================================================================
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
5.89 MASSACHUSETTS
Boston Wtr & Swr Commn, Massachusetts (MBIA Insured), Gen Rev,
1993, Sr Series A, 5.250%, 11/1/2019 $ 5,385,000 $ 5,870,673
Commonwealth of Massachusetts, Gen Oblig, Cons Ln of 2000,
Series A, 5.750%, 2/1/2009 $ 785,000 896,658
Massachusetts Dev Fin Agency (Boston Univ Issue) (Instn Insured),
Rev, Series P, 6.000%, 5/15/2059 $ 4,500,000 4,887,090
===========================================================================================================================
11,654,421
4.35 MICHIGAN
Allegan Pub School Dist, Michigan (FSA Insured), 2000 School
Bldg & Site, Gen Oblig, Unltd Tax, Series 2000, 5.750%, 5/1/2030 $ 500,000 535,760
Caledonia Cmnty Schools, Michigan (Kent, Allegan & Barry Cntys)
(FGIC Insured), 2000 School Bldg & Site, Gen Oblig, Unltd Tax,
5.500%, 5/1/2023 $ 1,000,000 1,042,440
Huron School Dist, Michigan (Wayne & Monroe Cntys) (FSA Insured),
2001 School Bldg & Site, Gen Oblig, Unltd Tax, 5.375%, 5/1/2026 $ 500,000 515,930
Jackson Brownfield Redev Auth, Michigan (Jackson Cnty) (FGIC
Insured), Gen Oblig, Ltd Tax Increment, Series 2002, 5.125%,
6/1/2024 $ 1,000,000 1,015,160
Lake Orion Cmnty School Dist, Michigan (Oakland Cnty) (FGIC
Insured), 2000 School Bldg & Site, Gen Oblig Unltd Tax, Series A,
6.000%, 5/1/2018 $ 500,000 585,850
Michigan Hosp Fin Auth (Ascension Hlth Credit Group) (MBIA
Insured), Rev, Series 1999A, 5.500%, 11/15/2007 $ 3,000,000 3,362,040
Michigan Strategic Fund (Detroit Edison Pollution Ctl Bds Proj),
Ltd Oblig, Ref Rev, Collateralized Series 2001C, 5.450%, 9/1/2029 $ 500,000 500,155
Newaygo Pub Schools, Michigan (Newaygo Cnty), 2000 School Bldg & Site,
Gen Oblig, Unltd Tax, 5.500%, 5/1/2021 $ 1,000,000 1,050,940
===========================================================================================================================
8,608,275
0.21 MINNESOTA
Minneapolis - St Paul Metro Airports Commn, Minnesota (Northwest
Airlines Proj), Special Facils Rev, Series 2001A, 7.000%, 4/1/2025 $ 500,000 404,860
===========================================================================================================================
0.52 MISSISSIPPI
Mississippi Hosp Equip & Facils Auth (Forrest Cnty Gen Hosp Proj)
(FSA Insured), Rev, Series 2000, 5.500%, 1/1/2027 $ 1,000,000 1,035,570
===========================================================================================================================
1.06 MISSOURI
Missouri Hlth & Edl Facils Auth (Washington Univ), Hlth Facils Rev,
Series 2001A, 5.125%, 6/15/2041 $ 1,250,000 1,247,288
Missouri Hsg Dev Cmmn (FHA Insured), Multifamily Hsg Rev,
2001 Series II, 5.375%, 12/1/2018 $ 830,000 856,768
===========================================================================================================================
2,104,056
1.16 NEVADA
Clark Cnty, Nevada (FGIC Insured), Airport System Subordinate
Lien Rev, Series 2001B, 5.125%, 7/1/2021 $ 2,250,000 2,287,778
===========================================================================================================================
2.46 NEW JERSEY
New Jersey Hlth Care Facils Fing Auth (St Peters Univ Hosp), Rev,
Series 2000A, 6.875%, 7/1/2020 $ 500,000 535,360
New Jersey Transn Trust Fund Auth, Transn System Dev, Series 1999A,
5.500%, 6/15/2010 $ 1,670,000 1,882,608
Tobacco Settlement Fing, New Jersey, Tobacco Settlement Rev, Asset
Backed, Series 2002
6.000%, 6/1/2037 $ 500,000 488,610
5.375%, 6/1/2018 $ 2,000,000 1,962,960
===========================================================================================================================
4,869,538
2.75 NEW MEXICO
Los Alamos Cnty, New Mexico (FSA Insured), Util System Rev,
Series 1994A, 6.000%, 7/1/2009 $ 5,000,000 5,444,800
===========================================================================================================================
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
6.92 NEW YORK
Metro Transn Auth, New York (FGIC Insured), State Svc
Contract Ref, Series 2002A, 5.000%, 7/1/2025 $ 500,000 $ 501,655
New York & New Jersey Port Auth, Cons Gen Oblig Rev,
Ninety-Third Series, 6.125%, 6/1/2094 $ 5,250,000 6,081,758
New York City Muni Wtr Fin Auth, New York, Wtr & Swr System
Rev, Fiscal 2000 Series B,
Prerefunded, 6.000%, 6/15/2033 $ 935,000 1,114,127
Unrefunded, 6.000%, 6/15/2033 $ 565,000 658,558
Triborough Bridge & Tunnel Auth, New York, Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 $ 1,935,000 2,043,205
Series Y, 5.500%, 1/1/2017 $ 2,900,000 3,298,866
===========================================================================================================================
13,698,169
3.70 OHIO
Cleveland, Ohio (MBIA Insured), Wtrwks Impt 1st Mtg Ref Rev,
Series G, 1993, 5.500%, 1/1/2021 $ 3,300,000 3,686,892
Ohio Wtr Dev Auth (Cleveland Elec Illum Proj), PCR Ref,
Series 1999-A, 5.580%, 6/15/2033 $ 3,000,000 3,060,720
Plain Loc School Dist, Ohio (Franklin & Licking Cntys) (FGIC
Insured), Gen Oblig, Unltd Tax, Series 2000, 6.000%, 12/1/2025 $ 500,000 580,890
===========================================================================================================================
7,328,502
1.83 OKLAHOMA
Jenks Aquarium Auth, Oklahoma (MBIA Insured), 1st Mtg Rev,
Series 2000, 6.000%, 7/1/2020 $ 800,000 898,752
Oklahoma City Airport Trust, Oklahoma (FSA Insured), Jr Lien Rev,
Twenty-Seventh Series, Series A, 5.125%, 7/1/2020 $ 2,675,000 2,732,860
===========================================================================================================================
3,631,612
0.52 PENNSYLVANIA
Spring-Ford Area School Dist, Pennsylvania (Montgomery & Chester
Cntys) (FSA Insured), Gen Oblig, Series 2002, 5.000%, 4/1/2022 $ 1,015,000 1,029,910
===========================================================================================================================
0.69 RHODE ISLAND
Providence Pub Bldgs Auth, Rhode Island (School Proj) (FSA Insured),
Rev, Series 2000A, 5.750%, 12/15/2016 $ 1,210,000 1,359,629
===========================================================================================================================
1.01 SOUTH DAKOTA
Aberdeen School Dist #6-1, South Dakota (Brown Cnty) (FSA Insured),
Gen Oblig, Series 2000, 5.450%, 1/1/2026 $ 1,940,000 2,006,949
===========================================================================================================================
21.24 TEXAS
Austin, Texas (AMBAC Insured), Combined Util Systems Rev Ref,
Series 1992, Cap Appreciation, 11/15/2011 $ 1,400,000 957,026
Cisco Jr College Dist Board of Regents, Texas (Eastland Cnty)
(AMBAC Insured), Cons Rev & Ref, Series 2002, 5.125%, 7/1/2022 $ 785,000 800,056
Comal Indpt School Dist, Texas (Comal Cnty) (PSFG Insured),
Unltd Tax School Bldg & Ref, Series 2001, 5.250%, 2/1/2028 $ 1,000,000 1,015,690
Denton, Texas (FSA Insured), Util System Rev Ref, Series 2000A,
5.400%, 12/1/2013 $ 1,000,000 1,100,550
Galena Park Indpt School Dist, Texas (Harris Cnty) (PSFG Insured),
Unltd Tax School Bldg & Ref, Series 1996, Cap Appreciation,
8/15/2023 $ 2,000,000 640,760
Harris Cnty, Texas (MBIA Insured), Gen Oblig Rev Ref, Series 2002,
5.125%, 8/15/2031 $ 1,000,000 1,005,300
Houston Sports Auth, Texas (Harris Cnty) (MBIA Insured), Jr Lien
Rev Ref, Series 2001B, 5.250%, 11/15/2040 $ 2,000,000 2,017,680
Jefferson Cnty, Texas (FGIC Insured), Gen Oblig, Ref, Series 2002A,
5.250%, 8/1/2025 $ 3,220,000 3,275,577
Laredo Cmnty College Dist, Texas (Webb Cnty) (AMBAC Insured),
Special Oblig, Ltd Tax, Series 2002, 5.250%, 8/1/2027 $ 1,000,000 1,015,700
Little Elm Indpt School Dist, Texas (Denton Cnty) (PSFG Insured),
Unltd Tax School Bldg & Ref, Series 1999, 6.000%, 8/15/2035 $ 1,500,000 1,625,415
Lubbock Hlth Facils Dev, Texas (St Joseph Hlth System), Rev,
Series 1998, 5.250%, 7/1/2013 $ 2,000,000 2,092,680
Montgomery Cnty, Texas (FGIC Insured), Perm Impt Rev, Series 2000,
5.250%, 9/1/2020 $ 1,000,000 1,036,370
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
Nacogdoches Indpt School Dist, Texas (PSFG Insured), Unltd Tax
School Bldg & Ref, Series 2001, 5.300%, 2/15/2025 $ 1,000,000 $ 1,017,110
North Cent Texas Hlth Facils Dev (MBIA Insured), Hlth Resources
System Rev, Series 1997B, 5.750%, 2/15/2012 $ 2,000,000 2,215,000
Nueces River Auth, Texas (City of Corpus Christi Lake Texana Proj)
(FSA Insured), Wtr Supply Facils Rev, Series 1997, 5.500%, 3/1/2027 $ 1,900,000 1,946,303
San Antonio, Texas (Brexar Cnty), Wtr System Rev & Ref, Series 1999,
5.875%, 5/15/2018 $ 1,000,000 1,091,370
San Antonio, Texas, Gen Impt Rev, Series 2000A, 5.375%, 2/1/2019 $ 1,185,000 1,247,734
Spring Branch Indpt School Dist, Texas (Harris Cnty) (PSFG Insured),
Ltd Tax Schoolhouse, Series 2000, 5.750%, 2/1/2024 $ 3,300,000 3,501,828
Texas Wtr Finl Assistance (State Participation Prog), Gen Oblig,
Series 1999C, 5.500%, 8/1/2024 $ 1,500,000 1,553,790
Town Ctr Impt Dist, Texas (Montgomery Cnty) (FGIC Insured), Sales
Tax & Hotel Occupancy Tax, Series 2001, 5.125%, 3/1/2021 $ 2,500,000 2,552,975
Waxahachie Indpt School Dist, Texas (Ellis Cnty) (PSFG Insured),
Unltd Tax School Bldg & Ref, Series 2002
5.375%, 8/15/2027 $ 2,645,000 2,708,612
5.250%, 8/15/2026 $ 1,400,000 1,421,182
5.250%, 8/15/2030 $ 2,890,000 2,935,807
West University Place, Texas (FGIC Insured), Perm Impt Rev,
Series 2000,
5.350%, 2/1/2020 $ 2,150,000 2,235,119
5.300%, 2/1/2018 $ 1,000,000 1,049,900
===========================================================================================================================
42,059,534
0.91 UTAH
South Jordan, Utah (Salt Lake Cnty)(AMBAC Insured), Sales Tax Rev,
Series 2001, 5.200%, 8/15/2026 $ 500,000 506,500
Utah Hsg Fin Agency (FHA/VA/FHMA Insured), Single Family Mtg, 1994
Issue D-1, Term Mezzanine, 6.450%, 7/1/2011 $ 215,000 224,621
West Valley City, Utah (AMBAC Insured), Sales Tax Rev, Series 2002 A,
5.000%, 7/15/2019 $ 1,035,000 1,065,346
===========================================================================================================================
1,796,467
0.42 VERMONT
Vermont Hsg Fin Agency, Single Family Hsg Rev, Series 5, 6.875%,
11/1/2016 $ 800,000 830,376
===========================================================================================================================
1.10 VIRGINIA
Fauquier Cnty Indl Dev Auth, Virginia (Fauquier Hosp Oblig Group),
Hosp Rev, Series 2002, 5.500%, 10/1/2017 $ 500,000 541,650
Virginia Hsg Dev Auth, Gen Oblig, Rental Hsg Rev, 2000 Series D,
5.700%, 4/1/2011 $ 1,500,000 1,636,275
===========================================================================================================================
2,177,925
1.40 WASHINGTON
Pierce Cnty, Washington (White River School Dist #416), Gen Oblig,
Unltd Tax, Series 2000, 5.350%, 12/1/2009 $ 1,550,000 1,745,781
Washington Hlth Care Facils Auth (Providence Hlth System) (MBIA
Insured), Rev, Series 2001A, 5.250%, 10/1/2021 $ 1,000,000 1,025,570
===========================================================================================================================
2,771,351
2.54 WISCONSIN
Adams Cnty, Wisconsin (Adams-Friendship School Dist) (AMBAC Insured),
Gen Oblig Ref, 6.500%, 4/1/2015 $ 1,340,000 1,647,289
South Milwaukee School Dist, Wisconsin (FGIC Insured), Gen Oblig,
Ref, Series B, 5.000%, 4/1/2022 $ 700,000 707,602
Wisconsin, Gen Oblig, Series 2000C, 5.500%, 5/1/2019 $ 2,500,000 2,668,800
===========================================================================================================================
5,023,691
TOTAL MUNICIPAL BONDS (AMORTIZED COST $177,450,151) 191,568,401
===========================================================================================================================
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
1.39 SHORT-TERM INVESTMENTS -- MUNICIPAL BONDS
0.86 ILLINOIS
Illinois Hlth Facil Auth, (Northwestern Memorial Hosp), Rev,
VRD, Series 1995, 1.800%, 8/15/2025(n) $ 1,700,000 $ 1,700,000
===========================================================================================================================
0.50 MISSOURI
Missouri Hlth & Edl Facil (Cox Hlth Systems), Rev Ref, VRD,
Series 1997, 1.800%, 6/1/2015(n) $ 1,000,000 1,000,000
===========================================================================================================================
0.03 NEVADA
Nevada Hsg Div (Single Family Prog), Sr Rev, 1994 Issue B-1,
5.900%, 4/1/2003 $ 55,000 56,004
===========================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $2,755,000) 2,756,004
===========================================================================================================================
98.14 TOTAL INVESTMENTS AT VALUE
(Amortized Cost $180,205,151) 194,324,405
===========================================================================================================================
1.86 OTHER ASSETS LESS LIABILITIES 3,674,459
===========================================================================================================================
100.00 NET ASSETS AT VALUE $ 197,998,864
===========================================================================================================================
US GOVERNMENT SECURITIES FUND
75.81 FIXED INCOME SECURITIES
37.48 US GOVERNMENT OBLIGATIONS
US Treasury Bonds
8.125%, 8/15/2019 $ 10,000,000 $ 13,625,000
7.500%, 11/15/2016 $ 20,000,000 25,529,680
US Treasury Notes
4.875%, 2/15/2012 $ 10,000,000 10,589,840
3.000%, 11/30/2003 $ 12,500,000 12,687,500
===========================================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS (Amortized Cost $59,022,656) 62,432,020
===========================================================================================================================
38.33 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation Certificates
5.500%, 7/1/2016 $ 13,518,282 13,839,531
5.500%, 12/1/2016 $ 9,301,113 9,522,145
5.000%, 11/1/2016 $ 9,500,130 9,574,404
Government National Mortgage Association I, Pass-Through Certificates
6.000%, 12/15/2028 $ 7,206,895 7,431,280
6.000%, 1/15/2029 $ 7,463,613 7,692,000
6.000%, 2/15/2029 $ 8,060,623 8,307,278
6.000%, 3/15/2029 $ 7,269,210 7,491,648
===========================================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Amortized Cost $61,384,775) 63,858,286
===========================================================================================================================
TOTAL FIXED INCOME SECURITIES (AMORTIZED COST $120,407,431) 126,290,306
===========================================================================================================================
21.94 SHORT-TERM INVESTMENTS
10.71 US GOVERNMENT OBLIGATIONS
US Treasury Notes, 3.875%, 7/31/2003 (Amortized Cost $17,718,875) $ 17,500,000 17,839,062
===========================================================================================================================
11.23 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 8/30/2002 due 9/3/2002
at 1.810%, repurchased at $18,720,764 (Collateralized by Federal
Home Loan Bank, Notes, due 5/14/2004 at 3.375%, value $19,099,446)
(Cost $18,717,000) $ 18,717,000 18,717,000
===========================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $36,435,875) 36,556,062
===========================================================================================================================
</Table>
COUNTRY SHARES, UNITS
CODE IF OR PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
97.75 TOTAL INVESTMENTS AT VALUE
(Amortized Cost $156,843,306) $ 162,846,368
===========================================================================================================================
2.25 OTHER ASSETS LESS LIABILITIES 3,749,135
===========================================================================================================================
100.00 NET ASSETS AT VALUE $ 166,595,503
===========================================================================================================================
(a) Securities acquired pursuant to Rule 144A. The fund deems such securities
to be "liquid" because an institutional market exists.
(b) Step-up securities are obligations which increase the interest rate at a
specific point in time. Rate shown reflects current rate which may step up
at a future date.
(c) The company filed for bankruptcy on June 25, 2002.
(d) Defaulted security. The issuer is in default with respect to interest
payments and the Fund has written off accrued interest.
(e) The company filed for bankruptcy on June 10, 2002.
(f) The company filed for bankruptcy on May 8, 2002.
(g) Defaulted security. The issuer is in default with respect to interest
payments.
(h) Security is non-income producing.
(i) The company filed for bankruptcy on January 31, 2002.
(j) The company filed for bankruptcy on January 28, 2002.
(k) Security is a payment-in-kind (PIK) security. PIK securities may make
interest payments in additional securities.
(l) PAY PHONES - Premium Accelerated Yield Participating Hybrid Option Note
Exchangeable Securities.
(m) Step-down securities are obligations which decrease the interest rate at a
specific point in time. Rate shown reflects current rate which may
step-down at a future date.
(n) All securities with a maturity date greater than one year have either a
variable rate, demand feature, prerefunded, optional or mandatory put
resulting in an effective maturity of one year or less. Rate shown reflects
current rate.
The following acronyms may be used in security descriptions:
ACA -- American Capital Access Financial Guaranty Corporation
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Flexible Guaranty Insurance Company
FHA -- Federal Housing Association
FHMA -- Federal Home Mortgage Association
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance Corporation
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guarantee Program
VA -- Veteran's Association
VHA -- Veteran's Housing Association
VRD(o) -- Variable Rate Demand
(o) Rate is subject to change. Rate shown reflects current rate.
SUMMARY OF INVESTMENTS BY COUNTRY
% OF
COUNTRY NET ASSETS
COUNTRY CODE AT VALUE VALUE
- --------------------------------------------------------------------------------
HIGH YIELD FUND
Bermuda BD 0.00% $ 1,947
Canada CA 7.86 20,887,038
Ireland IE 1.76 4,683,904
United Kingdom UK 2.14 5,694,653
United States 87.17 231,560,312
Other Assets Less Liabilities 1.07 2,831,377
================================================================================
100.00% $ 265,659,231
================================================================================
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO BOND FUNDS, INC.
AUGUST 31, 2002
HIGH SELECT
YIELD INCOME
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 434,236,659 $ 377,654,745
================================================================================
At Value(a) $ 262,827,854 $ 323,756,912
Cash 75,872 0
Receivables:
Fund Shares Sold 406,797 426,489
Interest 5,575,663 5,031,102
Prepaid Expenses and Other Assets 55,996 76,500
================================================================================
TOTAL ASSETS 268,942,182 329,291,003
================================================================================
LIABILITIES
Payables:
Custodian 0 9,196
Distributions to Shareholders 311,487 100,814
Investment Securities Purchased 2,032,503 299,922
Fund Shares Repurchased 794,031 410,421
Accrued Distribution Expenses
Investor Class 54,701 66,286
Class A 144 75
Class B 135 71
Class C 3,522 1,351
Class K 294 1,980
Accrued Expenses and Other Payables 86,134 72,592
================================================================================
TOTAL LIABILITIES 3,282,951 962,708
================================================================================
NET ASSETS AT VALUE $ 265,659,231 $ 328,328,295
================================================================================
NET ASSETS
Paid-in Capital(b) $ 763,631,606 $ 471,429,053
Accumulated Undistributed Net Investment Income 351,326 26,756
Accumulated Undistributed Net Realized Loss on
Investment Securities (326,914,896) (89,229,681)
Net Depreciation of Investment Securities (171,408,805) (53,897,833)
================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 265,659,231 $ 328,328,295
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 259,795,355 $ 321,228,005
================================================================================
Class A $ 672,148 $ 280,577
================================================================================
Class B $ 179,569 $ 90,446
================================================================================
Class C $ 4,222,393 $ 1,632,486
================================================================================
Class K $ 789,766 $ 5,096,781
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO BOND FUNDS, INC.
AUGUST 31, 2002
HIGH SELECT
YIELD INCOME
FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 82,788,852 63,895,771
Class A 211,434 55,850
Class B 57,408 17,996
Class C 1,351,623 324,765
Class K 252,163 1,014,338
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price
per Share $ 3.14 $ 5.03
Class A
Redemption Price per Share $ 3.18 $ 5.02
Offering Price per Share (Maximum sales
charge of 4.75%) $ 3.34 $ 5.27
Class B, Offering and Redemption Price
per Share $ 3.13 $ 5.03
Class C, Offering and Redemption Price
per Share $ 3.12 $ 5.03
Class K, Offering and Redemption Price
per Share $ 3.13 $ 5.02
================================================================================
(a) Investment securities at cost and value at August 31, 2002 include
repurchase agreements of $25,488,000 and $7,366,000 for High Yield and
Select Income Funds, respectively.
(b) The INVESCO Bond Funds, Inc. have 4.5 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 1.7 billion have been
allocated to High Yield Fund and 1.5 billion to Select Income Fund: 400
million to High Yield Fund - Investor Class, 300 million to High Yield Fund
- Class A, 300 million to High Yield Fund - Class B, 300 million to High
Yield Fund - Class C, 400 million to High Yield Fund - Class K and 300
million to each class of Select Income Fund.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO BOND FUNDS, INC.
AUGUST 31, 2002
U.S.
TAX FREE GOVERNMENT
BOND SECURITIES
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 180,205,151 $ 156,843,306
================================================================================
At Value(a) $ 194,324,405 $ 162,846,368
Cash 93,416 0
Receivables:
Fund Shares Sold 2,404,419 3,125,308
Interest 2,224,273 954,659
Prepaid Expenses and Other Assets 32,381 32,727
================================================================================
TOTAL ASSETS 199,078,894 166,959,062
================================================================================
LIABILITIES
Payables:
Custodian 0 11,934
Distributions to Shareholders 174,568 23,422
Investment Securities Purchased 701,328 0
Fund Shares Repurchased 108,974 261,961
Accrued Distribution Expenses
Investor Class 40,943 33,138
Class A 66 306
Class B 214 804
Class C 703 3,781
Accrued Expenses and Other Payables 53,234 28,213
================================================================================
TOTAL LIABILITIES 1,080,030 363,559
================================================================================
NET ASSETS AT VALUE $ 197,998,864 $ 166,595,503
================================================================================
NET ASSETS
Paid-in Capital(b) $ 185,840,816 $ 162,171,636
Accumulated Undistributed Net Investment
Income (Loss) 4,036 (9,320)
Accumulated Undistributed Net Realized Loss on
Investment Securities (1,965,242) (1,569,875)
Net Appreciation of Investment Securities 14,119,254 6,003,062
================================================================================
NET ASSETS AT VALUE, Applicable to Shares
Outstanding $ 197,998,864 $ 166,595,503
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 196,672,621 $ 158,973,905
================================================================================
Class A $ 228,895 $ 1,331,130
================================================================================
Class B $ 300,693 $ 981,378
================================================================================
Class C $ 796,655 $ 5,309,090
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO BOND FUNDS, INC.
AUGUST 31, 2002
U.S.
TAX FREE GOVERNMENT
BOND SECURITIES
FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 12,637,398 20,793,285
Class A 14,706 142,993
Class B 19,319 128,228
Class C 45,308 694,758
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price
per Share $ 15.56 $ 7.65
Class A
Redemption Price per Share $ 15.56 $ 9.31
Offering Price per Share (Maximum sales
charge of 4.75%) $ 16.34 $ 9.77
Class B, Offering and Redemption Price
per Share $ 15.56 $ 7.65
Class C, Offering and Redemption Price
per Share $ 17.58 $ 7.64
================================================================================
(a) Investment securities at cost and value at August 31, 2002 includes a
repurchase agreement of $18,717,000 for U.S. Government Securities Fund.
(b) The INVESCO Bond Funds, Inc. have 4.5 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 400 million have been
allocated to Tax-Free Bond Fund and 400 million to U.S. Government
Securities Fund: 100 million to each Class.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
INVESCO BOND FUNDS, INC.
YEAR ENDED AUGUST 31, 2002 (NOTE 1)
HIGH SELECT
YIELD INCOME
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 2,684,159 $ 280,903
Dividends from Affiliated Investment Companies 31,246 83,888
Interest 40,763,366 31,691,937
Foreign Taxes Withheld (7,700) 0
================================================================================
TOTAL INCOME 43,471,071 32,056,728
================================================================================
EXPENSES
Investment Advisory Fees 1,737,799 2,234,290
Distribution Expenses 944,844 1,103,469
Transfer Agent Fees 1,717,410 2,140,193
Administrative Services Fees 172,514 202,062
Custodian Fees and Expenses 47,874 60,341
Directors' Fees and Expenses 25,740 30,679
Interest Expenses 525 2,548
Professional Fees and Expenses 42,246 43,964
Registration Fees and Expenses - Investor Class 51,688 50,320
Reports to Shareholders 169,388 155,365
Other Expenses 32,950 33,708
================================================================================
TOTAL EXPENSES 4,942,978 6,056,939
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (366,082) (1,488,249)
Fees and Expenses Paid Indirectly (3,550) (2,083)
================================================================================
NET EXPENSES 4,573,346 4,566,607
================================================================================
NET INVESTMENT INCOME 38,897,725 27,490,121
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (179,787,118) (51,675,879)
Change in Net Appreciation/Depreciation of
Investment Securities 52,264,710 (17,942,040)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (127,522,408) (69,617,919)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (88,624,683) $ (42,127,798)
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO BOND FUNDS, INC.
YEAR ENDED AUGUST 31, 2002 (NOTE 1)
U.S.
TAX FREE GOVERNMENT
BOND SECURITIES
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 9,960,249 $ 7,624,896
================================================================================
EXPENSES
Investment Advisory Fees 1,046,091 824,771
Distribution Expenses 483,529 422,758
Transfer Agent Fees 245,597 628,931
Administrative Services Fees 95,589 77,481
Custodian Fees and Expenses 18,941 20,409
Directors' Fees and Expenses 18,149 16,904
Interest Expenses 9,158 0
Professional Fees and Expenses 32,038 29,085
Registration Fees and Expenses - Investor Class 26,021 31,159
Reports to Shareholders 61,286 118,720
Other Expenses 36,069 8,935
================================================================================
TOTAL EXPENSES 2,072,468 2,179,153
Fees and Expenses Absorbed/Reimbursed by
Investment Adviser (345,925) (628,006)
Fees and Expenses Paid Indirectly (3,406) (272)
================================================================================
NET EXPENSES 1,723,137 1,550,875
================================================================================
NET INVESTMENT INCOME 8,237,112 6,074,021
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on Investment Securities 499,665 (942,947)
Change in Net Appreciation/Depreciation of
Investment Securities 822,363 4,531,395
================================================================================
NET GAIN ON INVESTMENT SECURITIES 1,322,028 3,588,448
================================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 9,559,140 $ 9,662,469
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
HIGH YIELD FUND
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1) (Note 1)
OPERATIONS
Net Investment Income $ 38,897,725 $ 78,892,907
Net Realized Loss (179,787,118) (94,872,861)
Change in Net Appreciation/Depreciation 52,264,710 (145,642,575)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (88,624,683) (161,622,529)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (38,254,815) (78,046,067)
Class A (13,248) --
Class B (5,198) --
Class C (530,389) (866,756)
Class K (74,387) (82)
================================================================================
TOTAL DISTRIBUTIONS (38,878,037) (78,912,905)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 61,637,196 344,223,716
Class A 1,432,329 --
Class B 219,698 --
Class C 4,648,460 18,856,651
Class K 1,248,753 3,421
Reinvestment of Distributions
Investor Class 33,291,866 69,899,826
Class A 7,627 --
Class B 4,897 --
Class C 340,555 526,875
Class K 74,387 82
================================================================================
102,905,768 433,510,571
Amounts Paid for Repurchases of Shares
Investor Class (226,473,317) (447,428,867)
Class A (752,541) --
Class B (34,473) --
Class C (6,558,133) (13,466,545)
Class K (385,319) (527)
================================================================================
(234,203,783) (460,895,939)
NET DECREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (131,298,015) (27,385,368)
================================================================================
TOTAL DECREASE IN NET ASSETS (258,800,735) (267,920,802)
NET ASSETS
Beginning of Period 524,459,966 792,380,768
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of
$351,326 and $7,943, respectively) $ 265,659,231 $ 524,459,966
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
SELECT INCOME FUND
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1) (Note 1)
OPERATIONS
Net Investment Income $ 27,490,121 $ 43,484,099
Net Realized Loss (51,675,879) (16,281,958)
Change in Net Appreciation/Depreciation (17,942,040) (13,229,686)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS (42,127,798) 13,972,455
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (27,098,344) (43,342,100)
Class A (5,628) --
Class B (1,369) --
Class C (105,117) (137,260)
Class K (284,456) (49)
================================================================================
TOTAL DISTRIBUTIONS (27,494,914) (43,479,409)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 194,511,191 604,640,596
Class A 283,239 --
Class B 90,056 --
Class C 982,308 9,032,375
Class K 7,884,951 1,927
Reinvestment of Distributions
Investor Class 25,174,430 40,658,026
Class A 5,628 --
Class B 1,346 --
Class C 96,422 114,478
Class K 284,456 49
================================================================================
229,314,027 654,447,451
Amounts Paid for Repurchases of Shares
Investor Class (423,307,119) (596,897,822)
Class A (5,603) --
Class B 0 --
Class C (1,989,997) (6,467,734)
Class K (2,530,537) (3)
================================================================================
(427,833,256) (603,365,559)
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (198,519,229) 51,081,892
================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (268,141,941) 21,574,938
NET ASSETS
Beginning of Period 596,470,236 574,895,298
================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income (Loss) of $26,756 and
($70,597), respectively) $ 328,328,295 $ 596,470,236
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
TAX-FREE BOND FUND
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1)
OPERATIONS
Net Investment Income $ 8,237,112 $ 8,125,206
Net Realized Gain 499,665 144,048
Change in Net Appreciation/Depreciation 822,363 9,678,547
================================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS 9,559,140 17,947,801
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (8,197,277) (8,109,942)
Class A (1,710) --
Class B (1,208) --
Class C (36,917) (15,264)
================================================================================
TOTAL DISTRIBUTIONS (8,237,112) (8,125,206)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 250,715,078 189,432,149
Class A 265,064 --
Class B 296,326 --
Class C 6,650,861 5,730,230
Reinvestment of Distributions
Investor Class 5,949,699 5,866,732
Class A 1,485 --
Class B 434 --
Class C 26,047 11,641
================================================================================
263,904,994 201,040,752
Amounts Paid for Repurchases of Shares
Investor Class (275,925,361) (168,618,984)
Class A (42,139) --
Class C (7,156,667) (4,503,068)
================================================================================
(283,124,167) (173,122,052)
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (19,219,173) 27,918,700
================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (17,897,145) 37,741,295
NET ASSETS
Beginning of Period 215,896,009 178,154,714
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income of $4,036
and $4,036, respectively) $ 197,998,864 $ 215,896,009
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1)
OPERATIONS
Net Investment Income $ 6,074,021 $ 5,081,163
Net Realized Gain (Loss) (942,947) 963,712
Change in Net Appreciation/Depreciation 4,531,395 3,652,173
================================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS 9,662,469 9,697,048
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (5,853,389) (5,010,664)
Class A (5,380) --
Class B (7,408) --
Class C (207,844) (70,499)
================================================================================
TOTAL DISTRIBUTIONS (6,074,021) (5,081,163)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 276,502,535 390,974,490
Class A 4,195,218 --
Class B 1,005,380 --
Class C 29,132,359 30,869,870
Reinvestment of Distributions
Investor Class 5,222,247 4,519,173
Class A 2,306 --
Class B 5,982 --
Class C 177,547 54,430
================================================================================
316,243,574 426,417,963
Amounts Paid for Repurchases of Shares
Investor Class (256,838,771) (344,357,835)
Class A (2,883,457) --
Class B (64,452) --
Class C (31,390,354) (23,847,332)
================================================================================
(291,177,034) (368,205,167)
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 25,066,540 58,212,796
================================================================================
TOTAL INCREASE IN NET ASSETS 28,654,988 62,828,681
NET ASSETS
Beginning of Period 137,940,515 75,111,834
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of ($9,320)
and ($5,573), respectively) $ 166,595,503 $ 137,940,515
================================================================================
See Notes to Financial Statements
NOTES TO FINANCIAL
STATEMENTS
INVESCO BOND FUNDS, INC.
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Bond Funds,
Inc. is incorporated in Maryland and presently consists of four separate Funds:
High Yield Fund, Select Income Fund, Tax-Free Bond Fund and U.S. Government
Securities Fund (individually the "Fund" and collectively, the "Funds"). The
investment objectives of the Funds are: to seek a high level of current income
for High Yield and Select Income Funds; to seek as high a level of current
income exempt from federal income taxes as is consistent with preservation of
capital for Tax-Free Bond Fund; and to seek a high level of current income by
investing in debt obligations issued by the U.S. Government or its agencies for
U.S. Government Securities Fund. INVESCO Bond Funds, Inc. is registered under
the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company.
Effective April 1, 2002, High Yield, Select Income, Tax-Free Bond and U.S.
Government Securities Funds began offering two additional classes of shares,
referred to as Class A and Class B shares. Effective December 14, 2000, High
Yield and Select Income Funds began offering an additional class of shares,
referred to as Class K shares. Income, expenses (other than those attributable
to a specific class) and realized and unrealized gains and losses are allocated
daily to each class of shares based on the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against operations of that class. Class A shares are
sold with a front-end sales charge ranging from 4.75% to 2.00% of the offering
price on purchases of less than $1,000,000. Class B shares and Class C shares
are subject to a contingent deferred sales charge paid by the redeeming
shareholder. Class B shares convert to Class A shares after eight years along
with a pro rata portion of its reinvested dividends and distributions. Certain
prior year information has been restated to conform to current year
presentation.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Debt securities are valued at evaluated bid prices as
determined by a pricing service approved by the Fund's board of directors. If
evaluated bid prices are not available, debt securities are valued by averaging
the bid prices obtained from one or more dealers making a market for such
securities.
Municipal securities (including commitments to purchase such securities on a
when-issued basis) are valued on the basis of prices provided by a pricing
service approved by the Fund's board of directors which, in determining values,
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities. Under these procedures, municipal securities are valued
based upon market quotations, if available.
Equity securities traded on national securities exchanges or in the
over-the-counter market are valued at the last sales price at the close of the
regular trading day on the exchange (generally 4:00 p.m. Eastern time) where
such securities are primarily traded. If last sales prices are not available,
securities are valued at the highest closing bid prices at the close of the
regular trading day as obtained from one or more dealers making a market for
such securities or by a pricing service approved by the Fund's board of
directors.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
If market quotations or pricing service valuations are not readily available,
securities are valued at fair value as determined in good faith under procedures
established by the Fund's board of directors. Restricted and illiquid securities
are valued in accordance with procedures established by the Fund's board of
directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation. In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount or amortized premium, is recorded on
the accrual basis. Cost is determined on the specific identification basis.
Interest on payment-in-kind debt securities is accrued based on the yield to
maturity at purchase date method. Discounts or premiums on debt securities
purchased are amortized over the life of the respective security as adjustments
to interest income. Investment income received from foreign sources may be
subject to foreign withholding taxes. Dividend and interest income is shown
gross of foreign withholding taxes in the accompanying financial statements.
During the year ended August 31, 2002, High Yield and Select Income Funds wrote
off accrued interest which amounted to $3,015,513 and $528,958, respectively.
During the year ended August 31, 2002, Select Income Fund was reimbursed for
certain trading losses, the amounts of which are insignificant.
Each Fund may invest in securities issued by other INVESCO investment companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share. During the year ended August 31, 2002, High Yield and
Select Income Funds invested in INVESCO Treasurer's Series Money Market Reserve
Fund. The income from this investment is recorded in the Statement of
Operations.
High Yield Fund invests primarily in high yield bonds, some of which may be
rated below investment grade. These high yield bonds may be more susceptible
than higher grade bonds due to real or perceived adverse economic or industry
conditions. The secondary market, on which high yield bonds are traded, may also
be less liquid than the market for higher grade bonds.
High Yield and Select Income Funds may have elements of risk due to investments
in specific industries or foreign issuers located in a specific country. Such
investments may subject the Fund to additional risks resulting from future
political or economic conditions and/or possible impositions of adverse foreign
governmental laws or currency exchange restrictions. Net realized and unrealized
gain or loss from investment securities includes fluctuations from currency
exchange rates and fluctuations in market value.
Investments in securities of U.S. Governmental agencies or instrumentalities may
only be guaranteed by the respective agency's limited authority to borrow from
the U.S. Government and may not be guaranteed by the full faith and credit of
the U.S. Government.
Restricted securities held by a Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded companies.
Lack of a secondary market and resale restrictions may result in the inability
of a Fund to sell a security at a fair price and may substantially delay the
sale of the security which each Fund seeks to sell. In addition, these
securities may exhibit greater price volatility than securities for which
secondary markets exist.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- All of the Fund's net
investment income is distributed to shareholders by dividends declared daily and
paid monthly. Income dividends are reinvested at the month-end net asset value.
The Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers.
E. TAX INFORMATION -- The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. Of the ordinary income distributions
declared for the year ended August 31, 2002, 99.75% were exempt from federal
income taxes for the Tax-Free Bond Fund. The tax composition of distributions
from ordinary income, long-term capital gains and of the ordinary income
distributions declared for the year ended August 31, 2002, amounts qualifying
for the dividends received deduction available to the Fund's corporate
shareholders were as follows:
ORDINARY INCOME QUALIFYING
FUND DISTRIBUTIONS PERCENTAGE
- --------------------------------------------------------------------------------
High Yield Fund $ 38,878,037 6.64%
Select Income Fund 27,494,914 1.02%
Tax-Free Bond Fund 8,237,112 0.00%
U.S. Government Securities Fund 6,074,021 0.00%
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting principles generally accepted
in the United States. Mortgage paydown gain/loss is treated as capital gains for
federal income tax purposes but is included in interest income in the Statement
of Operations.
During the current fiscal year, the Fund adopted the revised AICPA Audit and
Accounting Guide, AUDITS OF INVESTMENT COMPANIES, which requires disclosure of
tax components. The tax components of the Fund at August 31, 2002 include:
NET TAX
COST OF GROSS TAX GROSS TAX APPRECIATION
INVESTMENTS FOR UNREALIZED UNREALIZED (DEPRECIATION)
FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------
High Yield Fund $ 441,474,195 $ 2,229,356 $ 180,875,697 $ (178,646,341)
Select Income Fund 378,284,502 9,013,528 63,541,118 (54,527,590)
Tax-Free Bond Fund 180,205,151 14,269,773 150,519 14,119,254
U.S. Government Securities Fund 156,843,306 6,008,085 5,023 6,003,062
ACCUMULATED CUMULATIVE EFFECT
UNDISTRIBUTED CAPITAL LOSS OF OTHER
FUND ORDINARY INCOME CARRYOVERS TIMING DIFFERENCES
- ----------------------------------------------------------------------------------------------------
High Yield Fund $ 410,485 $ (175,836,034) $ (143,900,485)
Select Income Fund 72,069 (49,567,208) (39,078,029)
Tax-Free Bond Fund 30,147 (1,965,242) (26,111)
U.S. Government Securities Fund 0 (392,339) (1,186,856)
The primary difference between book and tax appreciation/depreciation is wash
sale loss deferrals.
Capital loss carryovers expire in the years 2003, 2004, 2006, 2007, 2008, 2009
and 2010. To the extent future capital gains and income are offset by capital
loss carryovers and deferred post-October 31 losses, such gains and income will
not be distributed to shareholders.
The cumulative effect of other timing differences includes deferred post-October
31 capital losses and deferred director's fees. Deferred post-October 31 capital
are: High Yield Fund $143,841,326, Select Income Fund $39,032,716 and U.S.
Government Securities Fund $1,177,536.
F. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Such credits are included in Fees and Expenses Paid
Indirectly in the Statement of Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Fund's average net
assets as follows:
AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------
$0 TO $300 TO OVER
$300 $500 $500
FUND MILLION MILLION MILLION
- ------------------------------------------------------------------------------------
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Tax-Free Bond Fund 0.55% 0.45% 0.35%
U.S. Government Securities Fund 0.55% 0.45% 0.35%
A sub-advisory Agreement between IFG and AIM Capital Management, Inc. ("AIM"),
affiliated with IFG, provides that investment decisions of Tax-Free Bond Fund
are made by AIM. Fees for such sub-advisory services are paid by IFG.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, of 0.25% of
annual average net assets of Investor Class shares. A master distribution plan
and agreement for Class A, Class B and Class C shares pursuant to Rule 12b-1 of
the Act provides for compensation of certain promotional and other sales related
costs to IDI. Class A shares of the Fund pay compensation to IDI at a rate of
0.35% of annual average net assets. During any period that Class A shares of the
Fund are closed to new investors, the Fund will reduce this payment for Class A
shares from 0.35% to 0.25% per annum. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average 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 applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class. A
plan of distribution pursuant to Rule 12b-1 of the Act provides for financing
the distribution and continuing personal shareholder servicing of Class K shares
of 0.45% of annual average net assets. Any unreimbursed expenses IDI incurs with
respect to Investor Class, Class A, Class C and Class K shares in any fiscal
year can not be recovered in subsequent years. For the year/period ended August
31, 2002, amounts paid to the Distributor were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ----------------------------------------------------------------------------------------------------
High Yield Fund $ 947,409 $ 291 $ 380 $ 56,890 $ 3,113
Select Income Fund 1,124,174 253 203 19,820 18,892
Tax-Free Bond Fund 475,112 85 162 10,703 --
U.S. Government Securities Fund 353,868 300 1,711 62,959 --
If the Class B Plan is terminated, the Board of Directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
period ended August 31, 2002, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- ----------------------------------------------------------------------------------------------
High Yield Fund - Class B Plan $ 525 $ 6,847 3.81%
Select Income Fund - Class B Plan 279 3,075 3.40%
Tax-Free Bond Fund - Class B Plan 372 4,467 1.49%
U.S. Government Securities Fund - Class B Plan 2,546 23,828 2.43%
Distribution Expenses for each class as presented in the Statement of Operations
for the year/period ended August 31, 2002 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ----------------------------------------------------------------------------------------------------
High Yield Fund $ 887,202 $ 435 $ 515 $ 53,285 $ 3,407
Select Income Fund 1,063,262 328 274 18,734 20,871
Tax-Free Bond Fund 472,725 151 376 10,277 --
U.S. Government Securities Fund 358,566 606 2,515 61,071 --
IFG receives a transfer agent fee from each Class at an annual rate of $28.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month. Transfer agent fees for each class as presented in the Statement of
Operations for the year/period ended August 31, 2002 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ----------------------------------------------------------------------------------------------------
High Yield Fund $ 1,686,664 $ 135 $ 105 $ 22,576 $ 7,930
Select Income Fund 2,097,065 71 50 9,945 33,062
Tax-Free Bond Fund 242,802 64 38 2,693 --
U.S. Government Securities Fund 610,440 154 150 18,187 --
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds. Effective June 1, 2002, IFG is entitled to reimbursement
from a Fund share class that has fees and expenses voluntarily absorbed pursuant
to this arrangement if such reimbursements do not cause a share class to exceed
voluntary expense limitations and the reimbursement is made within three years
after IFG incurred the expense. For the year/period ended August 31, 2002, total
fees and expenses voluntarily absorbed were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ----------------------------------------------------------------------------------------------------
High Yield Fund $ 352,986 $ 0 $ 0 $ 4,221 $ 8,875
Select Income Fund 1,450,985 0 0 9,551 27,713
Tax-Free Bond Fund 341,735 266 227 3,697 --
U.S. Government Securities Fund 610,419 0 0 17,587 --
As of the year/period ended August 31, 2002, the reimbursement that may
potentially be made by the Funds to IFG and that will expire during the year
ended August 31, 2005, are as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ----------------------------------------------------------------------------------------------------
High Yield Fund $ 143,782 $ 0 $ 0 $ 4,205 $ 2,351
Select Income Fund 306,282 0 0 3,068 9,674
Tax-Free Bond Fund 86,084 263 222 1,463 --
U.S. Government Securities Fund 168,189 0 0 7,583 --
A 2% redemption fee is retained by High Yield Fund - Investor Class to offset
transaction costs and other expenses associated with short-term redemptions and
exchanges. The fee is imposed on redemptions or exchanges of shares held less
than three months. The redemption fee is accounted for as an addition to
Paid-in-Capital by High Yield Fund - Investor Class. Total redemption fees
received by High Yield Fund - Investor Class for the year ended August 31, 2002
were $132,587.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
August 31, 2002, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
FUND PURCHASES SALES
- --------------------------------------------------------------------------------------------
High Yield Fund $ 195,408,610 $ 343,173,025
Select Income Fund 109,840,326 258,913,853
Tax-Free Bond Fund 61,840,831 74,813,401
For the year ended August 31, 2002, the aggregate cost of purchases and proceeds
from the sales of U.S. Government securities were as follows:
FUND PURCHASES SALES
- --------------------------------------------------------------------------------------------
High Yield Fund $ 2,951,442 $ 3,001,369
Select Income Fund 138,215,991 148,758,313
U.S. Government Securities Fund 242,319,814 230,185,511
NOTE 4 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Funds' officers and directors are also officers and directors of IFG, IDI or
AIM.
Each Fund has adopted an unfunded retirement plan covering all independent
directors of the Fund who will have served as an independent director for at
least five years at the time of retirement. Benefits under this plan are based
on an annual rate as defined in the plan agreement, as amended March 1, 2001.
Pension expenses for the year ended August 31, 2002, included in Directors' Fees
and Expenses in the Statement of Operations, and unfunded accrued pension costs
and pension liability included in Prepaid Expenses and Accrued Expenses,
respectively, in the Statement of Assets and Liabilities were as follows:
UNFUNDED
PENSION ACCRUED PENSION
FUND EXPENSES PENSION COSTS LIABILITY
- --------------------------------------------------------------------------------------------
High Yield Fund $ 3,407 $ 0 $ 59,173
Select Income Fund 6,086 0 46,287
Tax-Free Bond Fund 2,663 0 26,461
U.S. Government Securities Fund 2,944 0 12,510
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
An affiliated company represents ownership by a Fund of at least 5% of the
voting securities of the issuer or may be affiliated with other INVESCO
investment companies during the period, as defined in the Act. A summary of the
transactions during the year ended August 31, 2002, in which the issuer was an
affiliate of the Fund, is as follows:
REALIZED
PURCHASES SALES GAIN (LOSS) ON
------------------------------------------------------ INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES PROCEEDS SECURITIES 8/31/2002
- -------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 25,098 $ 25,098 5,421,196 $ 5,421,196 $ 0 --
SELECT INCOME FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 20,071,138 20,071,138 20,071,138 20,071,138 0 --
Dividend income from INVESCO Treasurer's Series Money Market Reserve Fund is
disclosed in the Statement of Operations.
NOTE 5 -- SECURITIES LOANED. The Funds have entered into a securities lending
agreement with the custodian. Under the terms of the agreement, the Funds
receive annual income, recorded monthly, after deduction of other amounts
payable to the custodian or to the borrower from lending transactions. In
exchange for such fees, the custodian is authorized to loan securities on behalf
of the Funds, against receipt of collateral at least equal in value to the value
of securities loaned. Cash collateral is invested by the custodian in the
INVESCO Treasurer's Series Money Market Reserve Fund or securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The Fund
bears the risk of any deficiency in the amount of collateral available for
return to a borrower due to a loss in an approved investment. During the year
ended August 31, 2002, there were no such securities lending arrangements for
any of the Funds.
NOTE 6 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. The Funds may borrow up to 10% of its total net assets
for temporary or emergency purposes. During the year ended August 31, 2002, High
Yield, Select Income and Tax-Free Bond Funds borrowed cash at a weighted average
rate ranging from 1.97% to 2.97% and interest expenses amounted to $525, $2,062
and $5,531, respectively. During that same period, High Yield, Select Income and
U.S. Government Securities Funds lent cash at a weighted average rate ranging
from 2.00% to 2.33% and interest income amounted to $625, $625 and $818,
respectively.
NOTE 7 -- LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. During the
year ended August 31, 2002, Select Income and Tax-Free Bond Funds borrowed cash
at a weighted average rate ranging from 2.50% to 3.18% and interest expense
amounted to $486 and $3,627, respectively. During the year ended August 31,
2002, there were no such borrowings for High Yield and U.S. Government
Securities Funds.
NOTE 8 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. A CDSC is charged by Class B
shares on redemptions or exchanges of shares at a maximum of 5.00% beginning at
time of purchase to 0.00% at the beginning of the seventh year. A 1.00% CDSC is
charged by Class C shares on redemptions or exchanges held thirteen months or
less. Shares acquired through reinvestment of dividends or other distributions
are not charged a CDSC fee. The CDSC fee may be reduced or certain sales charge
exceptions may apply. The CDSC is paid by the redeeming shareholder and
therefore it is not an expense of the Fund. For the year/period ended August 31,
2002, the Distributor received the following CDSC fees from Class A, Class B and
Class C shareholders:
FUND CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------
High Yield Fund $ 0 $ 138 $ 8,969
Select Income Fund 0 0 1,351
Tax-Free Bond Fund 0 0 595
U.S. Government Securities Fund 0 487 8,876
NOTE 9 -- SHARE INFORMATION. Changes in fund share transactions during the
year/period ended August 31, 2002 and the year/period ended August 31, 2001 were
as follows:
HIGH YIELD FUND SELECT INCOME FUND TAX-FREE BOND FUND
YEAR ENDED AUGUST 31 YEAR ENDED AUGUST 31 YEAR ENDED AUGUST 31
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001
(Note 1) (Note 1) (Note 1) (Note 1) (Note 1)
Shares Sold
Investor Class 17,471,149 64,780,736 36,626,932 101,462,120 16,446,825 12,500,605
Class A 437,915 -- 55,842 -- 17,386 --
Class B 66,328 -- 17,726 -- 19,291 --
Class C 1,293,758 3,544,548 189,395 1,503,367 385,747 350,484
Class K 348,740 755 1,450,651 329 -- --
Shares Issued from
Reinvestment of Distributions
Investor Class 9,608,525 13,894,972 4,804,639 6,859,076 390,632 390,203
Class A 2,342 -- 1,129 -- 96 --
Class B 1,533 -- 270 -- 28 --
Class C 98,867 107,483 18,427 19,397 1,513 679
Class K 22,188 17 55,348 9 -- --
====================================================================================================================================
29,351,345 82,328,511 43,220,359 109,844,298 17,261,518 13,241,971
Shares Repurchased
Investor Class (65,441,942) (89,115,833) (80,092,938) (100,500,406) (18,053,127) (11,143,747)
Class A (228,823) -- (1,121) -- (2,776) --
Class B (10,453) -- 0 -- 0 --
Class C (1,870,724) (2,633,556) (373,640) (1,094,433) (415,075) (278,115)
Class K (119,413) (124) (491,998) (1) -- --
====================================================================================================================================
(67,671,355) (91,749,513) (80,959,697) (101,594,840) (18,470,978) (11,421,862)
NET INCREASE
(DECREASE) IN
FUND SHARES (38,320,010) (9,421,002) (37,739,338) 8,249,458 (1,209,460) 1,820,109
====================================================================================================================================
NOTE 9 -- SHARE INFORMATION (CONTINUED)
U.S. GOVERNMENT
SECURITIES FUND
YEAR ENDED AUGUST 31
- --------------------------------------------------------------------------------
2002 2001
(Note 1)
Shares Sold
Investor Class 37,212,864 53,795,053
Class A 481,408 --
Class B 136,154 --
Class C 3,919,039 4,226,768
Shares Issued from
Reinvestment of Distributions
Investor Class 707,328 623,438
Class A 272 --
Class B 814 --
Class C 23,929 7,535
================================================================================
42,481,808 58,652,794
Shares Repurchased
Investor Class (34,732,073) (47,433,060)
Class A (338,687) --
Class B (8,740) --
Class C (4,251,659) (3,265,068)
================================================================================
(39,331,159) (50,698,128)
NET INCREASE IN
FUND SHARES 3,150,649 7,954,666
================================================================================
----------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INVESCO Bond Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO High Yield Fund, INVESCO
Select Income Fund, INVESCO Tax-Free Bond Fund and INVESCO U.S. Government
Securities Fund (constituting INVESCO Bond Funds, Inc., hereafter referred to as
the "Fund") at August 31, 2002, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 2002 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
October 4, 2002
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND -- INVESTOR CLASS
- -----------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED AUGUST 31
- ------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 4.26 $ 5.98 $ 6.40 $ 6.76 $ 7.45
=======================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.59 0.60 0.60 0.64
Net Losses on Securities
(Both Realized and Unrealized) (1.13) (1.72) (0.42) (0.19) (0.29)
=======================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.76) (1.13) 0.18 0.41 0.35
=======================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.36 0.59 0.60 0.77 1.04
=======================================================================================================
Net Asset Value -- End of Period $ 3.14 $ 4.26 $ 5.98 $ 6.40 $ 6.76
=======================================================================================================
TOTAL RETURN (18.07%) (19.96%) 2.89% 6.53% 4.44%
RATIOS
Net Assets -- End of Period ($000 Omitted) $259,795 $516,687 $787,537 $793,337 $641,394
Ratio of Expenses to Average Net Assets(a)(b) 1.26% 1.08% 1.00% 0.99% 0.86%
Ratio of Net Investment Income to Average
Net Assets(b) 10.79% 11.31% 9.60% 9.13% 8.72%
Portfolio Turnover Rate 58% 111% 98% 154% 282%
(a) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(b) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended August 31, 2002. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.36% and ratio of
net investment income to average net assets would have been 10.69%.
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
AUGUST 31 AUGUST 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 3.39 $ 3.39
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14 0.14
Net Losses on Securities (Both Realized
and Unrealized) (0.21) (0.26)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.07) (0.12)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.14 0.14
================================================================================
Net Asset Value -- End of Period $ 3.18 $ 3.13
================================================================================
TOTAL RETURN(b) (2.00%)(c) (3.64%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 672 $ 180
Ratio of Expenses to Average Net Assets(d) 1.09%(e) 1.81%(e)
Ratio of Net Investment Income to Average
Net Assets 10.67%(e) 10.09%(e)
Portfolio Turnover Rate 58%(f) 58%(f)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2002.
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND -- CLASS C
- ------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 4.25 $ 5.97 $ 6.31
==========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.34 0.55 0.30
Net Losses on Securities (Both Realized
and Unrealized) (1.13) (1.72) (0.34)
==========================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.79) (1.17) (0.04)
==========================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.34 0.55 0.30
==========================================================================================
Net Asset Value -- End of Period $ 3.12 $ 4.25 $ 5.97
==========================================================================================
TOTAL RETURN(b) (18.85%) (20.70%) (0.52%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 4,222 $ 7,770 $ 4,843
Ratio of Expenses to Average Net Assets
(d)(e) 2.00% 1.69% 1.60%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 9.95% 10.75% 9.20%(f)
Portfolio Turnover Rate 58% 111% 98%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended August 31, 2002. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 2.08% and ratio of
net investment income to average net assets would have been 9.87%.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2000.
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND -- CLASS K
- ------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR PERIOD
ENDED ENDED
AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------
2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 4.26 $ 5.20
================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.36 0.40
Net Losses on Securities (Both Realized and Unrealized) (1.13) (0.94)
================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.77) (0.54)
================================================================================================
Less Dividends and Distributions 0.36 0.40
================================================================================================
Net Asset Value -- End of Period $ 3.13 $ 4.26
================================================================================================
TOTAL RETURN (18.38%) (11.15%)(b)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 790 $ 3
Ratio of Expenses to Average Net Assets(c)(d) 1.45% 1.48%(e)
Ratio of Net Investment Income to Average Net Assets(d) 9.85% 10.77%(e)
Portfolio Turnover Rate 58% 111%(f)
(a) From December 14, 2000, since inception of Class, to August 31, 2001.
(b) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended August 31, 2002 and the period ended August 31, 2001. If such
expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 2.62% and 3.56%(annualized), respectively, and
ratio of net investment income to average net assets would have been 8.68%
and 8.69% (annualized), respectively.
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2001.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND -- INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED AUGUST 31
- -------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 5.79 $ 6.06 $ 6.15 $ 6.68 $ 6.66
=======================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.33 0.43 0.43 0.43 0.43
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.76) (0.27) (0.09) (0.41) 0.19
=======================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.43) 0.16 0.34 0.02 0.62
=======================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.33 0.43 0.43 0.55 0.60
=======================================================================================================
Net Asset Value -- End of Period $ 5.03 $ 5.79 $ 6.06 $ 6.15 $ 6.68
=======================================================================================================
TOTAL RETURN (7.45%) 2.73% 5.78% 0.15% 9.58%
RATIOS
Net Assets -- End of Period ($000 Omitted) $321,228 $593,629 $574,518 $549,438 $502,624
Ratio of Expenses to Average Net Assets(a)(b) 1.05% 1.05% 1.06% 1.06% 1.06%
Ratio of Net Investment Income to Average
Net Assets(b) 6.37% 7.18% 7.10% 6.56% 6.36%
Portfolio Turnover Rate 60% 79% 82% 135% 140%
(a) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(b) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2002, 2001, 2000, 1999 and 1998. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.39%, 1.32%, 1.19%, 1.16% and 1.10%, respectively, and
ratio of net investment income to average net assets would have been 6.03%,
6.91%, 6.97%, 6.46% and 6.32%, respectively.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
AUGUST 31 AUGUST 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 5.06 $ 5.06
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.13 0.11
Net Losses on Securities (Both Realized
and Unrealized) (0.04) (0.03)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.09 0.08
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.13 0.11
================================================================================
Net Asset Value -- End of Period $ 5.02 $ 5.03
================================================================================
TOTAL RETURN(b) 1.81%(c) 1.62%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 281 $ 90
Ratio of Expenses to Average Net Assets(d) 1.07%(e) 1.86%(e)
Ratio of Net Investment Income to Average
Net Assets 6.02%(e) 4.99%(e)
Portfolio Turnover Rate 60%(f) 60%(f)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2002.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND -- CLASS C
- ------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 5.79 $ 6.06 $ 6.02
==========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29 0.39 0.21
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (0.76) (0.27) 0.04
===========================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.47) 0.12 0.25
===========================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.29 0.39 0.21
===========================================================================================
Net Asset Value -- End of Period $ 5.03 $ 5.79 $ 6.06
===========================================================================================
TOTAL RETURN(b) (8.14%) 1.97% 4.24%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,632 $ 2,839 $ 377
Ratio of Expenses to Average Net
Assets(d)(e) 1.80% 1.79% 1.83%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 5.61% 6.23% 6.42%(f)
Portfolio Turnover Rate 60% 79% 82%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2002 and 2001. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 2.31% and 1.79% (annualized), respectively, and ratio of net
investment income to average net assets would have been 5.10% and 6.23%
(annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2000.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND -- CLASS K
- ------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR PERIOD
ENDED ENDED
AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------
2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 5.78 $ 5.93
================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.32 0.28
Net Losses on Securities (Both Realized and Unrealized) (0.76) (0.15)
================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.44) 0.13
================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.32 0.28
================================================================================================
Net Asset Value -- End of Period $ 5.02 $ 5.78
================================================================================================
TOTAL RETURN (7.47%) 2.25%(b)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 5,097 $ 2
Ratio of Expenses to Average Net Assets(c)(d) 1.25% 1.24%(e)
Ratio of Net Investment Income to Average Net Assets(d) 6.13% 6.60%(e)
Portfolio Turnover Rate 60% 79%(f)
(a) From December 14, 2000, since inception of Class, to August 31, 2001.
(b) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended August 31, 2002 and the period ended August 31, 2001. If such
expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.85% and 3.63% (annualized), respectively, and
ratio of net investment income would have been 5.53% and 4.21%
(annualized), respectively.
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2001.
FINANCIAL HIGHLIGHTS
TAX-FREE BOND FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED AUGUST 31 AUGUST 31 YEAR ENDED JUNE 30
- ------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 15.49 $ 14.72 $ 14.53 $ 14.71 $ 15.57 $ 15.34
==================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.66 0.68 0.64 0.10 0.62 0.63
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.07 0.77 0.24 (0.18) (0.40) 0.40
==================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.73 1.45 0.88 (0.08) 0.22 1.03
==================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.66 0.68 0.69 0.10 1.08 0.80
==================================================================================================================
Net Asset Value -- End of Period $ 15.56 $ 15.49 $ 14.72 $ 14.53 $ 14.71 $ 15.57
==================================================================================================================
TOTAL RETURN 4.89% 10.07% 6.32% (0.53%)(b) 1.30% 6.87%
RATIOS
Net Assets -- End of Period ($000 Omitted) $196,673 $214,617 $178,154 $191,836 $201,791 $211,471
Ratio of Expenses to Average Net Assets(c)(d) 0.90% 0.90% 0.91% 0.90%(e) 0.91% 0.91%
Ratio of Net Investment Income to Average
Net Assets(d) 4.33% 4.46% 4.45% 4.08%(e) 4.03% 4.06%
Portfolio Turnover Rate 33% 33% 50% 3%(b) 66% 173%
(a) From July 1, 1999 to August 31, 1999.
(b) Based on operations for the period shown and, accordingly, are not
respresentative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2002, 2001 and 2000, the period ended August 31,
1999 and the years ended June 30, 1999 and 1998. If such expenses had not
been voluntarily absorbed, ratio of expenses to average net assets would
have been 1.08%, 1.08%, 1.11%, 1.14% (annualized), 1.06% and 1.04%,
respectively, and ratio of net investment income to average net assets
would have been 4.15%, 4.28%, 4.25%, 3.84% (annualized), 3.88% and 3.93%,
respectively.
(e) Annualized
FINANCIAL HIGHLIGHTS
TAX-FREE BOND FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
AUGUST 31 AUGUST 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 14.88 $ 14.88
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.26 0.21
Net Gains on Securities (Both Realized and
Unrealized) 0.68 0.68
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.94 0.89
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.26 0.21
================================================================================
Net Asset Value -- End of Period $ 15.56 $ 15.56
================================================================================
TOTAL RETURN(b) 6.37%(c) 6.00%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 229 $ 301
Ratio of Expenses to Average Net Assets(d)(e) 1.10%(f) 1.80%(f)
Ratio of Net Investment Income to Average
Net Assets 3.86%(f) 3.13%(f)
Portfolio Turnover Rate 33%(g) 33%(g)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by IFG for the
period ended August 31, 2002. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 1.70%
(annualized) for Class A and 2.39% (annualized) for Class B and ratio of
net investment income to average net assets would have been 3.26%
(annualized) for Class A and 2.54% (annualized) for Class B.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2002.
FINANCIAL HIGHLIGHTS
TAX-FREE BOND FUND -- CLASS C
- ------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 17.50 $ 14.71 $ 14.05
==========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.62 0.58 0.29
Net Gains on Securities (Both Realized
and Unrealized) 0.08 2.79 0.66
==========================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.70 3.37 0.95
==========================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.62 0.58 0.29
==========================================================================================
Net Asset Value -- End of Period $ 17.58 $ 17.50 $ 14.71
==========================================================================================
TOTAL RETURN(b) 4.12% 23.26% 6.86%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 797 $ 1,279 $ 1
Ratio of Expenses to Average Net
Assets(d)(e) 1.65% 1.66% 1.66%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 3.59% 3.58% 3.79%(f)
Portfolio Turnover Rate 33% 33% 50%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2002 and 2001 and the period ended August 31, 2000.
If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 2.01%, 1.84% and 6.90% (annualized),
respectively, and ratio of net investment income (loss) to average net
assets would have been 3.23%, 3.40% and (1.45%) (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2000.
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND -- INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED AUGUST 31
- -------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.41 $ 7.05 $ 6.81 $ 7.99 $ 7.49
=======================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.36 0.36 0.35 0.40
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.24 0.36 0.24 (0.58) 0.67
=======================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.54 0.72 0.60 (0.23) 1.07
=======================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.30 0.36 0.36 0.95 0.57
=======================================================================================================
Net Asset Value-- End of Period $ 7.65 $ 7.41 $ 7.05 $ 6.81 $ 7.99
=======================================================================================================
TOTAL RETURN 7.52% 10.45% 9.12% (3.40%) 14.75%
RATIOS
Net Assets -- End of Period ($000 Omitted) $158,974 $130,510 $74,870 $79,899 $79,485
Ratio of Expenses to Average Net Assets(a)(b) 1.00% 1.00% 1.02% 1.01% 1.01%
Ratio of Net Investment Income to Average
Net Assets(b) 4.08% 4.87% 5.28% 4.80% 5.22%
Portfolio Turnover Rate 166% 90% 21% 114% 323%
(a) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(b) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2002, 2001, 2000, 1999 and 1998. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 1.43%, 1.43%, 1.61%, 1.60% and 1.41%, respectively, and
ratio of net investment income to average net assets would have been 3.65%,
4.44%, 4.69%, 4.21% and 4.82%, respectively.
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
PERIOD PERIOD
ENDED ENDED
AUGUST 31 AUGUST 31
- --------------------------------------------------------------------------------
2002(a) 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.20 $ 7.20
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.09
Net Gains on Securities (Both Realized
and Unrealized) 2.11 0.45
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 2.23 0.54
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.12 0.09
================================================================================
Net Asset Value -- End of Period $ 9.31 $ 7.65
================================================================================
TOTAL RETURN(b) 31.08%(c)(d) 7.56%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,331 $ 981
Ratio of Expenses to Average Net Assets(e) 1.06%(f) 1.72%(f)
Ratio of Net Investment Income to Average
Net Assets 3.11%(f) 2.95%(f)
Portfolio Turnover Rate 166%(g) 166%(g)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charges for Class A or CDSC fees for Class B are not
included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Total return includes large fluctuations in asset size and shareholder
transactions.
(e) Ratio is based on Total Expenses of the Class, which is before any expense
offset arrangements (which may include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2002.
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND -- CLASS C
- ------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------
2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.40 $ 7.06 $ 6.72
==========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.30 0.17
Net Gains on Securities (Both Realized
and Unrealized) 0.24 0.34 0.34
==========================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.49 0.64 0.51
==========================================================================================
DIVIDENDS FROM NET INVESTMENT INCOME 0.25 0.30 0.17
==========================================================================================
Net Asset Value -- End of Period $ 7.64 $ 7.40 $ 7.06
==========================================================================================
TOTAL RETURN(b) 6.72% 9.23% 7.64%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 5,309 $ 7,431 $ 241
Ratio of Expenses to Average Net
Assets(d)(e) 1.75% 1.70% 1.94%(f)
Ratio of Net Investment Income to Average
Net Assets(e) 3.40% 3.81% 4.65%(f)
Portfolio Turnover Rate 166% 90% 21%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC fees are not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the
years ended August 31, 2002 and 2001 and the period ended August 31, 2000.
If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 2.04%, 1.82% and 2.29% (annualized),
respectively, and ratio of net investment income to average net assets
would have been 3.11%, 3.69% and 4.30% (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year
ended August 31, 2000.
OTHER INFORMATION
UNAUDITED
The table below provides information about each of the Independent and
Interested Directors. Their affiliations represent their principal occupations.
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Fred A. Deering Vice Chairman of Formerly, Chairman of the Executive 47
1551 Larimer Street, #1701 the Board Committee and Chairman of the Board of
Denver, Colorado Security Life of Denver Insurance
Company and Director of ING American
Age: 74 Holdings Company and First ING Life
Insurance Company of New York.
Formerly, Trustee of INVESCO Global
Health Sciences Fund.
Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman Emeritus 47 Director of The
34 Seawatch Drive and Chairman and CFO of the Roundtable Sheffield Funds, Inc.
Savannah, Georgia of the Department of Finance of Georgia
State University; and President Andrews
Age: 72 Financial Associates, Inc. (consulting
firm). Formerly, member of the faculties
of the Harvard Business School; and the
Sloan School of Management of MIT.
Bob R. Baker Director Consultant (2000 to Present). Formerly, 47
37 Castle Pines Dr. N. President and Chief Executive Officer
Castle Rock, Colorado (1988 to 2000) of AMC Cancer Research
Center, Denver, Colorado (until Mid-
Age: 66 December 1988); Vice Chairman of the
Board of First Columbia Financial
Corporation, Englewood, Colorado; and
formerly, Chairman of the Board and
Chief Executive Officer of First
Columbia Financial Corporation.
Lawrence H. Budner Director Trust Consultant. Formerly, 47
7608 Glen Albens Circle Senior Vice President and Senior
Dallas, Texas Trust Officer of InterFirst Bank,
Dallas, Texas.
Age: 72
James T. Bunch Director Principal and Founder of Green, Manning 47
3600 Republic Plaza (since 2000) & Bunch Ltd., Denver, Colorado (1988 to
370 Seventeenth Street Present); Director and Secretary of
Denver, Colorado Green, Manning & Bunch Securities, Inc.;
and Director and Vice President of
Age: 59 Western Golf Association and Evans
Scholars Foundation. Formerly, General
Counsel and Director of Boettcher &
Company Denver, Colorado; and formerly
Chairman and Managing Partner of Davis,
Graham & Stubbs, Denver, Colorado.
OTHER INFORMATION
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis Director Chairman of Lawsuit Resolution Services, 47 Director of General
701 "B" Street (since 2000) San Diego, California (1987 to Present). Chemical Group, Inc.,
Suite 2100 Formerly, Associate Justice of the Hampdon, New
San Diego, California California Court of Appeals; and Hampshire (1996 to
of Counsel, Latham & Watkins, Present). Director of
Age: 69 San Diego, California (1987 to 1997). Wheelabrator
Technologies, Inc.;
Fisher Scientific, Inc;
Henley Manufacturing,
Inc.; and California
Coastal Properties, Inc.
John W. McIntyre Director Retired. Trustee of Gables Residential 47
Piedmont Center Suite 100 Trust. Trustee and Chairman of the J.M.
Atlanta, Georgia Tull Charitable Foundation; Director of
Kaiser Foundation Health Plans of
Age: 72 Georgia, Inc. Formerly, Vice Chairman of
the Board of Directors of The Citizens
and Southern Corporation and Chairman
of the Board and Chief Executive Officer
of The Citizens and Southern Georgia
Corporation and The Citizens and
Southern National Bank. Formerly,
Trustee of INVESCO Global Health
Sciences Fund and Trustee of Employee's
Retirement System of Georgia, Emory
University.
Larry Soll, Ph. D. Director Retired. Formerly, Chairman of the 47 Director of Synergen
2358 Sunshine Canyon Dr. (since 1997) Board (1987 to 1994), Chief Executive since incorporation
Boulder, Colorado Officer (1982 to 1989 and 1993 to 1994) in 1982; Director
and President (1982 to 1989) of Synergen of Isis Pharmaceuticals,
Age: 60 Inc.; and formerly Trustee of INVESCO Inc.
Global Health Sciences Fund.
OTHER INFORMATION
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS
These directors are "interested persons" of IFG as defined in the Act, and they are interested persons by virtue of the
fact that he/she is an officer or director of IFG, IDI or an affiliate of IFG.
Mark H. Williamson President(1998- Chief Executive Officer, Managed 47 Chairman of the
4350 South Monaco Street 2001); Chief Products Division, AMVESCAP PLC Board of INVESCO
Denver, Colorado Executive Officer (2001 to Present); Chief Executive Funds Group, Inc.
(1998-Present); Officer INVESCO Funds Group, Inc.; and INVESCO
Age: 51 and Chairman of and Chief Executive Officer INVESCO Distributors, Inc.
the Board (since Distributors, Inc. Formerly,
1999) President of INVESCO Funds Group,
Inc., President of INVESCO
Distributors, Inc., Chief Operating
Officer and Chairman of the Board of
INVESCO Global Health Sciences Fund;
Chairman and Chief Executive Officer
of NationsBanc Advisors, Inc.; and
Chairman of NationsBanc Investments,
Inc.
Raymond R. Cunningham Vice President President and Chief Operating Officer 47 Director of INVESCO
4350 South Monaco Street and Director of INVESCO Funds Group, Inc.; Funds Group, Inc.
Denver, Colorado (since 2001) President of INVESCO Distributors, and INVESCO
Inc. Formerly, Senior Vice President Distributors, Inc.
Age: 51 of INVESCO Funds Group, Inc., and
Senior Vice President of GT Global -
North America (1992 to 1998).
Richard W. Healey Director Senior Vice President of INVESCO 43 Director of INVESCO
4350 South Monaco Street (since 2000) Funds Group, Inc.; Senior Vice Funds Group, Inc.
Denver, Colorado President of INVESCO Distributors, and INVESCO
Inc. Formerly, Senior Vice President Distributors, Inc.
Age: 48 of GT Global - North America (1996 to
1998) and The Boston Company (1993
to 1996).
Glen A. Payne Secretary Senior Vice President, General
4350 South Monaco Street Counsel and Secretary of INVESCO
Denver, Colorado Funds Group, Inc.; Senior Vice
President, Secretary and General
Age: 55 Counsel of INVESCO Distributors, Inc.
Formerly, Secretary of INVESCO Global
Health Sciences Fund; General Counsel
of INVESCO Trust Company (1989 to
1998); and employee of a U.S.
regulatory agency, Washington,
D.C. (1973 to 1989).
OTHER INFORMATION
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald L. Grooms Chief Accounting Senior Vice President, and Treasurer Director of INVESCO
4350 South Monaco Street Officer, Chief INVESCO Funds Group, Inc.; and Senior Funds Group, Inc.
Denver, Colorado Financial Officer Vice President and Treasurer of INVESCO and INVESCO
and Treasurer Distributors, Inc. Formerly, Treasurer Distributors, Inc.
Age: 56 and Principal Financial and Accounting
Officer of INVESCO Global Health
Sciences Fund; and Senior Vice President
and Treasurer of INVESCO Trust Company
(1988 to 1998).
William J. Galvin, Jr. Assistant Secretary Senior Vice President and Assistant Director of INVESCO
4350 South Monaco Street Secretary INVESCO Funds Group, Inc.; and Funds Group, Inc.
Denver, Colorado Senior Vice President and Assistant and INVESCO
Secretary INVESCO Distributors, Inc. Distributors, Inc.
Age: 46 Formerly, Trust Officer of INVESCO Trust
Company (1995 to 1998).
Pamela J. Piro Assistant Treasurer Vice President and Assistant Treasurer
4350 South Monaco Street of INVESCO Funds Group, Inc.; and
Denver, Colorado Assistant Treasurer of INVESCO
Distributors, Inc. Formerly, Assistant
Age: 42 Vice President (1996 to 1997).
Tane T. Tyler Assistant Secretary Vice President and Assistant General
4350 South Monaco Street (since 2002) Counsel of INVESCO Funds Group, Inc.
Denver, Colorado
Age: 37
* Except as otherwise indicated, each individual has held the position(s) shown
for at least the last five years.
The Statement of Additional Information ("SAI") includes additional information
about Fund directors and is available, without charge, upon request. To obtain a
free copy of the current SAI, call 1-800-525-8085.
[INVESCO ICON] INVESCO(R)
1-800-525-8085
Personal Account Line: 1-800-424-8085
Advisor Services: 1-800-6-INVESCO
invescofunds.com
INVESCO Distributors, Inc., (SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied by a current prospectus.
AINC 900382 10/02
APPENDIX IV
FEBRUARY 28, 2003
SEMIANNUAL REPORT
INVESCO BOND FUNDS, INC.
HIGH YIELD FUND
SELECT INCOME FUND
TAX-FREE BOND FUND
U.S. GOVERNMENT SECURITIES FUND
"BONDS PERFORMED WELL...AS DETERIORATION IN INVESTOR CONFIDENCE SPURRED A
ROTATION INTO MORE DEFENSIVE INVESTMENTS." SEE PAGE 5
[INVESCO ICON] INVESCO(R)
[PHOTOGRAPH OF RAYMOND R. CUNNINGHAM OMITTED]
BONDS DEFY ODDS, MAINTAIN MOMENTUM
FELLOW SHAREHOLDER:
Fixed-income markets aren't generally known for offering up surprises, but we've
certainly encountered the unexpected from bonds during this long bear market in
equities. First and foremost, they've outperformed stocks for three years now --
an unusually long time for an asset class with a relatively staid reputation.
Furthermore, their run may not be finished yet. In an environment plagued by
uncertainty -- both geopolitical and economic -- investors keep turning to
fixed-income securities for stability. As a result, we've seen the yield on the
benchmark 10-year Treasury plunge to a level unseen in more than 40 years, while
five- and two-year Treasury notes reached record lows, according to THE WALL
STREET JOURNAL.*
Of course, with this kind of success comes the question of sustainability. We've
been hearing experts forecast a rotation from bonds back into stocks for several
months now. So far, this rotation has failed to materialize. But can bonds
continue to defy the odds and stay dominant as 2003 progresses? It's an
interesting question, and one that veteran fixed-income manager Dick Hinderlie
addresses in a question-and-answer session beginning on page 11 of this report.
As always, the key to successful long-term investing lies in adequate
diversification. Investors should apply the lessons learned from the bear market
in stocks that we've endured these past three years and continue to diversify
their long-term investment plans. Having a percentage of your portfolio invested
in fixed-income securities may help your investment program weather the
inevitable ups and downs of the months and years ahead.
Sincerely,
/s/ Ray Cunningham
Ray Cunningham
President and CEO, INVESCO Funds Group, Inc.
*INVESTORS RUSH TO BUY BONDS, FLEEING STOCKS" BY GREGORY ZUCKERMAN. THE WALL
STREET JOURNAL: MARCH 11, 2003.
"WITH REAL INTEREST RATES AT LOW LEVELS, INCOME-ORIENTED INVESTORS TURNED TO
HIGH YIELD BONDS IN SEARCH OF HIGHER RETURNS." -- PAGE 3
TABLE OF CONTENTS
LETTER FROM THE PRESIDENT AND CEO............ 1
FUND REPORTS................................. 3
AN INTERVIEW WITH DICK HINDERLIE.............11
MARKET HEADLINES.............................13
INVESTMENT HOLDINGS..........................15
FINANCIAL STATEMENTS.........................34
NOTES TO FINANCIAL STATEMENTS................44
FINANCIAL HIGHLIGHTS.........................51
INVESCO BOND FUNDS, INC.
TOTAL RETURN PERIODS ENDED 2/28/03*
Manager's
Cumulative 10 years+ or Report
Fund (Inception) 6 months 1 year 5 years+ Since Inception^ Page #
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND - CLASS A (4/02) with sales charge 7.52% N/A N/A 5.38%^++ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND - CLASS B (4/02) with CDSC 7.92% N/A N/A 3.81%^++ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND - CLASS C (2/00) with CDSC 11.88% 11.48% N/A (10.13%)^+ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND - CLASS K (12/00) 13.16% 13.35% N/A (8.55%)^+ 3
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND - INVESTOR CLASS (3/84) 13.25% 13.39% (4.82%) 2.97% 3
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND - CLASS A (4/02) with sales charge 3.10% N/A N/A 5.00%^++ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND - CLASS B (4/02) with CDSC 2.75% N/A N/A 4.49%^++ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND - CLASS C (2/00) with CDSC 6.76% 6.55% N/A 1.69%^+ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND - CLASS K (12/00) 8.05% 8.15% N/A 1.00%^+ 5
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT INCOME FUND - INVESTOR CLASS (1/77) 8.16% 8.35% 2.27% 5.45% 5
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND - CLASS A (4/02) with sales charge (2.04%) N/A N/A 4.25%^++ 7
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND - CLASS B (4/02) with CDSC (2.26%) N/A N/A 3.90%^++ 7
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND - CLASS C (2/00) with CDSC 1.87% 5.57% N/A 11.98%^+ 7
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND - INVESTOR CLASS (8/81) 3.21% 7.28% 5.24% 5.29% 7
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNEMENT SECURITIES FUND - CLASS A (4/02)
with sales charge (1.63%) N/A N/A 28.88%^++** 9
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNEMENT SECURITIES FUND - CLASS B (4/02) with CDSC (2.16%) N/A N/A 5.61%^++ 9
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNEMENT SECURITIES FUND - CLASS C (2/00) with CDSC 1.85% 6.90% N/A 8.75%^+ 9
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNEMENT SECURITIES FUND - INVESTOR CLASS C (1/86) 3.23% 8.71% 6.55% 6.46% 9
- -----------------------------------------------------------------------------------------------------------------------------------
*PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE
WORTH MORE OR LESS THAN WHEN PURCHASED. THE FUNDS' CLASS A PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE OF 4.75%. THE FUNDS' CLASS B AND CLASS C PERFORMANCE
REFLECTS THE DEDUCTION OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC)
FOR THE PERIODS SHOWN. THE CDSC ON CLASS B SHARES DECLINES FROM 5% BEGINNING AT
THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH YEAR. THE CDSC OF
CLASS C SHARES IS 1% FOR THE FIRST 13 MONTHS AFTER PURCHASE. THE PERFORMANCE OF
THE FUND'S INVESTOR CLASS, CLASS A, CLASS B, CLASS C AND CLASS K SHARES WILL
DIFFER DUE TO THE DIFFERENT SALES CHARGE STRUCTURES AND EXPENSES. INVESTOR CLASS
SHARES ARE CLOSED TO NEW INVESTORS AND ARE OFFERED TO INVESTORS GRANDFATHERED AS
OF APRIL 1, 2002.
++NOT ANNUALIZED
+AVERAGE ANNUALIZED
^FOR FUNDS OR SHARE CLASSES INTRODUCED MORE RECENTLY.
**REFLECTS LARGE FLUCTUATIONS IN ASSET SIZE AND SHAREHOLDER TRANSACTIONS.
PERFORMANCE INFORMATION PROVIDED IN THIS REPORT DOES NOT REFLECT THE DEDUCTION
OF TAXES SHAREHOLDERS PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES.
THE INDUSTRIES AND/OR SECTORS USED FOR PORTFOLIO SECURITIES CLASSIFICATION THAT
MAY BE USED THROUGHOUT THIS REPORT ARE THE GLOBAL INDUSTRY CLASSIFICATION
STANDARD WHICH WAS DEVELOPED BY AND IS THE EXCLUSIVE PROPERTY AND A SERVICE MARK
OF MORGAN STANLEY CAPITAL INTERNATIONAL INC. AND STANDARD & POOR'S(R).
HIGH YIELD FUND
YOUR FUND'S REPORT
FUND PERFORMANCE
DEAR SHAREHOLDER:
Overall, it was a strong period for the high yield market, as the sector was
supported by positive technical trends. With real interest rates at low levels,
income-oriented investors turned to high yield bonds in search of higher
returns. This resulted in the asset class enjoying positive flows that were more
than sufficient to absorb the new offerings that came to market.
For the six-month period ended February 28, 2003, the value of High Yield
Fund-Investor Class shares increased by 13.25%. The fund's benchmark, the
Merrill Lynch High Yield Master Trust Index, gained 9.37% over the same period.
(Of course, past performance is not a guarantee of future results.)(1),(2) For
performance of other share classes, please see page 2.
TELECOM BONDS REBOUND SHARPLY
The fund fully participated in the bond rally, as the tactics we employed last
summer paid off. For example, the fund's extensive diversification allowed us to
access some of the market's best movers. Among the bonds that made the most
significant positive contributions to performance were those issued by
telecommunications companies, an area that largely accounted for our margin of
outperformance.
- --------------------------------------------------------------------------------
HIGH YIELD FUND -
TOP 10 BOND HOLDINGS BY ISSUER
% of Total Net Assets as of 2/28/03
- --------------------------------------------------------------------------------
Star Choice Communications.................................................2.52%
Niagara Mohawk Power.......................................................2.17%
Level 3 Communications.....................................................1.94%
Pride International........................................................1.88%
US WEST Communications.....................................................1.70%
Park Place Entertainment...................................................1.67%
United Rentals.............................................................1.65%
Madison River Capital LLC/Madison River Finance............................1.53%
Argosy Gaming..............................................................1.44%
AMC Entertainment..........................................................1.35%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
In particular, two bonds, those issued by Level 3 Communications and Nextel
Communications, performed exceptionally well. Level 3's bonds advanced on the
heels of strong financial results as well as on momentum gained during the
summer, when the company received an equity infusion of $500 million from a
group of investors led by Warren Buffett. Meanwhile, the fund's Nextel
Communications bonds advanced strongly after the company reported earnings that
handily beat consensus expectations, along with significant deleveraging from
debt-for-equity swaps.
But the fund's telecom holdings weren't the only strong performers. The fund
also benefited from its exposure to other areas of the market. Individual
standouts included bonds issued by homebuilder Schuler Homes, which were
supported by the persistently strong housing market, and Tesoro Petroleum, the
refinery that rebounded sharply from oversold levels. The fund's Chancellor
Media bonds, which are serviced by Clear Channel Communications, the company
that acquired Chancellor several years ago, also logged strong performance.
Despite its robust overall showing, the fund also saw a handful of bonds lag.
The fund's gaming bonds underperformed on a relative basis, as several of our
holdings advanced, but by less than the index overall. Nevertheless, the
performance drag from these isolated soft spots was more than offset by strong
performance in other areas of the fund.
WAR FOOTING HAMPERS THE ECONOMIC RECOVERY
Looking ahead, we remain concerned about the economy. Clearly, business has not
recovered to the extent that investors had hoped, as the war with Iraq has
tempered consumer and corporate spending. In our opinion, the timing of the
recovery depends on the war proceedings. Once the recovery finds traction, we
will monitor inflation closely. Currently, corporate pricing power remains
minimal; however, mild inflation would be positive for high yield bonds.
PIE CHART: HIGH YIELD FUND
ASSET DIVERSIFICATION
AS OF 2/28/03
[PIE CHART]
% OF TOTAL NET ASSETS
Corporate Bonds-Domestic...................81.42%
Corporate Bonds-Foreign.....................6.63%
Common and Preferred Stocks,
Rights & Warrants.........................4.80%
Other Securities............................1.04%
Net Cash & Cash Equivalents.................6.11%
In this environment, we believe a more cautious approach is appropriate. As
such, we continue to increase the fund's diversification and flatten the
portfolio by reducing larger positions. We have also upgraded the fund's credit
profile and have trimmed our exposure to more economically sensitive industries.
These tactics have provided us with ample liquidity to take advantage of
volatility as opportunities present themselves.
LINE GRAPH: INVESCO HIGH YIELD FUND - INVESTOR CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Investor Class to the value of a $10,000 investment in the Merrill Lynch
High Yield Master Trust Index(2), assuming in each case reinvestment of all
dividends and capital gain distributions, for the period since inception (2/93)
through 2/28/03.
INVESCO High Yield Merrill Lynch High
Fund - Investor Yield Master
Class Trust Index(2)
2/93 $10,000 $10,000
2/94 $11,225 $11,388
2/95 $10,956 $11,602
2/96 $12,909 $13,534
2/97 $14,724 $15,097
2/98 $17,148 $16,987
2/99 $16,859 $17,317
2/00 $17,973 $17,478
2/01 $17,623 $18,173
2/02 $11,814 $17,859
2/03 $13,397 $18,472
LINE GRAPH: INVESCO HIGH YIELD FUND - CLASS A & B GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Class A and the value of a $10,000 investment in INVESCO High Yield Fund
- - - Class B to the value of a $10,000 investment in the Merrill Lynch High Yield
Master Trust Index(2), assuming in each case reinvestment of all dividends and
capital gain distributions, and in the cases of INVESCO High Yield Fund - Class
A and Class B, inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 2/28/03.
Merrill Lynch
INVESCO High Yield INVESCO High Yield High Yield
Fund - Class A Fund - Class B Master Trust Index(2)
4/02 $10,000 $10,000 $10,000
2/03 $10,538 $10,381 $10,103
LINE GRAPH: INVESCO HIGH YIELD FUND - CLASS C GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Class C to the value of a $10,000 investment in the Merrill Lynch High
Yield Master Trust Index(2), assuming in each case reinvestment of all dividends
and capital gain distributions, and in the case of INVESCO High Yield Fund -
Class C, inclusion of contingent deferred sales charge, for the period since
inception (2/00) through 2/28/03.
INVESCO High Yield Merrill Lynch High
Fund - Class C Yield Master Trust Index(2)
2/00 $10,000 $10,000
2/01 $9,668 $10,398
2/02 $6,424 $10,218
2/03 $7,226 $10,569
LINE GRAPH: INVESCO HIGH YIELD FUND - CLASS K GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO High Yield
Fund - Class K to the value of a $10,000 investment in the Merrill Lynch High
Yield Master Trust Index(2), assuming in each case reinvestment of all dividends
and capital gain distributions, for the period since inception (12/00) through
2/28/03.
INVESCO High Yield Merrill Lynch High
Fund - Class K Yield Master Trust Index(2)
12/00 $10,000 $10,000
2/01 $10,867 $10,997
2/02 $7,239 $10,807
2/03 $8,206 $11,177
(1)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(2)THE MERRILL LYNCH HIGH YIELD MASTER TRUST INDEX IS AN UNMANAGED INDEX
INDICATIVE OF THE HIGH YIELD BOND MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
ALTHOUGH THEY HAVE HIGHER RETURN POTENTIAL, HIGH YIELD BONDS ARE ALSO SUBJECT TO
GREATER RISKS, INCLUDING THE RISK OF DEFAULT, COMPARED TO HIGHER-RATED
SECURITIES.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDER-PERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF ROBERT J. HICKEY OMITTED]
ROBERT J. HICKEY
BOB HICKEY IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED HIS
BACHELOR'S DEGREE FROM THE UNIVERSITY OF WISCONSIN-MADISON, AND HIS MBA FROM THE
KELLOGG GRADUATE SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY. HE BEGAN HIS
INVESTMENT CAREER IN 1988.
SELECT INCOME FUND
YOUR FUND'S REPORT
FUND PERFORMANCE
DEAR SHAREHOLDER:
Bonds performed well during the past six months, as deterioration in investor
confidence spurred a rotation into more defensive investments. With signs
surfacing that the economy continued to stagnate, and war with Iraq looming as
the period progressed, bonds remained a counter-trade to equities - rallying as
stocks fell.
- --------------------------------------------------------------------------------
SELECT INCOME FUND -
TOP 10 BOND HOLDINGS BY ISSUER
% of Total Net Assets as of 2/28/03
- --------------------------------------------------------------------------------
US Treasury Notes.........................................................11.94%
Freddie Mac................................................................9.91%
Government National Mortgage Association I.................................6.97%
Public Service of New Mexico...............................................4.33%
Fannie Mae.................................................................3.24%
US WEST Communications.....................................................2.30%
Duquesne Light.............................................................1.98%
Texas Utilities Electric...................................................1.90%
El Paso Electric...........................................................1.77%
Niagara Mohawk Power.......................................................1.68%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
PIE CHART: SELECT INCOME FUND
ASSET DIVERSIFICATION
AS OF 2/28/03
[PIE CHART]
% OF TOTAL NET ASSETS
Corporate Bonds-Domestic...................52.15%
Mortgage-Backed Pass Thru Certificates.....20.12%
US Government Obligations..................11.94%
Corporate Bonds-Foreign.....................1.59%
Common and Preferred Stocks,
Rights & Warrants..........................0.53%
Asset-Backed Securities.....................0.27%
Other Securities............................0.27%
Net Cash & Cash Equivalents................13.13%
The fund fully participated in the rally, and for the six-month period ended
February 28, 2003, the value of Select Income Fund-Investor Class shares gained
8.16%. This return exceeded the 5.76% gain recorded by its benchmark, the Lehman
Government/Credit Bond Index, during the same period. (Of course, past
performance is not a guarantee of future results.)(3),(4) For performance of
other share classes, please see page 2.
CORPORATE BONDS OUTPERFORM TREASURIES
The fund's strong relative showing primarily stemmed from our decision to
emphasize corporate bonds at the expense of Treasuries, as credit product
generally outperformed securities more sensitive to interest rate fluctuations.
Additionally, within our Treasury exposure, the fact that we shortened our
duration also supported overall performance.
HIGH YIELD BONDS LEAD THE RALLY
The highlight of the period was definitely the performance of our high yield
bonds. The high yield market overall recorded an exceptional period. With
interest rates at low levels, income-oriented investors continued to move into
the asset class in search of higher returns. Although we had been managing our
high yield risk by decreasing the number of our high yield holdings and
diversifying, these tactics did not prevent the fund from benefiting as the
asset class rallied. Standouts included the fund's telecommunications bonds,
which rebounded sharply after poor performance in the first half of 2002. Bonds
issued by wireless telecom service provider Nextel Communications advanced
strongly after the company reported consistently robust financial results. Other
wireless service providers made positive contributions to results as well,
including the fund's AT&T Wireless Services and VoiceStream Wireless bonds, both
of which logged double-digit price gains.
Our credit selection in the corporate investment-grade area was also on the
mark, as the fund's media bonds augmented our showing, led by our Clear Channel
Communications bonds, as well as those issued by AOL Time Warner. Finally, the
fund's utility bonds continued to work well for us.
LINE GRAPH: INVESCO SELECT INCOME FUND - CLASS A & B GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Class A and the value of a $10,000 investment in INVESCO Select
Income Fund - Class B to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the cases of INVESCO Select
Income Fund - Class A and Class B, inclusion of front-end sales charge and
contingent deferred sales charge, respectively, for the period since inception
(4/02) through 2/28/03.
INVESCO Select INVESCO Select Lehman Government/
Income Fund - Income Fund - Credit Bond
Class A Class B Index(4)
4/02 $10,000 $10,000 $10,000
2/03 $10,500 $10,449 $11,355
THE COMING MONTHS COULD REWARD A CAUTIOUS APPROACH
Going forward, we continue to believe the longer-term economic trend is toward
recovery. Nevertheless, in our opinion, progress could be stunted in the
near-term, as we believe uncertainties stemming from the war with Iraq continue
to weigh on consumers and to influence corporate spending decisions.
With this in mind, we have recently adopted a more conservative posture in the
fund, as we have modestly increased its exposure to Treasuries, while taking
profits in some of our high yield positions. We have also decreased the fund's
exposure to consumer and cyclically-sensitive issuers, such as hotels and auto
parts manufacturers. That said, the fund's bias remains toward credit products
at the expense of Treasuries.
LINE GRAPH: INVESCO SELECT INCOME FUND - CLASS C GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Class C to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the case of INVESCO Select
Income Fund - Class C, inclusion of contingent deferred sales charge, for the
period since inception (2/00) through 2/28/03.
INVESCO Select Income Lehman Government/
Fund - Class C Credit Bond Index(4)
2/00 $10,000 $10,000
2/01 $10,906 $11,351
2/02 $9,783 $12,180
2/03 $10,522 $13,549
LINE GRAPH: INVESCO SELECT INCOME FUND - CLASS K GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Class K to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, for the period since inception (12/00)
through 2/28/03.
INVESCO Select Income Lehman Government/
Fund - Class K Credit Bond Index(4)
12/00 $10,000 $10,000
2/01 $10,486 $10,475
2/02 $9,452 $11,240
2/03 $10,223 $12,503
LINE GRAPH: INVESCO SELECT INCOME FUND - INVESTOR CLASS GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Select
Income Fund - Investor Class to the value of a $10,000 investment in the Lehman
Government/Credit Bond Index(4), assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended 2/28/03.
INVESCO Select Income Lehman Government/
Fund - Investor Class Credit Bond Index(4)
2/93 $10,000 $10,000
2/94 $10,770 $10,571
2/95 $11,029 $10,713
2/96 $12,391 $12,065
2/97 $13,559 $12,647
2/98 $15,198 $14,002
2/99 $15,866 $14,891
2/00 $15,847 $15,003
2/01 $17,360 $17,029
2/02 $15,693 $18,273
2/03 $17,005 $20,326
(3)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(4)THE LEHMAN GOVERNMENT/CREDIT BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF
THE OVERALL DOMESTIC FIXED-INCOME MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
ALTHOUGH THEY HAVE HIGHER RETURN POTENTIAL, HIGH YIELD BONDS ARE ALSO SUBJECT TO
GREATER RISKS, INCLUDING THE RISK OF DEFAULT, COMPARED TO HIGHER-RATED
SECURITIES.
AT ANY GIVEN TIME, THE FUND MAY BE SUBJECT TO SECTOR RISK, WHICH MEANS A CERTAIN
SECTOR MAY UNDERPERFORM OTHER SECTORS OR THE MARKET AS A WHOLE. THE FUND IS NOT
LIMITED WITH RESPECT TO THE SECTORS IN WHICH IT CAN INVEST.
FUND MANAGEMENT
[PHOTOGRAPH OF ROBERT J. HICKEY OMITTED]
ROBERT J. HICKEY
BOB HICKEY IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED HIS
BACHELOR'S DEGREE FROM THE UNIVERSITY OF WISCONSIN-MADISON, AND HIS MBA FROM THE
KELLOGG GRADUATE SCHOOL OF MANAGEMENT AT NORTHWESTERN UNIVERSITY. HE BEGAN HIS
INVESTMENT CAREER IN 1988.
[PHOTOGRAPH OF RICHARD HINDERLIE OMITTED]
RICHARD HINDERLIE
A VICE PRESIDENT OF INVESCO FUNDS GROUP, DICK HINDERLIE RECEIVED HIS BA IN
ECONOMICS FROM PACIFIC LUTHERAN UNIVERSITY AND HIS MBA FROM ARIZONA STATE
UNIVERSITY. HE BEGAN HIS INVESTMENT CAREER IN 1973, AND HAS EXTENSIVE EXPERIENCE
IN FIXED-INCOME ANALYSIS AND PORTFOLIO MANAGEMENT.
TAX-FREE BOND FUND
YOUR FUND'S REPORT
FUND PERFORMANCE
DEAR SHAREHOLDER:
For the six-month period ended February 28, 2003, the value of Tax-Free Bond
Fund-Investor Class shares rose 3.21%, slightly trailing the 3.36% gain posted
by the Lehman Municipal Bond Index. (Of course, past performance is not a
guarantee of future results.)(5),(6) For performance of other share classes,
please see page 2.
FLIGHT TO SAFETY BENEFITS MUNIS
Over the past six months, municipal bonds continued to perform in direct
contrast to stocks. Generally, whenever investors moved assets out of the stock
market, fixed-income securities, including municipal bonds, benefited. On the
other hand, during months when investors returned to the stock market, munis
retreated. Specifically, in October and November 2002, we saw a rally in stocks
as investors acted on hopes that an economic recovery might take hold to spur
equities in 2003. In this environment, munis lagged.
PIE CHART: TAX-FREE BOND FUND
CREDIT RATINGS ON LONG-
TERM BOND HOLDINGS
AS OF 2/28/03
[PIE CHART]
% OF LONG-TERM
BOND HOLDINGS
Aaa.....................64.13%
Aa......................18.28%
A.......................13.56%
Baa......................1.79%
NR.......................2.24%
However, by December, the stock rally had fizzled in the face of renewed
geopolitical fears surrounding Iraq's failure to disarm -- and the Bush
Administration's seeming intention to take military action as a result -- the
emergence of North Korea as a nuclear threat, and ongoing alerts of possible
terrorist attacks. Furthermore, economic data failed to show marked improvement.
In light of these disconcerting developments, investors essentially maintained a
defensive stance for the remainder of the period, opting to rotate back into
fixed-income securities in search of investments known for their relative
stability.
- --------------------------------------------------------------------------------
TAX-FREE BOND FUND - TOP 10 STATES
% OF TOTAL NET ASSETS AS OF 2/28/03
- --------------------------------------------------------------------------------
Texas.....................................................................20.04%
Indiana...................................................................12.01%
Illinois...................................................................8.18%
New York...................................................................7.15%
Massachusetts..............................................................6.72%
Louisiana..................................................................6.14%
Michigan...................................................................4.36%
Ohio.......................................................................3.60%
New Jersey.................................................................2.79%
Arizona....................................................................2.63%
- --------------------------------------------------------------------------------
Within the municipal market, investors gravitated toward bonds on the short end
of the yield curve, where interest rates have declined the most. Indeed, over
the six-month period, two-, three-, and four-year municipal bonds all declined
by more than 50 basis points in yield. At the same time, 20- and 30-year munis
declined by only 20 basis points.
DEMAND KEEPS PACE WITH RECORD ISSUANCE
Notably, 2002 was a record year for new issuance of municipal bonds. We believe
this is because in the 1998 and 2000 elections, voters approved numerous bond
issues. Yet states and cities waited until rates were low to bring these issues
to the public, causing a rush to the market in 2002.
Demand was solid over the six-month period, allowing the flood of new issues to
be readily absorbed. However, municipal bonds were so plentiful, their interest
rates did not drop as much as Treasuries' rates. As a result, municipals'
valuations have become very attractive relative to Treasuries. In fact, during
the period, we were able to purchase muni bonds across a range of maturities at
higher yields than Treasury securities. This imbalance, on top of the general
flight to high-quality fixed-income investments during the period, has only
increased municipal bonds' appeal. In particular, we are focusing on munis
within the 10- to 15-year range, as interest rates for these securities have
been virtually static over the past six months, creating especially compelling
values.
STATE BUDGET DEFICITS PRESENT A CHALLENGE
Throughout the period, one concern municipal bond investors have acknowledged is
the problem presented by growing state budget deficits. Although demand for
revenue bonds has remained strong in the face of deficits, it has slackened with
regard to general obligation bonds. Those states attempting to trim deficits
using tobacco bonds have suffered the most ratings downgrades, as this action is
regarded as a temporary measure that fails to adequately address the issue of
overspending.
In light of this situation, we are conducting extensive credit research to avoid
any downgrades. We are also focusing on essential revenue bonds, such as water
and sewer bonds, which are not subject to economic constraints.
CAPITAL PRESERVATION REMAINS CHIEF GOAL
The consensus among investors at this point is that interest rates will likely
rise in 2003. This, however, appears to be far from imminent. Until signs of
inflation appear and worries about the stock market, the economy, and the
geopolitical situation are alleviated, the Federal Reserve will likely avoid
implementing any rate hikes in the near term.
LINE GRAPH: INVESCO TAX-FREE BOND FUND - CLASS A & B GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Class A and the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Class B to the value of a $10,000 investment in the Lehman Municipal
Bond Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the cases of INVESCO Tax-Free Bond Fund - Class A and
Class B, inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 2/28/03.
INVESCO Tax-Free INVESCO Tax-Free Lehman Municipal
Bond Fund - Bond Fund - Bond
Class A Class B Index(6)
4/02 $10,000 $10,000 $10,000
2/03 $10,425 $10,390 $10,982
LINE GRAPH: INVESCO TAX-FREE BOND FUND - CLASS C GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Class C to the value of a $10,000 investment in the Lehman Municipal
Bond Index(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Tax-Free Bond Fund - Class C,
inclusion of contingent deferred sales charge, for the period since inception
(2/00) through 2/28/03.
INVESCO Tax-Free Bond Lehman Municipal
Fund - Class C Bond Index(6)
2/00 $10,000 $10,000
2/01 $12,636 $11,234
2/02 $13,239 $12,002
2/03 $14,108 $12,923
LINE GRAPH: INVESCO TAX-FREE BOND FUND - INVESTOR CLASS GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Tax-Free
Bond Fund - Investor Class to the value of a $10,000 investment in the Lehman
Municipal Bond Index(6), assuming in each case reinvestment of all dividends and
capital gain distributions, for the ten year period ended 2/28/03.
INVESCO Tax-Free Bond Lehman Municipal
Fund - Investor Class Bond Index(6)
2/93 $10,000 $10,000
2/94 $10,520 $10,554
2/95 $10,506 $10,752
2/96 $11,507 $11,941
2/97 $12,053 $12,598
2/98 $12,976 $13,750
2/99 $13,615 $14,596
2/00 $13,176 $14,292
2/01 $14,782 $16,056
2/02 $15,614 $17,154
2/03 $16,751 $18,470
(5)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
INCOME FROM TAX-FREE BOND FUND MAY BE SUBJECT TO STATE AND LOCAL TAXES, AS WELL
AS TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
(6)THE LEHMAN MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF THE BROAD
TAX-EXEMPT BOND MARKET. THE INDEX IS NOT MANAGED; THEREFORE, ITS PERFORMANCE
DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND
INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN
ANY MARKET INDEX.
FUND MANAGEMENT
[PHOTOGRAPH OF RICHARD A. BERRY OMITTED]
RICHARD A. BERRY, CFA
RICHARD BERRY IS VICE PRESIDENT OF AIM CAPITAL MANAGEMENT, INC. HE IS LEAD
MANAGER OF INVESCO TAX-FREE BOND FUND. HE BEGAN HIS INVESTMENT CAREER IN 1968,
AND HAS WORKED FOR AIM SINCE 1987. HE HAS A BA AND MBA FROM TEXAS CHRISTIAN
UNIVERSITY, AND IS A CHARTERED FINANCIAL ANALYST CHARTERHOLDER.
[PHOTOGRAPH OF STEPHEN D. TURMAN OMITTED]
STEPHEN D. TURMAN, CFA
STEPHEN D. TURMAN, VICE PRESIDENT AND PORTFOLIO MANAGER OF AIM, IS THE
CO-PORTFOLIO MANAGER OF INVESCO TAX-FREE BOND FUND. STEPHEN JOINED AIM IN 1985
AND MANAGES SEVERAL OTHER AIM FIXED-INCOME FUNDS. STEPHEN IS A CHARTERED
FINANCIAL ANALYST CHARTERHOLDER AND HOLDS A BBA IN FINANCE FROM THE UNIVERSITY
OF TEXAS AT ARLINGTON.
U.S. GOVERNMENT SECURITIES FUND
YOUR FUND'S REPORT
FUND PERFORMANCE
DEAR SHAREHOLDER:
For the six-month period ended February 28, 2003, the value of U.S. Government
Securities Fund-Investor Class shares rose 3.23%. This return underperformed
that of the Lehman Government Long Bond Index, which gained 7.03% over the same
period. (Of course, past performance is not a guarantee of future
results.)(7),(8) For performance of other share classes, please see page 2.
INVESTORS' RISK AVERSION SUPPORTED GOVERNMENT BONDS
Government bonds logged another strong period of performance, buoyed by several
trends. For one, the economy has shown few signs of improving. And, at times,
the available data suggested that the business cycle was taking one step back
for each step forward. Indeed, by period end, the economy seemed to deteriorate
even further as worries relating to the consideration of another conflict with
Iraq shook consumer confidence.
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND -
TOP BOND HOLDINGS BY ISSUER
% OF TOTAL NET ASSETS AS OF 2/28/03
- --------------------------------------------------------------------------------
US Treasury Notes.........................................................51.38%
Freddie Mac...............................................................19.86%
Government National Mortgage Association I & II...........................13.56%
Government National Mortgage Association I.................................4.61%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
Of course, the Federal Reserve also played a role in market action, as the
central bank lowered its target for the federal funds rate again during October
- - - this time by a half percentage point. More clarity into the central bank's
thinking about the state of business came recently from the Federal Open Market
Committee, the active arm of the Fed. The committee stated, "Oil price premiums
and other aspects of geopolitical risks have reportedly fostered continued
restraint on spending and hiring by businesses."
Collectively, these trends, along with the persistent threat of terrorism, had
investors moving away from investments believed to possess a more aggressive
risk/reward profile, and into investments regarded as "safe havens." Government
bonds were the primary beneficiaries of this rotation.
SHORTER DURATION AND AGENCY BONDS HURT RELATIVE PERFORMANCE
The fund benefited from the "flight to quality," but to a lesser extent than the
long-term bond benchmark. The cause of the fund's performance shortfall relative
to the benchmark was our decision to shorten the fund's duration, and to
overweight agency bonds, in an effort to maximize yield. In particular, our
underexposure to longer-dated Treasuries hindered relative performance, as those
bonds were among the best performers in the government bond market. We adopted
this posture early in the period, as we believed that the economy appeared to be
improving modestly and that interest rates had bottomed.
THE FUND REMAINS CONSERVATIVELY POSITIONED
Going forward, the fund's average duration at period end was 3.13 years, which
is less than the Lehman Government Long Bond Index at 11.29 years, but slightly
greater than the Lehman U.S. Government Intermediate Index at 3.08 years. The
fund is skewed toward a shorter maturity mix with an eye to safety and
liquidity. The fund's mortgage-backed securities also provide attractive yield
spread characteristics. This is a conservative positioning plan we believe is
suited to the times. Our trading is focused to achieve value amidst a broader
mix of risks, including equity market price uncertainty, a yield curve structure
that we regard as expensive, and accommodating the current benign measures of
inflation.
Striking a balance between these factors is a delicate task of managing the
moving targets of fundamental economic measures, technical considerations,
coupon yield competitiveness, and net asset value performance. Until the equity
market settles into more patterned and disciplined trading, we expect yields to
remain at levels heretofore not experienced by most market participants. As
such, the portfolio will likely remain neutral to slightly underweight in
Treasuries ahead of expectations that the economy will improve. The portfolio
will remain overweight in mortgage-backed securities for income generation, a
strategy that may help cushion the portfolio, should expectations of a recovery
begin to squeeze Treasuries.
PIE CHART: U.S. GOVERNMENT
SECURITIES FUND
ASSET DIVERSIFICATION
AS OF 2/28/03
[PIE CHART]
% OF TOTAL NET ASSETS
US Government Obligations.......51.38%
US Government Agency
Obligations....................38.03%
Net Cash & Cash Equivalents.....10.59%
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - CLASS A & B GROWTH
OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Class A(9) and the value of a $10,000 investment in
INVESCO U.S. Government Securities Fund - Class B to the value of a $10,000
investment in the Lehman Government Long Bond Index(8), assuming in each case
reinvestment of all dividends and capital gain distributions, and in the cases
of INVESCO U.S. Government Securities Fund - Class A and Class B, inclusion of
front-end sales charge and contingent deferred sales charge, respectively, for
the period since inception (4/02) through 2/28/03.
INVESCO U.S. INVESCO U.S. Lehman
Government Government Government
Securities Fund Securities Fund Long Bond
- Class A(9) - Class B Index(8)
4/02 $10,000 $10,000 $10,000
2/03 $12,888 $10,561 $12,222
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - CLASS C GROWTH OF
$10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Class C to the value of a $10,000 investment in the
Lehman Government Long Bond Index(8), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the case of INVESCO U.S.
Government Securities Fund - Class C, inclusion of contingent deferred sales
charge, for the period since inception (2/00) through 2/28/03.
INVESCO U.S. Government Lehman Government
Securities Fund Long Bond
- Class C Index(8)
2/00 $10,000 $10,000
2/01 $11,396 $11,750
2/02 $11,961 $12,323
2/03 $12,905 $14,459
LINE GRAPH: INVESCO U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS GROWTH OF
$10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO U.S.
Government Securities Fund - Investor Class to the value of a $10,000 investment
in the Lehman Government Long Bond Index(8), assuming in each case reinvestment
of all dividends and capital gain distributions, for the ten year period ended
2/28/03.
INVESCO U.S. Government Lehman Government
Securities Fund Long Bond
- Investor Class Index(8)
2/93 $10,000 $10,000
2/94 $10,431 $10,843
2/95 $10,268 $10,753
2/96 $11,593 $12,687
2/97 $11,999 $13,139
2/98 $13,620 $15,423
2/99 $14,456 $16,586
2/00 $14,272 $16,443
2/01 $16,268 $19,320
2/02 $17,204 $20,263
2/03 $18,702 $23,775
(7)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE. FUND
SHARES ARE NEITHER ISSUED NOR GUARANTEED BY THE U.S. GOVERNMENT.
(8)THE LEHMAN GOVERNMENT LONG BOND INDEX IS AN UNMANAGED INDEX INDICATIVE OF THE
LONGER-TERM GOVERNMENT BOND MARKET. THE INDEX IS NOT MANAGED; THEREFORE, ITS
PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH
THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST
DIRECTLY IN ANY MARKET INDEX.
(9)GROWTH OF $10,000 REFLECTS LARGE FLUCTUATIONS IN ASSET SIZE AND SHAREHOLDER
TRANSACTIONS.
FUND MANAGEMENT
[PHOTOGRAPH OF RICHARD HINDERLIE OMITTED]
RICHARD HINDERLIE
DICK HINDERLIE IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED HIS BA IN
ECONOMICS FROM PACIFIC LUTHERAN UNIVERSITY AND HIS MBA FROM ARIZONA STATE
UNIVERSITY. HE BEGAN HIS INVESTMENT CAREER IN 1973, AND HAS BROAD-BASED
EXPERIENCE IN FIXED-INCOME ANALYSIS AND PORTFOLIO MANAGEMENT.
QUESTIONS & ANSWERS
AN INTERVIEW WITH PORTFOLIO MANAGER DICK HINDERLIE
[PHOTOGRAPH OF RICHARD HINDERLIE OMITTED]
DICK HINDERLIE IS A VICE PRESIDENT AT INVESCO FUNDS GROUP. HE MANAGES INVESCO
U.S. GOVERNMENT SECURITIES FUND AND CO-MANAGES INVESCO SELECT INCOME FUND.
HOW LONG WILL BONDS RUN?
MANY BELIEVE THAT CONCERNS ABOUT THE WAR WITH IRAQ HAVE PREVENTED THE ECONOMIC
RECOVERY FROM GAINING MOMENTUM. DO YOU AGREE WITH THIS ASSESSMENT, AND BELIEVE
THAT THE ECONOMY WILL IMPROVE ONCE WE ACHIEVE SOME RESOLUTION ON THE IRAQI
CONFLICT?
DICK HINDERLIE: Yes, the consensus is that war jitters have muddled
macroeconomic prospects. Consider that the National Association of Manufacturers
Survey found that 68% of companies expect the economy to rebound quickly once
hostilities end. Clearly, hiring and investing have been delayed until the
tension diminishes.
To understand how the economy will react once these geopolitical concerns
subside, we should examine the three components of the gross domestic product
(GDP) - Consumption, Investment and Government.
Starting with the consumer, there were reasons for optimism as we entered 2003.
We experienced stable-to-improving employment and favorable housing trends,
which investor sentiment was strengthening. And aside from housing, health care
and insurance, inflation for the consumer was not a constraining issue. But
energy prices, together with the consumer turning cautious in the first quarter,
represent risks to the recovery. Furthermore, the war with Iraq may hold the
consumer back even more.
HOW ABOUT INVESTMENT AND GOVERNMENT?
DICK HINDERLIE: The corporate investment component of our GDP equation has not
been positive in this post-bubble era. True, we're encouraged by the increased
attention to corporate governance, balance sheet repair and improving
creditworthiness. But we would feel better if we saw improvement in capacity
utilization, inventory building, and capital spending growth. Another formidable
barrier to optimism exists: the stock market. As a leading indicator for the
manufacturing economy, it would be nice to see some improvement in stock market
tone.
The government component of the equation is improving. Stimulative monetary
policy has resulted in the lowest interest rates in a generation, and policy
will likely remain accommodative until recovery takes root. The fiscal side of
government, with attention to our nation's security, defense and expansive
fiscal policy initiatives, could stoke the economic engine.
DOES AN IMPROVING ECONOMY RESULT IN A RISE IN INTEREST RATES? IF SO, DOES THAT
MEAN THE RALLY IN BONDS IS NEARLY OVER?
DICK HINDERLIE: At the successful completion of the war, optimism for growth and
productivity will likely increase. Conventional wisdom would suggest a
government bond fund would come under pressure once the war uncertainty has been
alleviated. But the cookie cutter response to "sell Treasuries" may not be the
automatic and reasonable response. Even if we achieve some measure of clarity on
Iraq, the new millennium ushered in a new world that's filled with uncertainty.
I don't believe investors will price a "peace premium" into stocks anytime soon.
Sources of investor uncertainty will still exist.
WHAT ARE SOME OF THESE SOURCES OF UNCERTAINTY?
DICK HINDERLIE: Perhaps the most significant sources of uncertainty are North
Korea and Al Qaeda - two threats that will not likely go away simultaneously or
when the conflict with Iraq is behind us.
And then there's oil. Most people expect oil prices to revert to their long-term
mean in the low- to mid-$20 dollar range once the war with Iraq is resolved. If
they don't, inflation and economic growth issues may assert themselves as
hurdles to recovery.
And there's the outlook for monetary policy. The central bank has hinted that it
might use unconventional tactics, such as pegging long-term interest rates and
fixed levels of purchases of Treasury notes, in the event more stimuli is
required.
Finally, corporate America is burdened with high levels of debt. Deleveraging
from these high debt levels does not lend itself to expansive excitement for the
economy.
So while there may be a strong sense that if we see a decisive victory in the
war with Iraq there will be a swift move to higher interest rates, it's not a
certainty. There continue to be several compelling arguments that bonds could
continue their recent performance.
"I DON'T BELIEVE INVESTORS WILL PRICE A "PEACE PREMIUM" INTO STOCKS ANYTIME
SOON. SOURCES OF INVESTOR UNCERTAINTY WILL STILL EXIST."
MARKET HEADLINES
MARKET OVERVIEW:
SEPTEMBER 2002 THROUGH FEBRUARY 2003
Uncertainty persisted during the six-month period ended February 28, 2003, as
investors were fed a steady diet of unnerving developments. Early on, extreme
pessimism stemming from lackluster corporate profits and the ever-present
terrorist threat kept investors on their heels. Then, as the period unfolded,
the Bush Administration began seeking support for an attack on Iraq, which only
added to the market's anxieties.
In September, third-quarter pre-announcements of earnings shortfalls were
rampant, and forward-looking earnings projections were also generally bleak.
Meanwhile, economic news offered little respite from the negative headlines. A
labor dispute kept West Coast dockworkers from unloading cargo, resulting in a
port lockout and mild inventory disruptions. All the while, the U.S. continued
its aggressive stance toward Iraq, fueling worries that war was imminent. These
developments only heightened the sense of uncertainty that had persisted all
year. September closed out the worst quarter for the Dow Jones Industrial
Average since 1987.
In early October, stocks declined further, breaking through the lows set in
July. Then, on October 9, the market reversed course because of several
stronger-than-expected corporate earnings reports. Interestingly, the month's
economic data were not clearly positive. The fact that investors chose to focus
on favorable developments rather than the negatives was significant, as it
marked a substantial change in investor sentiment. This rediscovered optimism
persisted into November, a month punctuated by a Federal Reserve interest rate
cut and the mid-term elections, which resulted in a GOP-controlled Congress.
Many investors embraced this news, forecasting potential tax cuts and a
pro-business fiscal agenda in the months ahead.
Unfortunately, the rally stalled in December. Indeed, it was the worst December
performance for the Dow Jones Industrials since 1931. A number of factors
contributed to the month's decline, including lackluster holiday retail sales
and surging energy prices - both of which caused investors to question whether
consumer spending could remain strong going forward. Meanwhile, the dollar
weakened significantly, and the 10-year Treasury's yield dipped below 4%,
indicating a resurgence in risk aversion. Perhaps the biggest drain on stocks,
however, was the uncertainty spawned by geopolitical concerns. In addition to
continued tension between the U.S. and Iraq, the emergence of North Korea as a
potential nuclear threat rattled investors.
In January, the beginning of a new year brought another rebound attempt for the
stock market. The first two weeks of the month saw stocks advance sharply,
particularly technology shares. A mix of encouraging economic data, notably
surprisingly strong corporate profits, positive manufacturing numbers, and the
third consecutive monthly improvement in the Index of Leading Economic
Indicators, fueled a short-lived upturn. However, as the month progressed, the
market took on an increasingly negative tone. Although disappointing
fourth-quarter gross domestic product data, rising energy prices, and
uninspiring corporate profit guidance deflated investor confidence, the primary
impetus for the market's reversal was uncertainty surrounding Iraq.
War worries only escalated in February, the final month of the period. Although
the U.S. stopped short of taking military action during the month, more U.S.
troops were amassed in the Middle East, seemingly in preparation for an attack.
This volatile geopolitical situation - on top of a precipitous drop in consumer
confidence and a major East Coast snowstorm that dampened retail sales - kept
the stock market in check throughout the month, and the six-month period ended
on a low note. Indeed, until investors can better gauge the direction of the
conflict with Iraq and the economy, volatility will likely persist.
INVESCO'S FAMILY OF FUNDS
NO SINGLE MUTUAL FUND CONSTITUTES AN ENTIRE SAVINGS PLAN. CONSULT YOUR FINANCIAL
ADVISOR ABOUT ALLOCATING YOUR PORTFOLIO ACROSS SEVERAL FUNDS WITH DIFFERENT
OBJECTIVES AND STYLES. THIS STRATEGY MAY HELP REDUCE YOUR RISK, WHILE
POTENTIALLY ENHANCING YOUR RETURNS.
STOCK
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Dynamics
Growth
Growth & Income
Mid-Cap Growth
Small Company Growth
S&P 500 Index Fund
Value Equity
BOND
High Yield
Select Income
Tax-Free Bond#
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COMBINATION
STOCK & BOND
Balanced
Total Return
SECTOR
Energy
Financial Services
Gold & Precious Metals
Health Sciences
Leisure
Real Estate Opportunity
Technology
Telecommunications
Utilities
Multi-Sector
ADVANTAGE
Advantage
Advantage Global Health Sciences
GLOBAL &
INTERNATIONAL
European
International Blue Chip Value
MONEY MARKET+
Cash Reserves
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FOR MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES, GENERAL AND
FUND-SPECIFIC INVESTMENT RISKS, AND EXPENSES, CALL 1-800-525-8085 FOR A
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
* AN INVESTMENT IN THE FUND IS NEITHER BACKED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
# AN INVESTMENT IN THE FUND MAY BE SUBJECT TO STATE OR LOCAL TAXES AND THE
FEDERAL ALTERNATIVE MINIMUM TAX.
+ AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUNDS.
INVESTOR CLASS SHARES ARE CLOSED TO NEW INVESTORS.
[INVESCO ICON] INVESCO(R)
INVESCO Distributors, Inc.,(SM)
Distributor
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 2003
UNAUDITED
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FUND
86.12 FIXED INCOME SECURITIES - CORPORATE BONDS
0.46 AEROSPACE & DEFENSE
L-3 Communications, Sr Sub Notes, 7.625%, 6/15/2012 $ 1,275,000 $ 1,333,969
====================================================================================================================================
0.23 AGRICULTURAL PRODUCTS
Central Garden & Pet, Sr Sub Notes(a), 9.125%, 2/1/2013 $ 625,000 653,125
====================================================================================================================================
0.43 AIR FREIGHT & COURIERS
Petroleum Helicopters, Sr Notes, Series B, 9.375%, 5/1/2009 $ 1,165,000 1,246,550
====================================================================================================================================
2.62 ALTERNATIVE CARRIERS
Allegiance Telecom, Sr Discount Notes, Series B(b), 11.750%, 2/15/2008 $ 8,365,000 1,944,862
Level 3 Communications, Sr Discount Step-Up Notes, Zero Coupon(c), 12/1/2008 $ 9,780,000 5,599,050
====================================================================================================================================
7,543,912
3.07 AUTO PARTS & EQUIPMENT
American Axle & Manufacturing, Sr Sub Notes, 9.750%, 3/1/2009 $ 1,000,000 1,082,500
Dana Corp, Notes, 10.125%, 3/15/2010 $ 1,800,000 1,881,000
Dura Operating, Sr Notes, Series B, 8.625%, 4/15/2012 $ 830,000 813,400
Lear Corp, Sr Notes, 7.960%, 5/15/2005 $ 1,000,000 1,067,500
Metaldyne Corp, Sr Sub Notes, 11.000%, 6/15/2012 $ 1,275,000 1,007,250
TRW Automotive Acquisition
Sr Notes(a), 9.375%, 2/15/2013 $ 800,000 816,000
Sr Sub Notes(a), 11.000%, 2/15/2013 $ 500,000 515,625
Universal Compression, Sr Discount Notes, 9.875%, 2/15/2008 $ 1,595,000 1,668,769
====================================================================================================================================
8,852,044
2.43 BROADCASTING - RADIO/TV
Acme Television LLC/Acme Finance, Sr Discount Notes, Series B, 10.875%, 9/30/2004 $ 1,235,000 1,262,787
Allbritton Communications, Sr Sub Notes(a), 7.750%, 12/15/2012 $ 760,000 752,400
Gray Television, Sr Sub Notes, 9.250%, 12/15/2011 $ 1,570,000 1,683,825
Paxson Communications, Sr Sub Discount Step-Up Notes, Zero Coupon(c), 1/15/2009 $ 1,000,000 730,000
Sinclair Broadcast Group, Sr Sub Notes
8.750%, 12/15/2011 $ 1,690,000 1,782,950
8.000%(a), 3/15/2012 $ 775,000 793,406
====================================================================================================================================
7,005,368
1.13 BUILDING PRODUCTS
Schuler Homes, Sr Sub Exchange Notes, 10.500%, 7/15/2011 $ 3,000,000 3,255,000
====================================================================================================================================
5.48 CABLE & SATELLITE OPERATORS
Adelphia Communications, Sr Notes(d)(e), 10.250%, 6/15/2011 $ 1,750,000 735,000
Century Communications, Sr Notes(d)(e), 9.500%, 3/1/2005 $ 925,000 277,500
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Charter Communications Holdings LLC/Charter Communications Holdings Capital
Sr Notes, 8.250%, 4/1/2007 $ 1,500,000 $ 720,000
DirecTV Holdings LLC/DirecTV Financing, Sr Notes(a), 8.375%, 3/15/2013 $ 2,000,000 2,110,000
EchoStar DBS, Sr Notes, 9.125%, 1/15/2009 $ 1,500,000 1,605,000
Renaissance Media Group LLC/Renaissance Media Capital, Sr Discount Step-Up Notes
Zero Coupon(c), 4/15/2008 $ 3,498,000 3,078,240
Star Choice Communications, Sr Secured Notes, 13.000%, 12/15/2005 $ 7,300,000 7,263,500
====================================================================================================================================
15,789,240
7.24 CASINOS & GAMING
Argosy Gaming, Sr Sub Notes
10.750%, 6/1/2009 $ 2,000,000 2,157,500
9.000%, 9/1/2011 $ 1,900,000 1,987,875
Chumash Casino & Resort Enterprise, Sr Notes(a), 9.000%, 7/15/2010 $ 785,000 820,325
Hollywood Casino, Sr Secured Notes, 11.250%, 5/1/2007 $ 3,200,000 3,408,000
Hollywood Park/Hollywood Park Operating, Sr Sub Notes, Series B, 9.500%, 8/1/2007 $ 1,710,000 1,521,900
Mandalay Resort Group
Sr Notes, 9.500%, 8/1/2008 $ 1,000,000 1,090,000
Sr Sub Notes, 9.375%, 2/15/2010 $ 1,500,000 1,552,500
Park Place Entertainment, Sr Sub Notes
8.125%, 5/15/2011 $ 3,615,000 3,633,075
7.875%, 12/15/2005 $ 1,150,000 1,168,688
Penn National Gaming, Sr Sub Notes, Series B, 11.125%, 3/1/2008 $ 2,230,000 2,363,800
Resorts International Hotel & Casino, 1st Mortgage Notes, 11.500%, 3/15/2009 $ 1,350,000 1,167,750
====================================================================================================================================
20,871,413
0.41 CONSTRUCTION MACHINERY, FARM MACHINERY & HEAVY TRUCKS
Terex Corp, Sr Sub Notes, 9.250%, 7/15/2011 $ 1,260,000 1,197,000
====================================================================================================================================
1.91 DISTRIBUTORS
Ferrellgas Partners LP/Ferrellgas Partners Finance, Sr Notes, 8.750%, 6/15/2012 $ 1,935,000 2,022,075
Herbalife International, Sr Sub Notes, Series B, 11.750%, 7/15/2010 $ 425,000 452,625
National Waterworks, Sr Sub Notes(a), 10.500%, 12/1/2012 $ 1,180,000 1,250,800
United Auto Group, Sr Sub Notes(a), 9.625%, 3/15/2012 $ 1,850,000 1,780,625
====================================================================================================================================
5,506,125
1.44 DIVERSIFIED CHEMICALS
FMC Corp, Sr Secured Notes(a), 10.250%, 11/1/2009 $ 785,000 836,025
Huntsman International LLC, Sr Notes, 9.875%, 3/1/2009 $ 1,250,000 1,278,125
Johnson Diversey, Sr Sub Notes, Series B, 9.625%, 5/15/2012 $ 1,000,000 1,065,000
Lyondell Chemical, Sr Secured Notes, Series B, 9.875%, 5/1/2007 $ 1,000,000 965,000
====================================================================================================================================
4,144,150
0.29 DIVERSIFIED COMMERCIAL SERVICES
Pierce Leahy Command, Sr Notes, 8.125%, 5/15/2008 $ 825,000 833,250
====================================================================================================================================
1.89 DIVERSIFIED FINANCIAL SERVICES
Madison River Capital LLC/Madison River Finance, Sr Notes, Series B, 13.250%, 3/1/2010 $ 6,500,000 4,420,000
Qwest Services, Sr Sub Secured Notes(a), 13.000%, 12/15/2007 $ 1,000,000 1,037,500
====================================================================================================================================
5,457,500
3.27 ELECTRIC UTILITIES
Consumers Energy, 1st & Refunding Mortgage Notes, 7.375%, 9/15/2023 $ 1,840,000 1,838,995
Mission Energy Holdings, Sr Secured Notes, 13.500%, 7/15/2008 $ 2,385,000 667,800
Nevada Power, General & Refunding Mortgage Notes(a), Series E, 10.875%, 10/15/2009 $ 625,000 646,875
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power, 1st Mortgage Notes, 9.750%, 11/1/2005 $ 5,375,000 $ 6,261,966
====================================================================================================================================
9,415,636
0.72 ELECTRONIC EQUIPMENT & INSTRUMENTS
Fisher Scientific International, Sr Sub Notes(a), 8.125%, 5/1/2012 $ 1,000,000 1,057,500
PerkinElmer Inc, Sr Sub Notes(a), 8.875%, 1/15/2013 $ 1,000,000 1,020,000
====================================================================================================================================
2,077,500
1.31 ENVIRONMENTAL SERVICES
Allied Waste North America, Sr Notes
9.250%(a), 9/1/2012 $ 1,000,000 1,045,000
Series B, 8.875%, 4/1/2008 $ 850,000 886,125
IESI Corp, Sr Sub Notes, 10.250%, 6/15/2012 $ 515,000 496,975
Synagro Technologies, Sr Sub Notes, 9.500%, 4/1/2009 $ 1,280,000 1,356,800
====================================================================================================================================
3,784,900
0.87 FOOD DISTRIBUTORS
Fleming Cos, Sr Notes, 9.250%, 6/15/2010 $ 1,110,000 616,050
Roundy's Inc, Sr Sub Notes
8.875%(a), 6/15/2012 $ 670,000 656,600
Series B, 8.875%, 6/15/2012 $ 1,275,000 1,249,500
====================================================================================================================================
2,522,150
0.55 HEALTH CARE EQUIPMENT
Advanced Medical Optics, Sr Sub Notes, 9.250%, 7/15/2010 $ 1,560,000 1,595,100
====================================================================================================================================
2.82 HEALTH CARE FACILITIES
Alderwoods Group, Notes, 12.250%, 1/2/2009 $ 2,140,000 1,926,000
Extendicare Health Services, Sr Notes, 9.500%, 7/1/2010 $ 2,145,000 2,005,575
Hanger Orthopedic Group, Sr Notes, 10.375%, 2/15/2009 $ 1,000,000 1,067,500
HEALTHSOUTH Corp, Sr Notes, 7.625%, 6/1/2012 $ 1,165,000 949,475
United Surgical Partners Holdings, Sr Sub Notes, 10.000%, 12/15/2011 $ 2,100,000 2,184,000
====================================================================================================================================
8,132,550
0.73 HOMEBUILDING
Ryland Group
Sr Notes, 9.750%, 9/1/2010 $ 815,000 912,800
Sr Sub Notes, 8.250%, 4/1/2008 $ 150,000 154,500
Standard Pacific, Sr Notes, 8.500%, 4/1/2009 $ 1,000,000 1,035,000
====================================================================================================================================
2,102,300
1.45 HOTELS & RESORTS
Host Marriott LP, Sr Notes, Series I, 9.500%, 1/15/2007 $ 1,000,000 985,000
John Q Hammons Hotels LP/John Q Hammons Hotels Finance III
1st Mortgage Notes, Series B, 8.875%, 5/15/2012 $ 1,580,000 1,564,200
Premier Parks, Sr Discount Step-Up Notes, Zero Coupon(c), 4/1/2008 $ 100,000 95,000
Wynn Las Vegas LLC/Wynn Las Vegas Capital, 2nd Mortgage Notes, 12.000%, 11/1/2010 $ 1,525,000 1,532,625
====================================================================================================================================
4,176,825
0.14 INDUSTRIAL MACHINERY
Rexnord Corp, Sr Sub Notes(a), 10.125%, 12/15/2012 $ 395,000 411,788
====================================================================================================================================
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
0.89 INTEGRATED OIL & GAS
El Paso Energy Partners LP/El Paso Energy Partners Finance, Sr Sub Notes
10.625%(a), 12/1/2012 $ 1,140,000 $ 1,214,100
Series B, 8.500%, 6/1/2011 $ 1,415,000 1,365,475
====================================================================================================================================
2,579,575
6.41 INTEGRATED TELECOMMUNICATION SERVICES
Block Communications, Sr Sub Notes, 9.250%, 4/15/2009 $ 2,250,000 2,362,500
CFW Communications, Sr Notes(d), 13.000%, 8/15/2010 $ 7,250,000 2,030,000
COLT Telecom Group PLC, Sr Discount Notes, 12.000%, 12/15/2006 $ 4,873,000 3,411,100
Crown Castle International, Sr Notes, 9.375%, 8/1/2011 $ 4,500,000 3,645,000
GCI Inc, Sr Notes, 9.750%, 8/1/2007 $ 1,660,000 1,527,200
MetroNet Communications, Sr Discount Step-Up Notes(b)(e), Zero Coupon(c), 6/15/2008 $ 3,280,000 615,000
US WEST Communications, Notes
7.200%, 11/1/2004 $ 3,515,000 3,488,638
5.650%, 11/1/2004 $ 1,500,000 1,417,500
====================================================================================================================================
18,496,938
1.71 LEISURE FACILITIES
Intrawest Corp
Sr Exchange Notes, 10.500%, 2/1/2010 $ 405,000 423,225
Sr Notes, 9.750%, 8/15/2008 $ 1,250,000 1,262,500
Regal Cinemas, Sr Sub Notes, Series B, 9.375%, 2/1/2012 $ 1,175,000 1,257,250
Six Flags, Sr Notes, 8.875%, 2/1/2010 $ 2,200,000 1,980,000
====================================================================================================================================
4,922,975
0.39 MANAGED HEALTH CARE
Rotech Healthcare, Sr Sub Notes(a), 9.500%, 4/1/2012 $ 1,150,000 1,132,750
====================================================================================================================================
2.16 METAL & GLASS CONTAINERS
Anchor Glass Container, Sr Secured Notes(a), 11.000%, 2/15/2013 $ 1,665,000 1,660,837
BWAY Corp, Sr Sub Notes(a), 10.000%, 10/15/2010 $ 800,000 836,000
Crown European Holdings SA, Sr Secured Notes(a)
10.875%, 3/1/2013 $ 1,000,000 1,007,500
9.500%, 3/1/2011 $ 2,720,000 2,720,000
====================================================================================================================================
6,224,337
1.40 MOVIES & ENTERTAINMENT
AMC Entertainment, Sr Sub Notes, 9.875%, 2/1/2012 $ 4,040,000 3,878,400
Cinemark USA, Sr Sub Notes(a), 9.000%, 2/1/2013 $ 160,000 165,600
====================================================================================================================================
4,044,000
1.98 MULTI-UTILITIES
AES Corp, Sr Secured Notes(a), 10.000%, 7/15/2005 $ 1,950,000 1,940,250
Aquila Inc, Sr Notes(a), 14.875%(f), 7/1/2012 $ 1,425,000 1,054,500
Utilicorp United, Sr Notes
9.950%(f), 2/1/2011 $ 345,000 225,975
6.875%, 10/1/2004 $ 850,000 629,000
Western Resources, Notes, 6.250%, 8/15/2018 $ 1,850,000 1,866,188
====================================================================================================================================
5,715,913
0.41 NATURAL GAS PIPELINES
Northwest Pipeline, Sr Notes(a), 8.125%, 3/1/2010 $ 630,000 645,750
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Plains All American Pipeline LP/Plains All American Pipeline Finance
Sr Notes, 7.750%, 10/15/2012 $ 495,000 $ 527,175
====================================================================================================================================
1,172,925
2.31 OIL & GAS DRILLING
Pride International, Sr Notes, 10.000%, 6/1/2009 $ 5,000,000 5,425,000
Westport Resources, Sr Sub Notes(a), 8.250%, 11/1/2011 $ 1,165,000 1,226,163
====================================================================================================================================
6,651,163
2.13 OIL & GAS EQUIPMENT & SERVICES
Grant Prideco, Sr Notes
9.000%(a), 12/15/2009 $ 790,000 829,500
Series B, 9.625%, 12/1/2007 $ 1,475,000 1,574,563
Gulfmark Offshore, Sr Notes, 8.750%, 6/1/2008 $ 3,600,000 3,726,000
====================================================================================================================================
6,130,063
3.87 OIL & GAS EXPLORATION, PRODUCTION & TRANSPORTATION
Chesapeake Energy, Sr Notes, Series B, 8.500%, 3/15/2012 $ 1,040,000 1,089,400
Comstock Resources, Sr Notes, 11.250%, 5/1/2007 $ 2,000,000 2,140,000
Forest Oil, Sr Notes, 8.000%, 6/15/2008 $ 2,995,000 3,107,313
Parker & Parsley Petroleum, Sr Notes, 8.875%, 4/15/2005 $ 2,550,000 2,742,930
Vintage Petroleum
Sr Notes, 8.250%, 5/1/2012 $ 1,685,000 1,777,675
Sr Sub Notes, 9.000%, 12/15/2005 $ 300,000 303,000
====================================================================================================================================
11,160,318
1.87 OIL & GAS REFINING & MARKETING
CITGO Petroleum, Sr Notes(a), 11.375%, 2/1/2011 $ 860,000 864,300
Premcor Refining Group, Sr Notes(a)
9.500%, 2/1/2013 $ 1,665,000 1,739,925
9.250%, 2/1/2010 $ 835,000 872,575
Tesoro Petroleum, Sr Sub Notes, 9.625%, 4/1/2012 $ 2,350,000 1,903,500
====================================================================================================================================
5,380,300
0.54 PACKAGED FOODS & MEATS
Del Monte, Sr Sub Notes(a), 8.625%, 12/15/2012 $ 780,000 799,500
Doane Pet Care, Sr Notes(a), 10.750%, 3/1/2010 $ 750,000 757,500
====================================================================================================================================
1,557,000
1.19 PAPER PACKAGING
Appleton Papers, Sr Sub Notes, Series B, 12.500%, 12/15/2008 $ 1,490,000 1,646,450
Graphic Packaging, Sr Sub Notes, 8.625%, 2/15/2012 $ 1,700,000 1,793,500
====================================================================================================================================
3,439,950
2.67 PAPER PRODUCTS
Bear Island Paper LLC/Bear Island Finance II, Sr Secured Notes, Series B, 10.000%, 12/1/2007 $ 2,300,000 1,920,500
Cascades Inc, Sr Notes(a), 7.250%, 2/15/2013 $ 1,595,000 1,634,875
Georgia-Pacific Corp, Sr Notes(a), 9.375%, 2/1/2013 $ 1,625,000 1,641,250
Jefferson Smurfit, Sr Notes, 8.250%, 10/1/2012 $ 850,000 890,375
MDP Acquisitions PLC, Sr Notes(a), 9.625%, 10/1/2012 $ 1,565,000 1,619,775
====================================================================================================================================
7,706,775
1.30 PHARMACEUTICALS
aaiPharma Inc, Sr Sub Notes, 11.000%, 4/1/2010 $ 2,550,000 2,703,000
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
AmerisourceBergen Corp, Sr Notes(a), 7.250%, 11/15/2012 $ 1,000,000 $ 1,040,000
====================================================================================================================================
3,743,000
3.54 PUBLISHING & PRINTING
American Media, Sr Sub Notes(a), 8.875%, 1/15/2011 $ 1,245,000 1,310,362
Dex Media East LLC/Dex Media East Finance
Sr Notes(a), 9.875%, 11/15/2009 $ 1,175,000 1,269,000
Sr Sub Notes(a), 12.125%, 11/15/2012 $ 400,000 448,000
Hollinger International Publishing, Sr Notes(a), 9.000%, 12/15/2010 $ 815,000 851,675
Houghton Mifflin, Sr Notes(a), 8.250%, 2/1/2011 $ 1,665,000 1,731,600
Mail-Well I, Sr Notes, 9.625%, 3/15/2012 $ 2,275,000 2,172,625
Nebraska Book, Sr Sub Notes, 8.750%, 2/15/2008 $ 1,000,000 1,005,000
Primedia Inc, Sr Notes, 10.250%, 6/1/2004 $ 1,000,000 1,001,250
Sun Media, Sr Notes(a), 7.625%, 2/15/2013 $ 400,000 409,000
====================================================================================================================================
10,198,512
0.56 REAL ESTATE INVESTMENT TRUSTS
Ventas Realty LP/Ventas Capital, Sr Notes, 8.750%, 5/1/2009 $ 1,525,000 1,608,875
====================================================================================================================================
0.37 REAL ESTATE MANAGEMENT & DEVELOPMENT
Corrections Corp of America, Sr Notes, 9.875%, 5/1/2009 $ 1,000,000 1,075,000
====================================================================================================================================
0.15 SOFT DRINKS
Cott Beverages, Sr Sub Notes, Series B, 8.000%, 12/15/2011 $ 400,000 421,000
====================================================================================================================================
1.00 SPECIALTY CHEMICALS
IMC Global, Sr Notes, Series B, 11.250%, 6/1/2011 $ 1,450,000 1,518,875
Millennium America, Sr Notes, 9.250%, 6/15/2008 $ 1,285,000 1,355,675
====================================================================================================================================
2,874,550
2.36 SPECIALTY STORES
Cole National Group, Sr Sub Notes, 8.875%, 5/15/2012 $ 900,000 828,000
Hollywood Entertainment, Sr Sub Notes, 9.625%, 3/15/2011 $ 780,000 791,700
Sonic Automotive, Sr Sub Notes, Series D, 11.000%, 8/1/2008 $ 400,000 420,000
United Rentals, Sr Sub Notes, Series B, 8.800%, 8/15/2008 $ 6,035,000 4,767,650
====================================================================================================================================
6,807,350
1.56 STEEL
Jarden Corp, Sr Sub Notes, 9.750%, 5/1/2012 $ 1,550,000 1,612,000
Steel Dynamics, Sr Notes, 9.500%, 3/15/2009 $ 2,765,000 2,889,425
====================================================================================================================================
4,501,425
0.86 TEXTILES
Collins & Aikman Floorcoverings, Sr Sub Notes, Series B, 9.750%, 2/15/2010 $ 900,000 877,500
Simmons Co, Sr Sub Notes, Series B, 10.250%, 3/15/2009 $ 1,500,000 1,608,750
====================================================================================================================================
2,486,250
3.60 WIRELESS TELECOMMUNICATION SERVICES
Nextel Communications, Sr Serial Redeemable Notes
9.500%, 2/1/2011 $ 800,000 804,000
9.375%, 11/15/2009 $ 2,305,000 2,316,525
NII Holdings Ltd, Sr Secured Discount Step-Up Notes, Zero Coupon(c), 11/1/2009 $ 1,012,189 779,386
Rural Cellular, Sr Sub Notes, 9.750%, 1/15/2010 $ 3,425,000 2,466,000
Triton PCS, Sr Sub Discount Step-Up Notes, Zero Coupon(c), 5/1/2008 $ 40,000 34,800
UbiquiTel Operating, Sr Sub Discount Step-Up Notes, Zero Coupon(c), 5/15/2010 $ 950,000 209,000
US Unwired, Sr Sub Discount Step-Up Notes, Series B, Zero Coupon(c), 11/1/2009 $ 4,575,000 457,500
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
VoiceStream Wireless, Sr Notes, 10.375%, 11/15/2009 $ 2,999,000 $ 3,298,900
====================================================================================================================================
10,366,111
TOTAL FIXED INCOME SECURITIES (AMORTIZED COST $262,407,317) 248,304,450
====================================================================================================================================
1.15 COMMON STOCKS, RIGHTS & WARRANTS
0.32 BROADCASTING - RADIO/TV
NTL Inc(g) 91,503 916,860
XM Satellite Radio Warrants(a)(g) (Exp 2010) 3,750 375
====================================================================================================================================
917,235
0.05 INTEGRATED TELECOMMUNICATION SERVICES
Focal Communications(g) 132,775 6,639
McLeodUSA Inc Class A Warrants(e)(g) (Exp 2007) 117,164 25,776
Ntelos Inc Warrants(a)(g) (Exp 2010) 16,500 1
XO Communications(g) 34,072 100,512
XO Communications Rights(g) (to purchase cmn shrs) 36,140,000 36
====================================================================================================================================
132,964
0.00 INTERNET SOFTWARE & SERVICES
Wam!Net Warrants(a)(g) (Exp 2005) 17,100 171
====================================================================================================================================
0.78 WIRELESS TELECOMMUNICATION SERVICES
NII Holdings Class B Shrs(g) 109,549 2,256,709
====================================================================================================================================
TOTAL COMMON STOCKS, RIGHTS & WARRANTS (COST $12,788,163) 3,307,079
====================================================================================================================================
3.65 PREFERRED STOCKS
0.20 BROADCASTING - RADIO/TV
Cumulus Media, Exchangeable Pfd, Series A Shrs(h), 13.750% 500 560,000
====================================================================================================================================
0.06 INTEGRATED TELECOMMUNICATION SERVICES
McLeodUSA Inc, Pfd, Series A Shrs(e)(g), 2.500% 52,873 177,653
====================================================================================================================================
1.27 MOVIES & ENTERTAINMENT
CSC Holdings
Conv Pfd, Series H, 11.750% 18,000 1,854,000
Pfd, Series M Shrs, 11.125% 17,750 1,819,375
====================================================================================================================================
3,673,375
2.12 WIRELESS TELECOMMUNICATION SERVICES
Nextel Communications, Exchangeable Pfd, Series E Shrs, 11.125% 5,998 6,117,960
====================================================================================================================================
TOTAL PREFERRED STOCKS (COST $7,980,073) 10,528,988
====================================================================================================================================
1.04 OTHER SECURITIES
0.68 ELECTRIC UTILITIES
Alliant Energy Resources, Sr Exchangeable Notes(a), PAY PHONES(i),
2.500%, 2/15/2030 (Each shr exchangeable for 2.5 shrs McLeodUSA Inc(e) Cmn Stk) 76,000 1,976,000
====================================================================================================================================
0.36 WIRELESS TELECOMMUNICATION SERVICES
American Tower Escrow, Units(a)(Each unit consists of one $1,000 Face Amount Sr Sub
Discount Step-Up Note, Zero Coupon(c), 8/1/2008 and 1 Wrnt to purchase 14.0953 shrs
of Cmn Stk) 1,670 1,027,050
====================================================================================================================================
TOTAL OTHER SECURITIES (AMORTIZED COST $5,905,615) 3,003,050
====================================================================================================================================
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
5.59 SHORT-TERM INVESTMENTS
1.93 CORPORATE BONDS
1.08 CABLE & SATELLITE OPERATORS
TCI Communications, Sr Notes, 6.375%, 5/1/2003 $ 3,100,000 $ 3,122,602
====================================================================================================================================
0.27 ELECTRIC UTILITIES
CMS Energy, Sr Notes, Series B, 6.750%, 1/15/2004 $ 825,000 779,625
====================================================================================================================================
0.58 HEALTH CARE FACILITIES
HEALTHSOUTH Corp, Conv Sub Deb, 3.250%, 4/1/2003 $ 1,670,000 1,661,650
====================================================================================================================================
TOTAL CORPORATE BONDS (Amortized Cost $5,475,212) 5,563,877
====================================================================================================================================
3.47 COMMERCIAL PAPER - MULTI-LINE INSURANCE
AIG Funding, 1.320%, 3/3/2003 (Cost $10,000,000) $ 10,000,000 10,000,000
====================================================================================================================================
0.19 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 2/28/2003 due 3/3/2003 at 1.300%,
repurchased at $558,060 (Collateralized by Federal Home Loan Bank, Bonds,
due 3/8/2004 at 1.425%, value $570,553)(Cost $558,000) $ 558,000 558,000
====================================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $16,033,212) 16,121,877
====================================================================================================================================
97.55 TOTAL INVESTMENTS AT VALUE
(AMORTIZED COST $305,114,380) 281,265,444
====================================================================================================================================
2.45 OTHER ASSETS LESS LIABILITIES 7,062,741
====================================================================================================================================
100.00 NET ASSETS AT VALUE $ 288,328,185
====================================================================================================================================
SELECT INCOME FUND
84.49 FIXED INCOME SECURITIES
11.94 US GOVERNMENT OBLIGATIONS
US Treasury Notes
5.750%, 8/15/2010 $ 5,000,000 $ 5,791,990
4.000%, 11/15/2012 $ 28,500,000 29,233,647
====================================================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS (Amortized Cost $33,500,063) 35,025,637
====================================================================================================================================
20.12 US GOVERNMENT AGENCY OBLIGATIONS
Fannie Mae, Gtd Mortgage Pass-Through Certificates, 5.000%, 1/1/2017 $ 9,198,692 9,494,413
Freddie Mac, Gold, Participation Certificates
6.000%, 2/1/2017 $ 12,590,955 13,210,628
5.500%, 12/1/2016 $ 15,207,313 15,869,996
Government National Mortgage Association I, Platinum Collateral, 5.000%, 11/15/2017 $ 19,661,513 20,445,757
====================================================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (Amortized Cost $57,220,303) 59,020,794
====================================================================================================================================
0.27 ASSET-BACKED SECURITIES - AIRLINES
Delta Air Lines, Pass-Thru Certificates, Series 2002-1, Class C, 7.779%, 1/2/2012
(Cost $967,998) $ 967,997 781,331
====================================================================================================================================
52.16 CORPORATE BONDS
1.97 AUTOMOBILE MANUFACTURERS
DaimlerChrysler, North America Holding, Notes, 4.750%, 1/15/2008 $ 1,600,000 1,630,498
Ford Motor Credit, Global Landmark Securities, 7.250%, 10/25/2011 $ 2,260,000 2,171,451
General Motors Acceptance, Notes, 7.000%, 2/1/2012 $ 1,975,000 1,989,980
====================================================================================================================================
5,791,929
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
1.24 BANKS
HSBC Holdings PLC, Sub Notes, 5.250%, 12/12/2012 $ 1,400,000 $ 1,456,526
Washington Mutual, Sr Notes, 4.375%, 1/15/2008 $ 455,000 476,805
Washington Mutual Bank, Global Medium-Term Sr Bank Notes, 5.500%, 1/15/2013 $ 1,600,000 1,694,730
====================================================================================================================================
3,628,061
1.09 BROADCASTING - RADIO/TV
Clear Channel Communications, Sr Notes, 6.000%, 11/1/2006 $ 2,500,000 2,687,690
Sinclair Broadcast Group, Sr Sub Notes, 8.750%, 12/15/2011 $ 475,000 501,125
====================================================================================================================================
3,188,815
0.76 CABLE & SATELLITE OPERATORS
Adelphia Communications, Sr Notes(d)(e), Series B, 9.250%, 10/1/2049 $ 850,000 357,000
Century Communications, Sr Notes(d)(e), 9.500%, 3/1/2005 $ 900,000 270,000
EchoStar DBS, Sr Notes, 9.125%, 1/15/2009 $ 1,500,000 1,605,000
====================================================================================================================================
2,232,000
1.08 CASINOS & GAMING
Argosy Gaming, Sr Sub Notes, 9.000%, 9/1/2011 $ 1,545,000 1,616,456
Penn National Gaming, Sr Sub Notes, Series B, 11.125%, 3/1/2008 $ 1,475,000 1,563,500
====================================================================================================================================
3,179,956
0.47 CONSTRUCTION MACHINERY, FARM MACHINERY & HEAVY TRUCKS
Terex Corp, Sr Sub Notes, 9.250%, 7/15/2011 $ 1,465,000 1,391,750
====================================================================================================================================
1.12 CONSUMER FINANCE
Household Finance, Notes
6.375%, 11/27/2012 $ 980,000 1,072,830
5.750%, 1/30/2007 $ 1,150,000 1,236,795
4.625%, 1/15/2008 $ 950,000 981,166
====================================================================================================================================
3,290,791
0.85 DIVERSIFIED FINANCIAL SERVICES
American General Finance, Medium-Term Sr Notes, Series G, 5.375%, 10/1/2012 $ 800,000 830,560
CIT Group, Sr Notes, 5.750%, 9/25/2007 $ 1,582,000 1,656,768
====================================================================================================================================
2,487,328
18.38 ELECTRIC UTILITIES
Cleveland Electric Illuminating
1st Mortgage Notes, Series B, 9.500%, 5/15/2005 $ 2,252,000 2,271,297
Secured Notes(a), Series D, 7.880%, 11/1/2017 $ 1,925,000 2,348,766
Commonwealth Edison, 1st Mortgage Notes, Series 83, 8.000%, 5/15/2008 $ 2,100,000 2,553,749
Consumers Energy, 1st & Refunding Mortgage Notes, 7.375%, 9/15/2023 $ 4,060,000 4,057,783
Duquesne Light, 1st Collateral Trust Notes, 7.550%, 6/15/2025 $ 5,580,000 5,797,525
El Paso Electric, 1st Mortgage Notes, Series D, 8.900%, 2/1/2006 $ 4,755,000 5,194,990
Niagara Mohawk Power, 1st Mortgage Notes, 9.750%, 11/1/2005 $ 4,232,000 4,930,352
Pacific Gas & Electric, 1st & Refunding Mortgage Notes, Series 92D, 8.250%, 11/1/2022 $ 2,223,000 2,161,867
Pennsylvania Power, 1st Mortgage Notes, 8.500%, 7/15/2022 $ 2,000,000 2,096,572
Potomac Edison, 1st Mortgage Notes, 8.000%, 12/1/2022 $ 2,200,000 2,161,518
Public Service of New Mexico, Sr Notes
Series A, 7.100%, 8/1/2005 $ 11,375,000 11,734,973
Series B, 7.500%, 8/1/2018 $ 1,000,000 972,055
Texas Utilities Electric
1st Mortgage Notes, 8.750%, 11/1/2023 $ 5,000,000 5,200,500
1st Mortgage & Collateral Trust Notes,7.625%, 7/1/2025 $ 348,000 360,817
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Toledo Edison, Secured Medium-Term Notes, 9.220%, 12/15/2021 $ 1,975,000 $ 2,065,283
====================================================================================================================================
53,908,047
0.32 ENVIRONMENTAL SERVICES
Allied Waste North America, Sr Notes(a), 9.250%, 9/1/2012 $ 575,000 600,875
IESI Corp, Sr Sub Notes, 10.250%, 6/15/2012 $ 360,000 347,400
====================================================================================================================================
948,275
0.10 FOOD DISTRIBUTORS
Fleming Cos, Sr Notes, 9.250%, 6/15/2010 $ 530,000 294,150
====================================================================================================================================
0.73 GAS UTILITIES
Consolidated Natural Gas, Sr Notes, Series B, 5.375%, 11/1/2006 $ 1,980,000 2,128,401
====================================================================================================================================
0.33 HEALTH CARE EQUIPMENT
Advanced Medical Optics, Sr Sub Notes, 9.250%, 7/15/2010 $ 950,000 971,375
====================================================================================================================================
1.14 HEALTH CARE FACILITIES
Tenet Healthcare, Sr Notes, 6.500%, 6/1/2012 $ 815,000 788,512
United Surgical Partners Holdings, Sr Sub Notes, 10.000%, 12/15/2011 $ 2,450,000 2,548,000
====================================================================================================================================
3,336,512
0.18 HOMEBUILDING
Ryland Group, Sr Notes, 9.750%, 9/1/2010 $ 485,000 543,200
====================================================================================================================================
0.44 INDUSTRIAL GASES
Praxair Inc, Notes, 4.750%, 7/15/2007 $ 1,225,000 1,289,553
====================================================================================================================================
1.11 INTEGRATED OIL & GAS
Marathon Oil, Notes, 5.375%, 6/1/2007 $ 1,000,000 1,060,262
Texaco Capital, Notes, 5.500%, 1/15/2009 $ 2,000,000 2,203,454
====================================================================================================================================
3,263,716
5.72 INTEGRATED TELECOMMUNICATION SERVICES
COLT Telecom Group PLC, Sr Discount Notes, 12.000%, 12/15/2006 $ 2,070,000 1,449,000
MetroNet Communications, Sr Discount Step-Up Notes(b)(e), Zero Coupon(c), 6/15/2008 $ 3,335,000 625,313
Sprint Capital, Notes, 7.625%, 1/30/2011 $ 4,675,000 4,534,750
US WEST Communications, Notes, 5.650%, 11/1/2004 $ 7,125,000 6,733,125
Verizon Global Funding, Notes, 6.875%, 6/15/2012 $ 1,640,000 1,874,135
Verizon Maryland, Deb, Series A, 6.125%, 3/1/2012 $ 1,410,000 1,556,251
====================================================================================================================================
16,772,574
0.35 METAL & GLASS CONTAINERS
Crown European Holdings SA, Sr Secured Notes(a), 9.500%, 3/1/2011 $ 1,025,000 1,025,000
====================================================================================================================================
0.29 MOVIES & ENTERTAINMENT
AOL Time Warner, Notes
6.875%, 5/1/2012 $ 400,000 421,832
6.750%, 4/15/2011 $ 400,000 419,090
====================================================================================================================================
840,922
3.09 MULTI-UTILITIES
AES Corp, Sr Secured Notes(a), 10.000%, 7/15/2005 $ 2,040,000 2,029,800
Aquila Inc, Sr Notes(a), 14.875%(f), 7/1/2012 $ 1,595,000 1,180,300
Avista Corp, 1st Mortgage, 7.750%, 1/1/2007 $ 3,000,000 3,248,811
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Utilicorp United, Sr Notes
9.950%(f), 2/1/2011 $ 355,000 $ 232,525
6.875%, 10/1/2004 $ 545,000 403,300
Western Resources, Sr Notes, 7.125%, 8/1/2009 $ 2,194,000 1,974,600
====================================================================================================================================
9,069,336
0.11 NATURAL GAS PIPELINES
Plains All American Pipeline LP/Plains All American Finance, Sr Notes, 7.750%, 10/15/2012 $ 300,000 319,500
====================================================================================================================================
1.27 OIL & GAS EXPLORATION, PRODUCTION & TRANSPORTATION
Parker & Parsley Petroleum, Sr Notes, 8.250%, 8/15/2007 $ 1,665,000 1,831,602
Vintage Petroleum, Sr Notes, 8.250%, 5/1/2012 $ 1,800,000 1,899,000
====================================================================================================================================
3,730,602
0.15 OIL & GAS REFINING & MARKETING
CITGO Petroleum, Sr Notes(a), 11.375%, 2/1/2011 $ 450,000 452,250
====================================================================================================================================
1.74 PAPER PACKAGING
Appleton Papers, Sr Sub Notes, Series B, 12.500%, 12/15/2008 $ 790,000 872,950
Chesapeake Corp, Deb, 7.200%, 3/15/2005 $ 4,400,000 4,224,000
====================================================================================================================================
5,096,950
1.09 PAPER PRODUCTS
Abitibi-Consolidated Inc, Notes, 6.950%, 4/1/2008 $ 1,500,000 1,552,076
Georgia-Pacific Corp, Sr Notes(a), 9.375%, 2/1/2013 $ 1,625,000 1,641,250
====================================================================================================================================
3,193,326
0.20 PHARMACEUTICALS
AmerisourceBergen Corp, Sr Notes(a), 7.250%, 11/15/2012 $ 575,000 598,000
====================================================================================================================================
1.11 PUBLISHING & PRINTING
Mail-Well I, Sr Notes, 9.625%, 3/15/2012 $ 2,740,000 2,616,700
Nebraska Book, Sr Sub Notes, 8.750%, 2/15/2008 $ 625,000 628,125
====================================================================================================================================
3,244,825
0.93 RAILROADS
Burlington Northern Santa Fe, Notes, 6.125%, 3/15/2009 $ 1,205,000 1,362,019
Union Pacific, Notes, 6.650%, 1/15/2011 $ 1,205,000 1,373,713
====================================================================================================================================
2,735,732
0.66 REAL ESTATE INVESTMENT TRUSTS
Ventas Realty LP/Ventas Capital, Sr Notes, 8.750%, 5/1/2009 $ 1,825,000 1,925,375
====================================================================================================================================
0.70 SOFT DRINKS
Coca-Cola Enterprises, Notes, 4.375%, 9/15/2009 $ 1,570,000 1,627,735
Cott Beverages, Sr Sub Notes, Series B, 8.000%, 12/15/2011 $ 400,000 421,000
====================================================================================================================================
2,048,735
0.52 SPECIALTY CHEMICALS
IMC Global, Sr Notes, Series B, 11.250%, 6/1/2011 $ 1,450,000 1,518,875
====================================================================================================================================
0.35 STEEL
Jarden Corp, Sr Sub Notes, 9.750%, 5/1/2012 $ 985,000 1,024,400
====================================================================================================================================
2.57 WIRELESS TELECOMMUNICATION SERVICES
AT&T Wireless Services, Sr Notes
8.125%, 5/1/2012 $ 1,330,000 1,429,750
6.875%, 4/18/2005 $ 1,500,000 1,590,000
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Sr Serial Redeemable Notes, 9.375%, 11/15/2009 $ 1,205,000 $ 1,211,025
VoiceStream Wireless, Sr Notes, 10.375%, 11/15/2009 $ 3,000,000 3,300,000
====================================================================================================================================
7,530,775
TOTAL CORPORATE BONDS (AMORTIZED COST $152,720,440) 153,001,036
====================================================================================================================================
TOTAL FIXED INCOME SECURITIES (Amortized Cost $244,408,804) 247,828,798
====================================================================================================================================
0.01 COMMON STOCKS, RIGHTS & WARRANTS - INTEGRATED TELECOMMUNICATION SERVICES
McLeodUSA Inc Class A Warrants(e)(g) (Exp 2007) 17,844 3,926
Ntelos Inc Warrants(a)(g)(Exp 2010) 3,750 0
XO Communications(g) 4,863 14,346
XO Communications Rights(g) (to purchase cmn shrs) 4,915,000 5
====================================================================================================================================
TOTAL COMMON STOCKS, RIGHTS & WARRANTS (COST $61,144) 18,277
====================================================================================================================================
0.52 PREFERRED STOCKS
0.01 INTEGRATED TELECOMMUNICATION SERVICES
McLeodUSA Inc, Pfd, Series A Shrs(e)(g), 2.500% 8,052 27,055
====================================================================================================================================
0.51 MOVIES & ENTERTAINMENT
CSC Holdings, Conv Pfd, Series H Shrs, 11.750% 14,600 1,503,800
====================================================================================================================================
TOTAL PREFERRED STOCKS (COST $1,550,312) 1,530,855
====================================================================================================================================
0.27 OTHER SECURITIES - ELECTRIC UTILITIES
Alliant Energy Resources, Sr Exchangeable Notes(a), PAY PHONES(i),
2.500%, 2/15/2030 (Each shr exchangeable for 2.5 shrs McLeodUSA Inc(e) Cmn Stk)
(Cost $1,873,125) 30,000 780,000
====================================================================================================================================
11.84 SHORT-TERM INVESTMENTS
1.58 CORPORATE BONDS - ELECTRIC UTILITIES
CMS Energy, Sr Notes, Series B, 6.750%, 1/15/2004 (Cost $4,900,000) $ 4,900,000 4,630,500
====================================================================================================================================
9.54 COMMERCIAL PAPER
4.77 CONSUMER FINANCE
General Electric Capital, 1.340%, 3/3/2003 $ 14,000,000 14,000,000
====================================================================================================================================
4.77 MULTI-LINE INSURANCE
AIG Funding, 1.320%, 3/3/2003 $ 14,000,000 14,000,000
====================================================================================================================================
TOTAL COMMERCIAL PAPER (Cost $28,000,000) 28,000,000
====================================================================================================================================
0.72 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 2/28/2003 due 3/3/2003 at 1.300%,
repurchased at $2,110,229 (Collateralized by Federal Home Loan Bank, Bonds,
due 3/8/2004 at 1.425%, value $2,152,087) (Cost $2,110,000) $ 2,110,000 2,110,000
====================================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (COST $35,010,000) 34,740,500
====================================================================================================================================
97.13 TOTAL INVESTMENTS AT VALUE
(AMORTIZED COST $282,903,385) 284,898,430
====================================================================================================================================
2.87 OTHER ASSETS LESS LIABILITIES 8,428,140
====================================================================================================================================
100.00 NET ASSETS AT VALUE $ 293,326,570
====================================================================================================================================
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE BOND FUND
98.94 MUNICIPAL BONDS
1.20 ALABAMA
Jefferson Cnty, Alabama (FSA Insured), Ltd Oblig School Warrants,
Series 2000, 5.500%, 2/15/2020 $ 1,250,000 $ 1,339,187
Lauderdale Cnty & Florence City Hlth Care Auth, Alabama (Coffee Health Group)
(MBIA Insured), Rev, Series 2000-A, 6.000%, 7/1/2029 $ 1,000,000 1,126,560
====================================================================================================================================
2,465,747
1.07 ALASKA
Alaska Hsg Fin (MBIA Insured), State Bldg Lease, Series 1999, 5.750%, 4/1/2017 $ 2,000,000 2,118,880
Alaska Indl Dev & Export Auth, Ref Revolving Fund, Series 1994A, Lots 1-29, 5.700%, 4/1/2004 $ 85,000 88,941
====================================================================================================================================
2,207,821
2.63 ARIZONA
Arizona Edl Ln Mktng (Student Lns Insured), Edl Ln Rev, 1992 Series B, 7.000%, 3/1/2005 $ 1,000,000 1,024,640
Arizona Tourism & Sports Auth (Multipurpose Stadium Facil Proj) (MBIA Insured),
Tax Rev, Series 2003A, 5.000%, 7/1/2024 $ 1,000,000 1,019,650
Phoenix Civic Impt, Arizona (FGIC Insured), Jr Lein Wastewtr System Rev, Series 2000, 5.700%,
7/1/2008 $ 1,055,000 1,220,329
7/1/2009 $ 1,275,000 1,479,816
Pima Cnty Indl Dev Auth, Arizona (Radisson City Ctr Proj), Dev Rev, Ref, Series 2002, 6.500%,
12/1/2007 $ 325,000 329,963
12/1/2008 $ 345,000 351,362
====================================================================================================================================
5,425,760
1.20 ARKANSAS
Arkansas Dev Fin Auth (FGIC Insured), Correction Facils Rev Ref, 2003 Series A, 4.500%,
11/15/2009 $ 1,795,000 1,952,116
North Little Rock Hlth Facils Brd, Arkansas (Baptist Health), Hlth Care Rev, Series 2001,
5.700%, 7/1/2022 $ 500,000 519,760
====================================================================================================================================
2,471,876
2.16 CALIFORNIA
Big Bear Lake Dept of Wtr & Pwr, California (MBIA Insured), Wtr Rev Ref, Series 1996,
6.000%, 4/1/2022 $ 2,000,000 2,396,020
Los Angeles Cmnty Redev Agency, California (Cinerama Dome Pub Parking Proj) (ACA Insured),
Parking System Rev, Series 2000A, 5.750%, 7/1/2026 $ 1,000,000 1,043,680
Whittier Util Auth, California (MBIA Insured), Wtr Rev, 2003 Series A, 5.000%, 6/1/2028 $ 1,000,000 1,017,950
====================================================================================================================================
4,457,650
1.66 COLORADO
Clear Creek Cnty, Colorado (School Dist RE-1) (FSA Insured), Gen Oblig, Ref,
Series 2002, 5.000%, 12/1/2019 $ 500,000 527,770
El Paso Cnty, Colorado (El Paso School Dist #2 - Harrison) (FGIC Insured), Gen Oblig,
Series 2001, 5.250%, 12/1/2026 $ 1,000,000 1,041,360
Garfield Cnty, Colorado (Garfield School Dist #RE-2) (FSA Insured), Gen Oblig,
Series 2003, 5.000%, 12/1/2023 $ 1,000,000 1,027,420
Montrose Cnty Bldg Auth, Colorado, Ctfs of Participation, Series 1994, 6.350%, 6/15/2006 $ 300,000 319,809
University of Colorado Hosp Auth, Rev, Series 2001A, 5.600%, 11/15/2031 $ 500,000 508,700
====================================================================================================================================
3,425,059
0.60 DISTRICT OF COLUMBIA
District of Columbia (George Washington Univ Issue) (MBIA Insured),
Univ Rev, Series 2001A, 5.125%, 9/15/2031 $ 1,000,000 1,021,260
District of Columbia (Mandarin Oriental Hotel Proj) (FSA Insured), Tax Increment Rev,
Series 2002, 5.250%, 7/1/2022 $ 200,000 209,656
====================================================================================================================================
1,230,916
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
0.55 FLORIDA
Escambia Cnty Health Facils Auth, Florida (Florida Hlth Care Facil Ln Prog) (VHA Prog
Administrator) (AMBAC Insured), Hlth Care Facil Rev, Series 2000A, 5.950%, 7/1/2020 $ 1,000,000 $ 1,124,070
====================================================================================================================================
1.59 GEORGIA
Gwinnett Cnty Wtr & Sewerage Auth, Georgia, Rev, Series 2002, 5.250%, 8/1/2024 $ 2,000,000 2,114,560
Tift Cnty Hosp Auth, Georgia (AMBAC Insured), Rev Anticipation Ctfs, Series 2002,
5.000%, 12/1/2022 $ 1,130,000 1,158,759
====================================================================================================================================
3,273,319
8.18 ILLINOIS
Boone McHenry & DeKalb Cntys, Illinois (Cmnty Unit School Dist #100 (Belvidere))
(FSA Insured), Gen Oblig, Series 1997, Cap Appreciation Rev, 12/1/2010 $ 2,720,000 2,032,275
Chicago, Illinois (AMBAC Insured), Gen Oblig, Ref Rev, Series 1993B, 5.125%, 1/1/2022 $ 3,065,000 3,286,262
Chicago, Illinois (FGIC Insured), Gen Oblig, Proj & Ref Rev, Series 2000C, 5.500%, 1/1/2040 $ 1,000,000 1,056,080
Chicago, Illinois (Peoples Gas Light & Coke Proj), Gas Supply Rev, 1st & Ref Mtg,
Medium-Term Notes, Series CC, 6.875%, 3/1/2015 $ 2,875,000 2,922,323
Chicago Park Dist, Illinois (Parking Rev Alternate Rev Source) (FGIC Insured), Gen Oblig,
Unltd Tax Ref, Series 2002A, 5.000%, 1/1/2022 $ 1,250,000 1,285,525
Illinois Dept Cent Mgmt Svcs (MBIA Insured), Ctfs of Participation, Series 1999, 5.850%,
7/1/2019 $ 1,750,000 1,948,170
Illinois Dev Fin Auth (Catholic Charities Hsg Dev Proj), Rev, Series 1995, 6.350%, 1/1/2025 $ 1,500,000 1,500,330
Illinois Edl Facils Auth (Robert Morris College) (MBIA Insured), Rev, Series 2000, 5.750%,
6/1/2020 $ 1,305,000 1,441,294
Will Cnty, Illinois (School Dist #122) (FSA Insured), Gen Oblig, Series 2000A, 6.500%,
11/1/2014 $ 1,165,000 1,397,278
====================================================================================================================================
16,869,537
10.32 INDIANA
DeKalb Cnty Redev Auth, Indiana (Mini-Mill Loc Pub Impt Proj), Rev, Series A 1995, 6.500%,
1/15/2014 $ 900,000 962,865
Hamilton Southeastern Cumberland Campus School Bldg, Indiana (Hamilton Cnty)
(AMBAC Insured), 1st Mtg, Series 2001, 5.125%, 1/15/2023 $ 1,000,000 1,029,940
Indianapolis, Indiana (MBIA Insured), Thermal Energy System Rev, Series 2001A, 5.000%,
10/1/2011 $ 2,500,000 2,784,225
Mt Vernon of Hancock Cnty Multi-School Bldg, Indiana (Hancock Cnty), 1st Mtg,
Series 2001A, 5.450%, 7/15/2022 $ 1,000,000 1,050,050
Northern Wells Cmnty School Bldg, Indiana (Wells Cnty) (FGIC Insured), 1st Mtg,
Series 2002, 5.400%, 7/15/2023 $ 500,000 530,665
Northwest Allen Cnty Middle School, Indiana (Allen Cnty), 1st Mtg, Series 2003, 5.000%,
1/15/2024 $ 1,300,000 1,326,793
Petersburg, Indiana (Indianapolis Pwr & Light Proj),
(MBIA Insured), PCR Ref, Series 1993B, 5.400%, 8/1/2017 $ 9,850,000 11,071,006
PCR Ref, Series 1991, 5.750%, 8/1/2021 $ 1,500,000 1,457,970
St Joseph Cnty Hosp Auth, Indiana (Memorial Hlth System) (AMBAC Insured), Hlth System Rev,
Series 2000, 5.625%, 8/15/2033 $ 1,000,000 1,063,550
====================================================================================================================================
21,277,064
0.51 KANSAS
Overland Park Dev, Kansas (Overland Park Convention Ctr Hotel Proj), 1st Tier Rev,
Series 2000A, 7.375%, 1/1/2032 $ 1,000,000 1,045,170
====================================================================================================================================
6.14 LOUISIANA
Lafayette, Louisiana (AMBAC Insured), Pub Impt Sales Tax Ref, Series 2002, 4.000%, 3/1/2008 $ 1,000,000 1,063,860
Lafayette, Louisiana (FGIC Insured), Pub Impt Sales Tax Rev, Series 2000A, 5.500%, 3/1/2023 $ 1,000,000 1,067,270
Louisiana Loc Govt Envir Facils & Cmnty Dev Auth (Baton Rouge Cmnty College Facils Proj)
(MBIA Insured), Rev, Series 2002, 5.000%, 12/1/2026 $ 500,000 509,775
Louisiana Loc Govt Envir Facils & Cmnty Dev Auth (Bossier Parish Cmnty College-Campus
Facils Proj) (MBIA Insured), Rev, Series 2002, 5.125%, 12/1/2024 $ 1,000,000 1,033,340
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana Loc Govt Envir Facils & Cmnty Dev Auth (Cap Proj & Equip Acquisition Prog), Rev,
(ACA Insured), Series 2000, 6.550%, 9/1/2025 $ 6,000,000 $ 6,708,120
(AMBAC Insured), Series 2000A, 6.300%, 7/1/2030 $ 1,000,000 1,215,170
Louisiana Loc Govt Envir Facils & Cmnty Dev Auth (Parking Facils Garage Proj) (AMBAC Insured),
Rev, Series 2001A, 5.200%, 10/1/2020 $ 760,000 801,496
Louisiana Pub Facils Auth (Dillard Univ Proj) (AMBAC Insured), Subordinate Rev,
Series 2002B, 5.300%, 8/1/2026 $ 250,000 261,555
====================================================================================================================================
12,660,586
1.06 MAINE
Maine Muni Bd Bank, Ref Rev, 2003 Series A, 5.000%, 11/1/2005 $ 2,000,000 2,184,820
====================================================================================================================================
5.99 MASSACHUSETTS
Boston Wtr & Swr Commn, Massachusetts (MBIA Insured), Gen Rev, 1993 Sr Series A,
5.250%, 11/1/2019 $ 5,385,000 5,995,551
Commonwealth of Massachusetts, Gen Oblig, Cons Ln of 2000, Series A, 5.750%, 2/1/2009 $ 785,000 900,944
Massachusetts Dev Fin Agency (Boston Univ Issue) (Instn Insured), Rev, Series P, 6.000%,
5/15/2059 $ 4,500,000 4,906,305
Massachusetts State College Bldg Auth (XLCA Insured), Proj & Ref Rev, Series 2003B, 5.500%,
5/1/2028 $ 500,000 554,835
====================================================================================================================================
12,357,635
4.36 MICHIGAN
Allegan Pub School Dist, Michigan (Allegan Cnty) (FSA Insured), 2000 School Bldg & Site,
Gen Oblig, Unltd Tax, Series 2000, 5.750%, 5/1/2030 $ 500,000 546,170
Caledonia Cmnty Schools, Michigan (Kent, Allegan & Barry Cntys) (FGIC Insured),
2000 School Bldg & Site, Gen Oblig, Unltd Tax, 5.500%, 5/1/2023 $ 1,000,000 1,059,290
Huron School Dist, Michigan (Wayne & Monroe Cntys) (FSA Insured), 2001 School Bldg & Site,
Gen Oblig, Unltd Tax, 5.375%, 5/1/2026 $ 250,000 262,377
Jackson Brownfield Redev Auth, Michigan (Jackson Cnty) (FGIC Insured), Gen Oblig,
Ltd Tax Increment, Series 2002, 5.125%, 6/1/2024 $ 1,000,000 1,034,780
Lake Orion Cmnty School Dist, Michigan (Oakland Cnty) (FGIC Insured),
2000 School Bldg & Site, Gen Oblig, Unltd Tax, Series A, 6.000%, 5/1/2018 $ 500,000 593,450
Melvindale-Northern Allen Park School Dist, Michigan (Wayne Cnty) (FSA Insured),
2003 School Bldg & Site, Gen Oblig, Ltd Tax, 5.000%, 5/1/2028 $ 1,000,000 1,017,090
Michigan Hosp Fin Auth (Ascension Hlth Credit Group) (MBIA Insured), Rev, Series 1999A,
5.500%, 11/15/2007 $ 3,000,000 3,416,700
Newaygo Pub Schools, Michigan (Newaygo Cnty), 2000 School Bldg & Site,
Gen Oblig, Unltd Tax, 5.500%, 5/1/2021 $ 1,000,000 1,064,320
====================================================================================================================================
8,994,177
0.18 MINNESOTA
Minneapolis - St Paul Metro Airports Commn, Minnesota (Northwest Airlines Proj), Special
Facils Rev, Series 2001A, 7.000%, 4/1/2025 $ 500,000 366,250
====================================================================================================================================
0.51 MISSISSIPPI
Mississippi Hosp Equip & Facils Auth (Forrest Cnty Gen Hosp Proj) (FSA Insured), Rev,
Series 2000, 5.500%, 1/1/2027 $ 1,000,000 1,055,910
====================================================================================================================================
1.03 MISSOURI
Missouri Hlth & Edl Facils Auth (Washington Univ), Edl Facils Rev, Series 2001A, 5.125%,
6/15/2041 $ 1,250,000 1,274,113
Missouri Hsg Dev Commn (FHA Insured), Multifamily Hsg Rev, 2001 Series II, 5.375%, 12/1/2018 $ 820,000 850,602
====================================================================================================================================
2,124,715
1.12 NEVADA
Clark Cnty, Nevada (FGIC Insured), Airport System Subordinate Lien Rev, Series 2001B,
5.125%, 7/1/2021 $ 2,250,000 2,320,087
====================================================================================================================================
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
2.79 NEW JERSEY
New Jersey Hlth Care Facils Fing Auth (St Peter's Univ Hosp), Rev, Series 2000A, 6.875%,
7/1/2020 $ 500,000 $ 537,495
New Jersey Transn Trust Fund Auth, Transn System Rev, 1999 Series A, 5.500%, 6/15/2010 $ 1,670,000 1,909,612
Tobacco Settlement Fing, New Jersey, Tobacco Settlement Rev, Asset Backed, Series 2002,
6.000%, 6/1/2037 $ 500,000 435,690
5.750%, 6/1/2032 $ 1,000,000 921,830
5.375%, 6/1/2018 $ 2,000,000 1,957,620
====================================================================================================================================
5,762,247
2.61 NEW MEXICO
Los Alamos Cnty, New Mexico (FSA Insured), Util System Rev, Series 1994A, 6.000%, 7/1/2009 $ 5,000,000 5,376,200
====================================================================================================================================
7.15 NEW YORK
New York & New Jersey Port Auth, Cons Gen Oblig Rev, Ninety-Third Series, 6.125%, 6/1/2094 $ 5,250,000 6,162,975
New York City Muni Wtr Fin Auth, New York, Wtr & Swr System Rev, Fiscal 2000 Series B,
Prefunded, 6.000%, 6/15/2033 $ 935,000 1,130,106
Unrefunded, 6.000%, 6/15/2033 $ 565,000 667,903
New York City Transitional Fin Auth, New York, Future Tax Secured Rev, Fiscal 2003 Series D,
5.000%, 2/1/2027 $ 1,300,000 1,313,507
Triborough Bridge & Tunnel Auth, New York, Gen Purpose Rev,
Series 1993B, 5.000%, 1/1/2020 $ 1,935,000 2,091,638
Series Y, 5.500%, 1/1/2017 $ 2,900,000 3,376,296
====================================================================================================================================
14,742,425
3.60 OHIO
Cleveland, Ohio (MBIA Insured), Wtrwks Impt, 1st Mtg Ref Rev, Series G, 1993, 5.500%,
1/1/2021 $ 3,300,000 3,767,313
Ohio Wtr Dept Auth (Cleveland Elec Illum Proj), PCR Ref, Series 1999-A, 5.580%, 6/15/2033 $ 3,000,000 3,065,040
Plain Loc School Dist, Ohio (Franklin & Licking Cntys) (FGIC Insured), Gen Oblig, Unltd Tax,
Series 2000
Prefunded, 6.000%, 12/1/2025 $ 410,000 489,589
Unrefunded, 6.000%, 12/1/2025 $ 90,000 101,466
====================================================================================================================================
7,423,408
1.77 OKLAHOMA
Jenks Aquarium Auth, Oklahoma (MBIA Insured), 1st Mtg Rev, Series 2000, 6.000%, 7/1/2020 $ 800,000 914,392
Oklahoma City Airport Trust, Oklahoma (FSA Insured), Jr Lien Rev, Twenty-Seventh Series,
Series A, 5.125%, 7/1/2020 $ 2,675,000 2,741,233
====================================================================================================================================
3,655,625
0.67 RHODE ISLAND
Providence Pub Bldgs Auth, Rhode Island (School Proj) (FSA Insured), Rev, 2000 Series A,
5.750%, 12/15/2016 $ 1,210,000 1,382,062
====================================================================================================================================
0.49 SOUTH CAROLINA
South Carolina Jobs-Econ Dev Auth (Bon Secours Health System Obligated Group), Econ Dev Rev,
Series 2002A, 5.500%, 11/15/2023 $ 1,000,000 1,007,140
====================================================================================================================================
0.99 SOUTH DAKOTA
Aberdeen School Dist #6-1, South Dakota (Brown Cnty) (FSA Insured), Gen Oblig, Series 2000,
5.450%, 1/1/2026 $ 1,940,000 2,039,541
====================================================================================================================================
20.04 TEXAS
Austin, Texas (AMBAC Insured), Combined Util Systems Rev Ref, Series 1992, Cap Appreciation,
11/15/2011 $ 1,400,000 996,352
Comal Indpt School Dist, Texas (Comal Cnty) (PSFG Insured), Unltd Tax School Bldg & Ref,
Series 2001, 5.250%, 2/1/2028 $ 1,000,000 1,032,670
Denton, Texas (Denton Cnty) (FSA Insured), Util System Rev, Series 2000A, 5.400%, 12/1/2013 $ 1,000,000 1,108,630
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Galena Park Indpt School Dist, Texas (Harris Cnty) (PSFG Insured), Unltd Tax School Bldg
& Ref, Series 1996, Cap Appreciation, 8/15/2023 $ 2,000,000 $ 699,100
Harris Cnty, Texas (MBIA Insured), Gen Oblig, Rev Ref, Series 2002, 5.125%, 8/15/2031 $ 1,000,000 1,016,330
Harris Cnty Hlth Facils Dev, Texas (St Luke's Episcopal Hosp), Rev, Series 2002, 5.125%,
2/15/2032 $ 1,000,000 990,750
Houston Sports Auth, Texas (Harris Cnty) (MBIA Insured), Jr Lein Rev Ref, Series 2001B,
5.250%, 11/15/2040 $ 2,000,000 2,043,580
Jefferson Cnty, Texas (FGIC Insured), Gen Oblig, Ref, Series 2002A, 5.250%, 8/1/2025 $ 3,220,000 3,344,260
Laredo Cmnty College Dist, Texas (Webb Cnty) (AMBAC Insured), Special Oblig, Ltd Tax,
Series 2002, 5.250%, 8/1/2027 $ 1,000,000 1,037,050
Little Elm Indpt School Dist, Texas (Denton Cnty) (PSFG Insured), Unltd Tax School Bldg
& Ref, Series 1999, 6.000%, 8/15/2035 $ 1,500,000 1,678,785
Lubbock Hlth Facils Dev, Texas (St Joseph Hlth System), Rev, Series 1998, 5.250%, 7/1/2013 $ 2,000,000 2,100,360
Montgomery Cnty, Texas (FGIC Insured), Perm Impt Rev, Series 2000, 5.250%, 9/1/2020 $ 1,000,000 1,057,710
Nacogdoches Indpt School Dist, Texas (Nacogdoches Cnty) (PSFG Insured), Unltd Tax School
Bldg & Ref, Series 2001, 5.300%, 2/15/2025 $ 1,000,000 1,039,460
North Central Texas Hlth Facils Dev (MBIA Insured), Hlth Resources System Rev,
Series 1997B, 5.750%, 2/15/2012 $ 2,000,000 2,232,860
Nueces River Auth, Texas (City of Corpus Christi Lake Texana Proj) (FSA Insured), Wtr Supply
Facils Rev, Series 1997, 5.500%, 3/1/2027 $ 1,900,000 1,970,319
San Antonio, Texas (Bexar Cnty), Wtr System Rev & Ref, Series 1999, 5.875%, 5/15/2018 $ 1,000,000 1,120,950
San Antonio, Texas, Gen Impt Rev, Series 2000A, 5.375%, 2/1/2019 $ 1,185,000 1,262,360
Spring Branch Indpt School Dist, Texas (Harris Cnty) (PSFG Insured), Ltd Tax Schoolhouse,
Series 2000, 5.750%, 2/1/2024 $ 3,300,000 3,605,811
Texas Wtr Finl Assistance (State Participation Prog), Gen Oblig, Series 1999C, 5.500%,
8/1/2024 $ 1,500,000 1,589,295
Town Ctr Impt Dist, Texas (Montgomery Cnty) (FGIC Insured), Sales Tax & Hotel Occupancy Tax,
Series 2001, 5.125%, 3/1/2021 $ 2,500,000 2,592,250
Waxahachie Indpt School Dist, Texas (Ellis Cnty) (PSFG Insured), Unltd Tax School Bldg & Ref,
Series 2002,
5.375%, 8/15/2027 $ 1,000,000 1,047,450
5.250%, 8/15/2026 $ 1,400,000 1,449,392
5.250%, 8/15/2030 $ 2,890,000 2,983,838
West University Place, Texas (FGIC Insured), Perm Impt Rev, Series 2000,
5.350%, 2/1/2020 $ 2,150,000 2,265,111
5.300%, 2/1/2018 $ 1,000,000 1,071,490
====================================================================================================================================
41,336,163
0.60 UTAH
Utah Hsg Fin Agency (FHA/VA/FHMA Insured), Single Family Mtg, 1994 Issue D-1,
Term Mezzanine, 6.450%, 7/1/2011 $ 145,000 150,759
West Valley City, Utah (AMBAC Insured), Sales Tax Rev, Series 2002A, 5.000%, 7/15/2019 $ 1,035,000 1,085,746
====================================================================================================================================
1,236,505
0.32 VERMONT
Vermont Hsg Fin Agency, Single Family Hsg Rev, Series 5, 6.875%, 11/1/2016 $ 645,000 666,840
====================================================================================================================================
2.36 VIRGINIA
Fauquier Cnty Indl Dev Auth, Virginia (Fauquier Hosp Obligated Group) (AGIC Insured),
Hosp Rev, Series 2002, 5.500%, 10/1/2017 $ 500,000 549,780
Henrico Cnty Economic Dev Auth, Virginia (Virginia United Methodist Homes),
Residential Care Facil Rev Ref, Series 2002A, 6.500%, 6/1/2022 $ 1,000,000 996,280
Virginia Commonwealth Transn Brd, Fed Hwy Reimbursement Anticipation Notes,
Series 2002, 5.000%, 10/1/2006 $ 1,500,000 1,672,500
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Hsg Dev Auth, Gen Oblig, Rental Hsg Rev, 2000 Series D, 5.700%, 4/1/2011 $ 1,500,000 $ 1,641,870
====================================================================================================================================
4,860,430
1.37 WASHINGTON
Pierce Cnty, Washington (White River School Dist #416), Gen Oblig, Unltd Tax,
Series 2000, 5.350%, 12/1/2009 $ 1,550,000 1,775,866
Washington Hlth Care Facils Auth (Providence Hlth System) (MBIA Insured), Rev,
Series 2001A, 5.250%, 10/1/2021 $ 1,000,000 1,042,890
====================================================================================================================================
2,818,756
2.12 WISCONSIN
Adams Cnty, Wisconsin (Adams-Friendship School Dist) (AMBAC Insured),
Gen Oblig, Ref, 6.500%, 4/1/2015 $ 1,340,000 1,655,114
Wisconsin, Gen Oblig, Series 2000C, 5.500%, 5/1/2019 $ 2,500,000 2,707,050
====================================================================================================================================
4,362,164
TOTAL MUNICIPAL BONDS (AMORTIZED COST $187,744,203) 204,007,675
====================================================================================================================================
3.18 SHORT-TERM INVESTMENTS - MUNICIPAL BONDS
0.00 DISTRICT OF COLUMBIA
District of Columbia, Gen Oblig, Prerefunded, Ref, Series 1994A-3, 5.200%, 6/1/2003 $ 10,000 10,100
====================================================================================================================================
0.02 FLORIDA
Miami Beach Redev Agency, Florida (City Ctr/Historic Convention Vlg), Tax Increment Rev,
Series 1993, 5.100%, 12/1/2003 $ 40,000 41,047
====================================================================================================================================
1.69 INDIANA
Indiana Edl Facils Auth (Depauw Univ Proj), VRD, Edl Facils Rev, Series 2002, 7/1/2032(j) $ 3,500,000 3,500,000
====================================================================================================================================
0.73 MASSACHUSETTS
Massachusetts Wtr Resources Auth, Multi-Modal, Sub Gen Rev Ref, VR, 2002 Series D,
8/1/2017(j) $ 1,500,000 1,500,000
====================================================================================================================================
0.14 MINNESOTA
Brooklyn Center, Minnesota (Brookdale Corp Ctr III Proj), VRD, Rev Ref, Series 2001,
12/1/2007(j) $ 300,000 300,000
====================================================================================================================================
0.02 NEVADA
Nevada Hsg Div (Single Family Prog), Sr Rev, 1994 Issue B-1, 5.900%, 4/1/2003 $ 45,000 45,112
====================================================================================================================================
0.58 WYOMING
Kemmerer, Wyoming (Exxon Proj), VR, PCR, Series 1984, 11/1/2014(i) $ 1,200,000 1,200,000
====================================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $6,594,996) 6,596,259
====================================================================================================================================
102.12 TOTAL INVESTMENTS AT VALUE
(AMORTIZED COST $194, 339,199) 210,603,934
====================================================================================================================================
(2.12) OTHER ASSETS LESS LIABILITIES (4,364,066)
====================================================================================================================================
100.00 NET ASSETS AT VALUE $ 206,239,868
====================================================================================================================================
US GOVERNMENT SECURITIES FUND
65.23 FIXED INCOME SECURITIES
27.20 US GOVERNMENT OBLIGATIONS
US Treasury Notes, 4.000%, 11/15/2012 (Amortized Cost $49,710,859) $ 50,000,000 $ 51,287,100
====================================================================================================================================
SHARES, UNITS
OR PRINCIPAL
% DESCRIPTION AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
38.03 US GOVERNMENT AGENCY OBLIGATIONS
Freddie Mac, Gold, Participation Certificates
5.500%, 12/1/2016 $ 7,637,685 $ 7,970,510
5.000%, 11/1/2016 $ 8,761,553 9,053,763
5.000%, 12/1/2017 $ 19,774,248 20,428,504
Government National Mortgage Association I, Platinum Collateral
5.000%, 11/15/2017 $ 8,356,143 8,689,447
Government National Mortgage Association I & II, Single Issuer
5.000%, 12/15/2017 $ 15,362,624 15,975,398
5.000%, 1/15/2018 $ 4,147,236 4,310,917
5.000%, 2/15/2018 $ 5,094,489 5,295,556
====================================================================================================================================
TOTAL US GOVERNMENT AGENCY OBLIGATIONS (AMORTIZED COST $70,189,229) 71,724,095
====================================================================================================================================
TOTAL FIXED INCOME SECURITIES (Amortized Cost $119,900,088) 123,011,195
====================================================================================================================================
33.73 SHORT-TERM INVESTMENTS
24.18 US Government Obligations
US Treasury Notes
3.875%, 7/31/2003 $ 17,500,000 17,694,145
3.000%, 11/30/2003 $ 12,500,000 12,666,500
3.000%, 1/31/2004 $ 15,000,000 15,245,505
====================================================================================================================================
TOTAL US GOVERNMENT OBLIGATIONS (Amortized Cost $45,376,422) 45,606,150
====================================================================================================================================
9.55 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street dated 2/28/2003 due 3/3/2003 at 1.300%,
repurchased at $18,011,951 (Collateralized by Federal Home Loan Bank, Bonds,
due 3/8/2004 at 1.425%, value $18,367,815) (Cost $18,010,000) $ 18,010,000 18,010,000
====================================================================================================================================
TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $63,386,422) 63,616,150
====================================================================================================================================
98.96 TOTAL INVESTMENTS AT VALUE
(AMORTIZED COST $183,286,510) 186,627,345
====================================================================================================================================
1.04 OTHER ASSETS LESS LIABILITIES 1,958,524
====================================================================================================================================
100.00 NET ASSETS AT VALUE $ 188,585,869
====================================================================================================================================
(a) Securities acquired pursuant to Rule 144A. The Fund deems such securities to be "liquid" because an institutional market exists.
(b) Defaulted security. The Fund has stopped accruing interest income.
(c) Step-up securities are obligations which increase the interest rate at a specific point in time. Rate shown reflects current
rate which may step-up at a future date.
(d) Defaulted security. The issuer is in default with respect to interest payments and the Fund has stopped accruing interest
income.
(e) The company filed for bankruptcy.
(f) Security contains an adjustable rate feature. Rate shown reflects current rate which may change at a future date.
(g) Security is non-income producing.
(h) Security is a payment-in-kind (PIK) security. PIK securities may make interest payments in additional securities.
(i) PAY PHONES - Premium Accelerated Yield Participating Hybrid Option Note Exchangeable Securities.
(j) All securities with a maturity date greater than one year have either a variable rate, demand future, prerefunded, optional or
mandatory put resulting in an effective maturity of one year or less. Rate shown reflects current rate.
The following acronyms may be used in security descriptions:
ACA - American Capital Access Financial Guaranty Corporation
AGIC - Asset Guaranty Insurance Company
AMBAC - American Municipal Bond Assurance Corporation
FGIC - Flexible Guaranty Insurance Company
FHA - Federal Housing Association
FHMA - Federal Home Mortgage Association
FR - Fixed Rate
FSA - Financial Security Assurance
GNMA - Governement National Mortgage Association
MBIA - Municipal Bond Investors Assurance Corporation
PCR - Pollution Control Revenue
PSFG - Permanent School Fund Guarantee Program
VA - Veteran's Association
VHA - Veteran's Housing Association
VR(k) - Variable Rate
VRD(k) - Variable Rate Demand
XLCA - XL Capital Assurance Inc
(k) Rate is subject to change. Rate shown reflects current rate.
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 2003
UNAUDITED
HIGH SELECT
YIELD INCOME
FUND FUND
- -------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 305,114,380 $ 282,903,385
===========================================================================================
At Value(a) $ 281,265,444 $ 284,898,430
Cash 57,557 0
Receivables:
Investment Securities Sold 2,116,671 5,829,814
Fund Shares Sold 1,036,218 1,209,942
Interest 6,241,310 3,577,728
Prepaid Expenses and Other Assets 53,955 66,574
===========================================================================================
TOTAL ASSETS 290,771,155 295,582,488
===========================================================================================
LIABILITIES
Payables:
Custodian 0 96,276
Distributions to Shareholders 308,560 79,180
Investment Securities Purchased 1,044,616 0
Fund Shares Repurchased 953,776 1,956,125
Accrued Distribution Expenses
Investor Class 47,693 49,875
Class A 1,295 792
Class B 389 230
Class C 6,582 1,647
Class K 288 1,509
Accrued Expenses and Other Payables 79,771 70,284
===========================================================================================
TOTAL LIABILITIES 2,442,970 2,255,918
===========================================================================================
NET ASSETS AT VALUE $ 288,328,185 $ 293,326,570
===========================================================================================
NET ASSETS
Paid-in Capital(b) $ 765,194,773 $ 421,797,792
Accumulated Undistributed Net Investment Income 351,326 35,194
Accumulated Undistributed Net Realized Loss on
Investment Securities (453,368,978) (130,501,461)
Net Appreciation (Depreciation) of Investment Securities (23,848,936) 1,995,045
===========================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 288,328,185 $ 293,326,570
===========================================================================================
NET ASSETS AT VALUE:
Investor Class $ 270,042,288 $ 284,051,252
===========================================================================================
Class A $ 5,675,918 $ 1,463,363
===========================================================================================
Class B $ 708,691 $ 352,436
===========================================================================================
Class C $ 10,963,568 $ 2,674,907
===========================================================================================
Class K $ 937,720 $ 4,784,612
===========================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 2003
UNAUDITED
HIGH SELECT
YIELD INCOME
FUND FUND
(CONTINUED) (CONTINUED)
- -------------------------------------------------------------------------------------------
Shares Outstanding
Investor Class 79,663,889 53,712,951
Class A 1,658,972 276,556
Class B 209,720 66,678
Class C 3,249,158 505,772
Class K 277,234 905,239
===========================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price
per Share $ 3.39 $ 5.29
Class A
Redemption Price per Share $ 3.42 $ 5.29
Offering Price per Share (Maximum sales charge
of 4.75%) $ 3.59 $ 5.55
Class B, Offering and Redemption Price per Share $ 3.38 $ 5.29
Class C, Offering and Redemption Price per Share $ 3.37 $ 5.29
Class K, Offering and Redemption Price per Share $ 3.38 $ 5.29
===========================================================================================
(a) Investment securities at cost and value at February 28, 2003 include repurchase
agreements of $558,000 and $2,110,000 for High Yield and Select Income Funds,
respectively.
(b) The INVESCO Bond Funds, Inc. have 4.5 billion authorized shares of common stock, par
value of $0.01 per share. Of such shares, 1.7 billion have been allocated to High Yield
Fund and 1.5 billion to Select Income Fund: 400 million to High Yield Fund - Investor
Class, 300 million to High Yield Fund - Class A, 300 million to High Yield Fund - Class
B, 300 million to High Yield Fund - Class C, 400 million to High Yield Fund - Class K
and 300 million to each class of Select Income Fund.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 2003
UNAUDITED
U.S.
TAX-FREE GOVERNMENT
BOND SECURITIES
FUND FUND
- -------------------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a) $ 194,339,199 $ 183,286,510
===========================================================================================
At Value(a) $ 210,603,934 $ 186,627,345
Cash 165,921 320,220
Receivables:
Fund Shares Sold 563,748 3,139,595
Interest 2,304,212 1,059,755
Prepaid Expenses and Other Assets 37,637 45,522
===========================================================================================
TOTAL ASSETS 213,675,452 191,192,437
===========================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 162,206 24,918
Investment Securities Purchased 7,008,821 0
Fund Shares Repurchased 177,739 2,516,780
Accrued Distribution Expenses
Investor Class 35,395 29,606
Class A 284 2,402
Class B 378 1,145
Class C 1,167 5,399
Accrued Expenses and Other Payables 49,594 26,318
===========================================================================================
TOTAL LIABILITIES 7,435,584 2,606,568
===========================================================================================
NET ASSETS AT VALUE $ 206,239,868 $ 188,585,869
===========================================================================================
NET ASSETS
Paid-in Capital(b) $ 191,836,393 $ 184,463,765
Accumulated Undistributed Net Investment Income 4,036 103,325
Accumulated Undistributed Net Realized Gain (Loss) on
Investment Securities (1,865,296) 677,944
Net Appreciation of Investment Securities 16,264,735 3,340,835
===========================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 206,239,868 $ 188,585,869
===========================================================================================
NET ASSETS AT VALUE:
Investor Class $ 202,769,821 $ 168,059,398
===========================================================================================
Class A $ 1,276,722 $ 11,095,536
===========================================================================================
Class B $ 569,022 $ 1,639,121
===========================================================================================
Class C $ 1,624,303 $ 7,791,814
===========================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO BOND FUNDS, INC.
FEBRUARY 28, 2003
UNAUDITED
U.S.
TAX-FREE GOVERNMENT
BOND SECURITIES
FUND FUND
(CONTINUED) (CONTINUED)
- -------------------------------------------------------------------------------------------
Shares Outstanding
Investor Class 12,889,182 22,006,276
Class A 81,317 1,187,601
Class B 36,171 214,420
Class C 91,358 1,020,777
===========================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price
per Share $ 15.73 $ 7.64
Class A
Redemption Price per Share $ 15.70 $ 9.34
Offering Price per Share (Maximum sales charge
of 4.75%) $ 16.48 $ 9.81
Class B, Offering and Redemption Price per Share $ 15.73 $ 7.64
Class C, Offering and Redemption Price per Share $ 17.78 $ 7.63
===========================================================================================
(a) Investment securities at cost and value at February 28, 2003 includes a repurchase
agreement of $18,010,000 for U.S. Government Securities Fund.
(b) The INVESCO Bond Funds, Inc. have 4.5 billion authorized shares of common stock, par
value of $0.01 per share. Of such shares, 400 million have been allocated to Tax-Free
Bond Fund and 400 million to U.S. Government Securities Fund: 100 million to each
Class.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
INVESCO BOND FUNDS, INC.
SIX MONTHS ENDED FEBRUARY 28, 2003
UNAUDITED
HIGH SELECT
YIELD INCOME
FUND FUND
- -------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 772,375 $ 159,455
Interest 14,127,715 9,753,263
===========================================================================================
TOTAL INCOME 14,900,090 9,912,718
===========================================================================================
EXPENSES
Investment Advisory Fees 670,761 803,509
Distribution Expenses 362,577 380,456
Transfer Agent Fees 643,311 856,149
Administrative Services Fees 65,369 70,911
Custodian Fees and Expenses 27,477 28,480
Directors' Fees and Expenses 13,962 15,853
Interest Expenses 521 2,581
Professional Fees and Expenses 24,903 25,725
Registration Fees and Expenses
Investor Class 13,337 16,365
Class A 42 44
Class B 38 978
Class C 1,342 1,330
Class K 1,970 1,982
Reports to Shareholders 60,651 53,617
Other Expenses 16,688 16,589
===========================================================================================
TOTAL EXPENSES 1,902,949 2,274,569
Fees and Expenses Absorbed/Reimbursed by Investment
Adviser (196,112) (715,431)
Fees and Expenses Paid Indirectly (948) (812)
===========================================================================================
NET EXPENSES 1,705,889 1,558,326
===========================================================================================
NET INVESTMENT INCOME 13,194,201 8,354,392
===========================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (126,454,082) (41,271,780)
Change in Net Appreciation/Depreciation of Investment
Securities 147,559,869 55,892,878
===========================================================================================
NET GAIN ON INVESTMENT SECURITIES 21,105,787 14,621,098
===========================================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 34,299,988 $ 22,975,490
===========================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO BOND FUNDS, INC.
SIX MONTHS ENDED FEBRUARY 28, 2003
UNAUDITED
U.S.
TAX-FREE GOVERNMENT
BOND SECURITIES
FUND FUND
- -------------------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST INCOME $ 5,042,548 $ 3,330,361
===========================================================================================
EXPENSES
Investment Advisory Fees 543,482 481,949
Distribution Expenses 256,230 248,905
Transfer Agent Fees 135,317 373,443
Administrative Services Fees 49,467 44,432
Custodian Fees and Expenses 13,522 15,455
Directors' Fees and Expenses 11,019 10,233
Interest Expenses 1,936 0
Professional Fees and Expenses 20,666 19,617
Registration Fees and Expenses
Investor Class 14,755 16,078
Class A 982 999
Class B 40 989
Class C 1,330 1,394
Reports to Shareholders 27,658 58,846
Other Expenses 22,636 7,026
===========================================================================================
TOTAL EXPENSES 1,099,040 1,279,366
Fees and Expenses Absorbed/Reimbursed by Investment
Adviser (196,299) (370,736)
Fees and Expenses Paid Indirectly (1,002) (35)
===========================================================================================
NET EXPENSES 901,739 908,595
===========================================================================================
NET INVESTMENT INCOME 4,140,809 2,421,766
===========================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities 99,946 5,673,981
Change in Net Appreciation/Depreciation of Investment
Securities 2,145,481 (2,662,227)
===========================================================================================
NET GAIN ON INVESTMENT SECURITIES 2,245,427 3,011,754
===========================================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 6,386,236 $ 5,433,520
===========================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
HIGH YIELD FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28 AUGUST 31
- -------------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Income $ 13,194,201 $ 38,897,725
Net Realized Loss (126,454,082) (179,787,118)
Change in Net Appreciation/Depreciation 147,559,869 52,264,710
===========================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS 34,299,988 (88,624,683)
===========================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (12,641,825) (38,254,815)
Class A (224,172) (13,248)
Class B (13,604) (5,198)
Class C (274,830) (530,389)
Class K (39,770) (74,387)
===========================================================================================
TOTAL DISTRIBUTIONS (13,194,201) (38,878,037)
===========================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 38,629,693 61,637,196
Class A 42,450,804 1,432,329
Class B 506,536 219,698
Class C 17,615,732 4,648,460
Class K 215,163 1,248,753
Reinvestment of Distributions
Investor Class 10,829,672 33,291,866
Class A 161,693 7,627
Class B 10,351 4,897
Class C 196,424 340,555
Class K 39,658 74,387
===========================================================================================
110,655,726 102,905,768
Amounts Paid for Repurchases of Shares
Investor Class (59,167,976) (226,473,317)
Class A (38,199,890) (752,541)
Class B (14,729) (34,473)
Class C (11,537,346) (6,558,133)
Class K (172,618) (385,319)
===========================================================================================
(109,092,559) (234,203,783)
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 1,563,167 (131,298,015)
===========================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS 22,668,954 (258,800,735)
NET ASSETS
Beginning of Period 265,659,231 524,459,966
===========================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income of $351,326 and $351,326,
respectively) $ 288,328,185 $ 265,659,231
===========================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
SELECT INCOME FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28 AUGUST 31
- -------------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Income $ 8,354,392 $ 27,490,121
Net Realized Loss (41,271,780) (51,675,879)
Change in Net Appreciation/Depreciation 55,892,878 (17,942,040)
===========================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS 22,975,490 (42,127,798)
===========================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (8,086,942) (27,098,344)
Class A (74,447) (5,628)
Class B (6,078) (1,369)
Class C (45,040) (105,117)
Class K (133,447) (284,456)
===========================================================================================
TOTAL DISTRIBUTIONS (8,345,954) (27,494,914)
===========================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 73,051,570 194,511,191
Class A 73,554,959 283,239
Class B 254,223 90,056
Class C 1,809,136 982,308
Class K 654,054 7,884,951
Reinvestment of Distributions
Investor Class 7,373,988 25,174,430
Class A 22,153 5,628
Class B 2,886 1,346
Class C 41,423 96,422
Class K 133,409 284,456
===========================================================================================
156,897,801 229,314,027
Amounts Paid for Repurchases of Shares
Investor Class (131,769,656) (423,307,119)
Class A (72,507,151) (5,603)
Class B (8,254) 0
Class C (907,543) (1,989,997)
Class K (1,336,458) (2,530,537)
===========================================================================================
(206,529,062) (427,833,256)
NET DECREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS (49,631,261) (198,519,229)
===========================================================================================
TOTAL DECREASE IN NET ASSETS (35,001,725) (268,141,941)
NET ASSETS
Beginning of Period 328,328,295 596,470,236
===========================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income of $35,194 and $26,756,
respectively) $ 293,326,570 $ 328,328,295
===========================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
TAX-FREE BOND FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28 AUGUST 31
- -------------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Income $ 4,140,809 $ 8,237,112
Net Realized Gain 99,946 499,665
Change in Net Appreciation/Depreciation 2,145,481 822,363
===========================================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS 6,386,236 9,559,140
===========================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (4,084,996) (8,197,277)
Class A (16,237) (1,710)
Class B (7,019) (1,208)
Class C (32,557) (36,917)
===========================================================================================
TOTAL DISTRIBUTIONS (4,140,809) (8,237,112)
===========================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 79,304,195 250,715,078
Class A 8,056,579 265,064
Class B 322,763 296,326
Class C 10,602,011 6,650,861
Reinvestment of Distributions
Investor Class 2,979,906 5,949,699
Class A 11,177 1,485
Class B 4,932 434
Class C 25,604 26,047
===========================================================================================
101,307,167 263,904,994
Amounts Paid for Repurchases of Shares
Investor Class (78,403,697) (275,925,361)
Class A (7,044,505) (42,139)
Class B (64,834) 0
Class C (9,798,554) (7,156,667)
===========================================================================================
(95,311,590) (283,124,167)
NET INCREASE (DECREASE) IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 5,995,577 (19,219,173)
===========================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS 8,241,004 (17,897,145)
NET ASSETS
Beginning of Period 197,998,864 215,896,009
===========================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income of $4,036 and $4,036,
respectively) $ 206,239,868 $ 197,998,864
===========================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28 AUGUST 31
- -------------------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
OPERATIONS
Net Investment Income $ 2,421,766 $ 6,074,021
Net Realized Gain (Loss) 5,673,981 (942,947)
Change in Net Appreciation/Depreciation (2,662,227) 4,531,395
===========================================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS 5,433,520 9,662,469
===========================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (5,376,554) (5,853,389)
Class A (140,735) (5,380)
Class B (39,331) (7,408)
Class C (178,663) (207,844)
===========================================================================================
TOTAL DISTRIBUTIONS (5,735,283) (6,074,021)
===========================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 84,142,336 276,502,535
Class A 75,903,843 4,195,218
Class B 1,023,195 1,005,380
Class C 24,695,926 29,132,359
Reinvestment of Distributions
Investor Class 5,061,620 5,222,247
Class A 72,901 2,306
Class B 27,938 5,982
Class C 155,267 177,547
===========================================================================================
191,083,026 316,243,574
Amounts Paid for Repurchases of Shares
Investor Class (79,765,456) (256,838,771)
Class A (66,277,918) (2,883,457)
Class B (391,764) (64,452)
Class C (22,355,759) (31,390,354)
===========================================================================================
(168,790,897) (291,177,034)
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 22,292,129 25,066,540
===========================================================================================
TOTAL INCREASE IN NET ASSETS 21,990,366 28,654,988
NET ASSETS
Beginning of Period 166,595,503 137,940,515
===========================================================================================
End of Period (Including Accumulated Undistributed
Net Investment Income (Loss) of $103,325 and
($9,320), respectively) $ 188,585,869 $ 166,595,503
===========================================================================================
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
INVESCO BOND FUNDS, INC.
UNAUDITED
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Bond Funds,
Inc. is incorporated in Maryland and presently consists of four separate Funds:
High Yield Fund, Select Income Fund, Tax-Free Bond Fund and U.S. Government
Securities Fund (individually the "Fund" and collectively, the "Funds"). The
investment objectives of the Funds are: to seek a high level of current income
for High Yield and Select Income Funds; to seek as high a level of current
income exempt from federal income taxes as is consistent with preservation of
capital for Tax-Free Bond Fund; and to seek a high level of current income by
investing in debt obligations issued by the U.S. Government or its agencies for
U.S. Government Securities Fund. INVESCO Bond Funds, Inc. is registered under
the Investment Company Act of 1940 (the "Act") as a diversified, open-end
management investment company.
Effective April 1, 2002, the Funds began offering two additional classes of
shares, referred to as Class A and Class B shares. Income, expenses (other than
those attributable to a specific class) and realized and unrealized gains and
losses are allocated daily to each class of shares based on the relative
proportion of net assets represented by such class. Operating expenses directly
attributable to a specific class are charged against operations of that class.
Class A shares are sold with a front-end sales charge ranging from 4.75% to
2.00% of the offering price on purchases of less than $1,000,000. Class B shares
and Class C shares are subject to a contingent deferred sales charge paid by the
redeeming shareholder. Class B shares convert to Class A shares after eight
years along with a pro rata portion of its reinvested dividends and
distributions.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION - Debt securities are valued at evaluated bid prices as
determined by a pricing service approved by the Fund's board of directors. If
evaluated bid prices are not available, debt securities are valued by averaging
the bid prices obtained from one or more dealers making a market for such
securities.
Municipal securities (including commitments to purchase such securities on a
when-issued basis) are valued on the basis of prices provided by a pricing
service approved by the Fund's board of directors which, in determining values,
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities. Under these procedures, municipal securities are valued
based upon market quotations, if available.
Domestic (U.S.) equity securities traded on national securities exchanges or in
the over-the-counter market are valued at the last sales price at the close of
the regular trading day on the exchange (generally 4:00 p.m. Eastern time) where
such securities are primarily traded. If last sales prices are not available,
securities are valued at the closing bid price for the regular trading day as
obtained from one or more dealers making a market for such securities or by a
pricing service approved by the Fund's board of directors.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
If market quotations or pricing service valuations are not readily available, or
events or circumstances that may affect the value of portfolio securities are
identified between the closing of their principal markets and the time that the
net asset value per share is determined, securities are valued at fair value as
determined in good faith under procedures established by the Fund's board of
directors. Restricted and illiquid securities are valued in accordance with
procedures established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
B. REPURCHASE AGREEMENTS - Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount or amortized premium, is recorded on
the accrual basis. Interest on payment-in-kind debt securities is accrued based
on the yield to maturity at purchase date method. Discounts or premiums on debt
securities purchased are amortized over the life of the respective security as
adjustments to interest income. Cost is determined on the specific
identification basis. Investment income received from foreign sources may be
subject to foreign withholding taxes. It is the Fund's accounting practice to
discontinue the accrual of income to provide an estimate for probable losses due
to unpaid interest income on defaulted bonds. Charge offs of income are recorded
when information obtained indicates previously recorded amounts are not
collectable. During the six months ended February 28, 2003, High Yield and
Select Income Funds did not write off any accrued interest.
Each Fund may invest in securities issued by other INVESCO investment companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share. During the six months ended February 28, 2003, there
were no such investments by any Fund.
High Yield Fund invests primarily in high yield bonds, some of which may be
rated below investment grade. These high yield bonds may be more susceptible
than higher grade bonds due to real or perceived adverse economic or industry
conditions. The secondary market, on which high yield bonds are traded, may also
be less liquid than the market for higher grade bonds.
High Yield and Select Income Funds may have elements of risk due to investments
in specific industries or foreign issuers located in a specific country. Such
investments may subject the Fund to additional risks resulting from future
political or economic conditions and/or possible impositions of adverse foreign
governmental laws or currency exchange restrictions. Net realized and unrealized
gain or loss from investment securities includes fluctuations from currency
exchange rates and fluctuations in market value.
Investments in securities of U.S. Governmental agencies or instrumentalities may
only be guaranteed by the respective agency's limited authority to borrow from
the U.S. Government and may not be guaranteed by the full faith and credit of
the U.S. Government.
Restricted securities held by a Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded companies.
Lack of a secondary market and resale restrictions may result in the inability
of a Fund to sell a security at a fair price and may substantially delay the
sale of the security which each Fund seeks to sell. In addition, these
securities may exhibit greater price volatility than securities for which
secondary markets exist.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - All of the Fund's net
investment income is distributed to shareholders by dividends declared daily and
paid monthly. Income dividends are reinvested at the month-end net asset value.
The Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers.
E. TAX INFORMATION - The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. Of the ordinary income distributions
declared for the year ended August 31, 2002, 99.75% were exempt from federal
income taxes for the Tax-Free Bond Fund. The tax composition of distributions
from ordinary income, long-term capital gains and of the ordinary income
distributions declared for the six months ended February 28, 2003 and the year
ended August 31, 2002 and amounts qualifying for the dividends received
deduction available to the Fund's corporate shareholders for the year ended
August 31, 2002, were as follows:
SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, 2003 FEBRUARY 28, 2003 AUGUST 31, 2002 AUGUST 31, 2002
ORDINARY INCOME LONG-TERM CAPITAL ORDINARY INCOME QUALIFYING
FUND DISTRIBUTIONS GAIN DISTRIBUTIONS DISTRIBUTIONS PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 13,194,201 $ 0 $ 38,878,037 6.64%
Select Income Fund 8,345,954 0 27,494,914 1.02%
Tax-Free Bond Fund 4,140,809 0 8,237,112 0.00%
U.S. Government Securities Fund 3,845,571 1,889,712 6,074,021 0.00%
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting principles generally accepted
in the United States. Mortgage paydown gain/loss is treated as capital gains for
federal income tax purposes but is included in interest income in the Statement
of Operations.
The tax components of the Fund at February 28, 2003 include:
NET TAX
COST OF GROSS TAX GROSS TAX APPRECIATION
INVESTMENTS FOR UNREALIZED UNREALIZED (DEPRECIATION)
FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 311,662,207 $ 11,055,656 $ 41,452,419 $ (30,396,763)
Select Income Fund 283,267,468 9,529,976 7,899,014 1,630,962
Tax-Free Bond Fund 194,339,199 16,541,027 276,292 16,264,735
U.S. Government Securities Fund 183,374,993 3,252,352 0 3,252,352
The primary difference between book and tax appreciation/depreciation is wash
sale loss deferrals.
To the extent future capital gains and income are offset by capital loss
carryovers and deferred post-October 31 losses, such gains and income will not
be distributed to shareholders.
Deferred post-October 31 capital losses are: High Yield Fund $143,841,326,
Select Income Fund $39,032,716 and U.S. Government Securities Fund $1,177,536.
F. EXPENSES - Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Such credits are included in Fees and Expenses Paid
Indirectly in the Statement of Operations.
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Fund's average net
assets as follows:
AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
$0 TO $300 TO OVER
$300 $500 $500
FUND MILLION MILLION MILLION
- ---------------------------------------------------------------------------------------------------------------------
High Yield Fund 0.50% 0.40% 0.30%
Select Income Fund 0.55% 0.45% 0.35%
Tax-Free Bond Fund 0.55% 0.45% 0.35%
U.S. Government Securities Fund 0.55% 0.45% 0.35%
A sub-advisory Agreement between IFG and AIM Capital Management, Inc. ("AIM"),
affiliated with IFG, provides that investment decisions of Tax-Free Bond Fund
are made by AIM. Fees for such sub-advisory services are paid by IFG.
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, of 0.25% of
annual average net assets of Investor Class shares. A master distribution plan
and agreement for Class A, Class B and Class C shares pursuant to Rule 12b-1 of
the Act provides for compensation of certain promotional and other sales related
costs to IDI. Class A shares of the Fund pay compensation to IDI at a rate of
0.35% of annual average net assets. During any period that Class A shares of the
Fund are closed to new investors, the Fund will reduce this payment for Class A
shares from 0.35% to 0.25% per annum. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average 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 applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class. A
plan of distribution pursuant to Rule 12b-1 of the Act provides for financing
the distribution and continuing personal shareholder servicing of Class K shares
of 0.45% of annual average net assets. Any unreimbursed expenses IDI incurs with
respect to Investor Class, Class A, Class C and Class K shares in any fiscal
year can not be recovered in subsequent years. For the six months ended February
28, 2003, amounts paid to the Distributor were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ---------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 327,637 $ 6,817 $ 1,248 $ 27,569 $ 1,856
Select Income Fund 369,809 5,079 1,109 8,845 11,323
Tax-Free Bond Fund 248,617 1,244 1,993 9,080 -
U.S. Government Securities Fund 206,461 7,909 6,311 27,702 -
If the Class B Plan is terminated, the board of directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
six months ended February 28, 2003, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund - Class B Plan $ 1,530 $ 15,849 2.24%
Select Income Fund - Class B Plan 1,246 7,525 2.14%
Tax-Free Bond Fund - Class B Plan 2,062 9,345 1.64%
U.S. Government Securities Fund - Class B Plan 6,288 16,914 1.03%
Distribution Expenses for each class as presented in the Statement of Operations
for the six months ended February 28, 2003 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 320,629 $ 7,967 $ 1,502 $ 30,629 $ 1,850
Select Income Fund 353,398 5,797 1,268 9,141 10,852
Tax-Free Bond Fund 243,068 1,461 2,158 9,543 -
U.S. Government Securities Fund 202,928 10,005 6,652 29,320 -
IFG receives a transfer agent fee from each Class at an annual rate of $28.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month. Transfer agent fees for each class as presented in the Statement of
Operations for the six months ended February 28, 2003 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 626,819 $ 1,228 $ 301 $ 9,715 $ 5,248
Select Income Fund 829,959 1,135 176 4,386 20,493
Tax-Free Bond Fund 131,641 660 304 2,712 -
U.S. Government Securities Fund 354,118 2,876 1,176 15,273 -
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds. IFG is entitled to reimbursement from a Fund share class
that has fees and expenses voluntarily absorbed pursuant to this arrangement if
such reimbursements do not cause a share class to exceed voluntary expense
limitations and the reimbursement is made within three years after IFG incurred
the expense. For the six months ended February 28, 2003, total fees and expenses
voluntarily absorbed were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 188,638 $ 0 $ 0 $ 1,254 $ 6,220
Select Income Fund 688,571 0 1,335 6,057 19,468
Tax-Free Bond Fund 189,270 1,649 448 4,932 -
U.S. Government Securities Fund 349,982 1,246 2,123 17,385 -
At February 28, 2003, the reimbursement that may potentially be made by the
Funds to IFG and that will expire during the year ended August 31, 2005 and the
six months ended February 28, 2006, are as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 333,773 $ 0 $ 0 $ 5,475 $ 8,608
Select Income Fund 980,503 0 1,336 9,081 29,311
Tax-Free Bond Fund 273,879 1,911 670 6,361 -
U.S. Government Securities Fund 514,920 1,246 2,123 24,787 -
During the six months ended February 28, 2003, the reimbursement that was made
by the Funds to IFG were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 0 $ 0 $ 0 $ 161 $ 0
Select Income Fund 0 0 0 0 0
Tax-Free Bond Fund 0 35 16 0 -
U.S. Government Securities Fund 0 0 0 0 -
A 2% redemption fee is retained by High Yield Fund - Investor Class to offset
transaction costs and other expenses associated with short-term redemptions and
exchanges. The fee is imposed on redemptions or exchanges of shares held less
than three months. The redemption fee is accounted for as an addition to
Paid-in-Capital by High Yield Fund - Investor Class. Total redemption fees
received by High Yield Fund - Investor Class for the six months ended February
28, 2003 were $41,556.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months ended
February 28, 2003, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
FUND PURCHASES SALES
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 107,954,028 $ 100,486,653
Select Income Fund 40,316,296 122,214,952
Tax-Free Bond Fund 35,547,974 25,373,782
For the six months ended February 28, 2003, the aggregate cost of purchases and
proceeds from the sales of U.S. Government securities were as follows:
FUND PURCHASES SALES
- ------------------------------------------------------------------------------------------------------------------------------------
Select Income Fund $ 72,390,120 $ 55,760,694
U.S. Government Securities Fund 170,926,446 141,008,963
NOTE 4 - TRANSACTIONS WITH AFFILIATES. Certain of the Funds' officers and
directors are also officers and directors of IFG, IDI or AIM.
Each Fund has adopted an unfunded retirement plan covering all independent
directors of the Fund who will have served as an independent director for at
least five years at the time of retirement. Benefits under this plan are based
on an annual rate as defined in the plan agreement, as amended March 1, 2001.
Effective November 8, 2002, the plan provides that a director, prior to
retirement, may elect to convert amounts accrued under this plan into a new
deferred retirement plan.
Pension expenses for the six months ended February 28, 2003, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
as follows:
UNFUNDED
PENSION ACCRUED PENSION
FUND EXPENSES PENSION COSTS LIABILITY
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 4,041 $ 0 $ 53,563
Select Income Fund 4,901 0 43,406
Tax-Free Bond Fund 2,477 0 24,546
U.S. Government Securities Fund 2,302 0 12,591
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
NOTE 5 - SECURITIES LOANED. The Funds have entered into a securities lending
agreement with the custodian. Under the terms of the agreement, the Funds
receive income, recorded monthly, after deduction of other amounts payable to
the custodian or to the borrower from lending transactions. In exchange for such
fees, the custodian is authorized to loan securities on behalf of the Funds,
against receipt of collateral at least equal in value to the value of securities
loaned. Cash collateral is invested by the custodian in the INVESCO Treasurer's
Series Money Market Reserve Fund or securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund bears the risk of any
deficiency in the amount of collateral available for return to a borrower due to
a loss in an approved investment. During the six months ended February 28, 2003,
there were no such securities lending arrangements for any of the Funds.
NOTE 6 - INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permits it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. The Funds may borrow up to 10% of its total net assets
for temporary or emergency purposes. During the six months ended February 28,
2003, High Yield, Select Income and Tax-Free Bond Funds borrowed cash at a
weighted average rate ranging from 1.72% to 1.95% and interest expenses amounted
to $453, $2,581 and $1,936, respectively. During that same period, Select Income
and U.S. Government Securities Funds lent cash at a weighted average rate
ranging from 1.46% to 1.55% and interest income amounted to $691 and $1,099,
respectively.
NOTE 7 - LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. During the
six months ended February 28, 2003, High Yield Fund borrowed cash at a weighted
average rate of 2.44% and interest expense amounted to $68. During that same
period, there were no such borrowings for Select Income, Tax-Free Bond and U. S.
Government Securities Funds.
NOTE 8 - CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. Effective November 15, 2002,
qualified plans investing in Class A shares may pay a 1% CDSC and Class K shares
may pay a 0.70% CDSC if a shareholder redeemed these shares within 12 months
from the date of purchase. A CDSC is charged by Class B shares on redemptions or
exchanges of shares at a maximum of 5.00% beginning at time of purchase to 0.00%
at the beginning of the seventh year. A 1.00% CDSC is charged by Class C shares
on redemptions or exchanges held thirteen months or less. Shares acquired
through reinvestment of dividends or other distributions are not charged a CDSC.
The CDSC may be reduced or certain sales charge exceptions may apply. The CDSC
is paid by the redeeming shareholder and therefore it is not an expense of the
Fund. For the six months ended February 28, 2003, the Distributor received the
following CDSC from Class A, Class B, Class C and Class K shareholders:
FUND CLASS A CLASS B CLASS C CLASS K
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $ 5,500 $ 674 $ 327 $ 0
Select Income Fund 79,710 201 719 0
Tax-Free Bond Fund 0 1,368 850 0
U.S. Government Securities Fund 11,797 4,336 6,919 0
NOTE 9 - SHARE INFORMATION. Changes in fund share transactions during the six
months ended February 28, 2003 and the year/period ended August 31, 2002 were as
follows:
HIGH YIELD FUND SELECT INCOME FUND TAX-FREE BOND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
FEBRUARY 28 AUGUST 31 FEBRUARY 28 AUGUST 31 FEBRUARY 28 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
UNAUDITED (Note 1) UNAUDITED (Note 1) UNAUDITED (Note 1)
Shares Sold
Investor Class 11,853,706 17,471,149 14,175,110 36,626,932 5,096,571 16,446,825
Class A 12,757,575 437,915 14,231,589 55,842 520,948 17,386
Class B 153,624 66,328 49,713 17,726 20,664 19,291
Class C 5,345,035 1,293,758 349,788 189,395 602,324 385,747
Class K 66,293 348,740 127,527 1,450,651 - -
Shares Issued from
Reinvestment of Distributions
Investor Class 3,351,820 9,608,525 1,431,000 4,804,639 190,876 390,632
Class A 48,539 2,342 4,333 1,129 718 96
Class B 3,178 1,533 559 270 316 28
Class C 60,306 98,867 8,023 18,427 1,454 1,513
Class K 12,275 22,188 25,897 55,348 - -
====================================================================================================================================
33,652,351 29,351,345 30,403,539 43,220,359 6,433,871 17,261,518
Shares Repurchased
Investor Class (18,330,489) (65,441,942) (25,788,930) (80,092,938) (5,035,663) (18,053,127)
Class A (11,358,576) (228,823) (14,015,216) (1,121) (455,055) (2,776)
Class B (4,490) (10,453) (1,590) 0 (4,128) 0
Class C (3,507,806) (1,870,724) (176,804) (373,640) (557,728) (415,075)
Class K (53,497) (119,413) (262,523) (491,998) - -
====================================================================================================================================
(33,254,858) (67,671,355) (40,245,063) (80,959,697) (6,052,574) (18,470,978)
NET INCREASE
(DECREASE) IN
FUND SHARES 397,493 (38,320,010) (9,841,524) (37,739,338) 381,297 (1,209,460)
====================================================================================================================================
NOTE 9 - SHARE INFORMATION (CONTINUED)
U.S. GOVERNMENT
SECURITIES FUND
SIX MONTHS YEAR
ENDED ENDED
FEBRUARY 28 AUGUST 31
- --------------------------------------------------------------------------------
2003 2002
UNAUDITED (Note 1)
Shares Sold
Investor Class 10,998,778 37,212,864
Class A 8,166,567 481,408
Class B 133,673 136,154
Class C 3,234,704 3,919,039
Shares Issued from
Reinvestment of Distributions
Investor Class 664,343 707,328
Class A 7,847 272
Class B 3,670 814
Class C 20,454 23,929
================================================================================
23,230,036 42,481,808
Shares Repurchased
Investor Class (10,450,130) (34,732,073)
Class A (7,129,806) (338,687)
Class B (51,151) (8,740)
Class C (2,929,139) (4,251,659)
================================================================================
(20,560,226) (39,331,159)
NET INCREASE IN
FUND SHARES 2,669,810 3,150,649
================================================================================
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND - INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 3.14 $ 4.26 $ 5.98 $ 6.40 $ 6.76 $ 7.45
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.16 0.37 0.59 0.60 0.60 0.64
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.25 (1.13) (1.72) (0.42) (0.19) (0.29)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.41 (0.76) (1.13) 0.18 0.41 0.35
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.16 0.36 0.59 0.60 0.77 1.04
====================================================================================================================================
Net Asset Value - End of Period $ 3.39 $ 3.14 $ 4.26 $ 5.98 $ 6.40 $ 6.76
====================================================================================================================================
TOTAL RETURN 13.25%(a) (18.07%) (19.96%) 2.89% 6.53% 4.44%
RATIOS
Net Assets - End of Period ($000 Omitted) $ 270,042 $ 259,795 $ 516,687 $ 787,537 $ 793,337 $ 641,394
Ratio of Expenses to Average Net Assets(b)(c) 0.62%(a) 1.26% 1.08% 1.00% 0.99% 0.86%
Ratio of Net Investment Income to Average Net
Assets(c) 4.89%(a) 10.79% 11.31% 9.60% 9.13% 8.72%
Portfolio Turnover Rate 40%(a) 58% 111% 98% 154% 282%
(a) Based on operations for the period shown and, accordingly, is not representative of a full year.
(b) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is before any
expense offset arrangements (which may include custodian fees).
(c) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003 and the year ended
August 31, 2002. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been
0.70% and 1.36%, respectively, and ratio of net investment income to average net assets would have been 4.81% and 10.69%,
respectively.
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND - CLASS A & CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28 AUGUST 31 FEBRUARY 28 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 3.18 $ 3.39 $ 3.13 $ 3.39
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.16 0.14 0.14 0.14
Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.24 (0.21) 0.25 (0.26)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.40 (0.07) 0.39 (0.12)
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.16 0.14 0.14 0.14
====================================================================================================================================
Net Asset Value - End of Period $ 3.42 $ 3.18 $ 3.38 $ 3.13
====================================================================================================================================
TOTAL RETURN(b) 12.93%(c) (2.00%)(c) 12.92%(c) (3.64%)(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 5,676 $ 672 $ 709 $ 180
Ratio of Expenses to Average Net Assets(d) 0.51%(c) 1.09%(e) 0.91%(c) 1.81%(e)
Ratio of Net Investment Income to Average Net Assets 4.88%(c) 10.67%(e) 4.49%(c) 10.09%(e)
Portfolio Turnover Rate 40%(c) 58%(f) 40%(c) 58%(f)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charge for Class A or CDSC for Class B is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian
fees).
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2002.
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND - CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 3.12 $ 4.25 $ 5.97 $ 6.31
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14 0.34 0.55 0.30
Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.25 (1.13) (1.72) (0.34)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.39 (0.79) (1.17) (0.04)
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.14 0.34 0.55 0.30
====================================================================================================================================
Net Asset Value - End of Period $ 3.37 $ 3.12 $ 4.25 $ 5.97
====================================================================================================================================
TOTAL RETURN(b) 12.88%(c) (18.85%) (20.70%) (0.52%)(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 10,964 $ 4,222 $ 7,770 $ 4,843
Ratio of Expenses to Average Net Assets(d)(e) 1.00%(c) 2.00% 1.69% 1.60%(f)
Ratio of Net Investment Income to Average Net Assets(e) 4.45%(c) 9.95% 10.75% 9.20%(f)
Portfolio Turnover Rate 40%(c) 58% 111% 98%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is before any
expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003 and the year ended
August 31, 2002. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been
1.02% and 2.08%, respectively, and ratio of net investment income to average net assets would have been 4.43% and 9.87%,
respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2000.
FINANCIAL HIGHLIGHTS
HIGH YIELD FUND - CLASS K
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28 AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001(a)
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 3.13 $ 4.26 $ 5.20
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.36 0.40
Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.25 (1.13) (0.94)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.40 (0.77) (0.54)
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.15 0.36 0.40
====================================================================================================================================
Net Asset Value - End of Period $ 3.38 $ 3.13 $ 4.26
====================================================================================================================================
TOTAL RETURN 13.16%(b) (18.38%) (11.15%)(b)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 938 $ 790 $ 3
Ratio of Expenses to Average Net Assets(c)(d) 0.72%(b) 1.45% 1.48%(e)
Ratio of Net Investment Income to Average Net Assets(d) 4.80%(b) 9.85% 10.77%(e)
Portfolio Turnover Rate 40%(b) 58% 111%(f)
(a) From December 14, 2000, since inception of Class, to August 31, 2001.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003, the year ended August
31, 2002 and the period ended August 31, 2001. If such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.47%, 2.62% and 3.56% (annualized), respectively, and ratio of net investment income to average net
assets would have been 4.05%, 8.68% and 8.69% (annualized), respectively.
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2001.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND - INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 5.03 $ 5.79 $ 6.06 $ 6.15 $ 6.68 $ 6.66
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.33 0.43 0.43 0.43 0.43
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.26 (0.76) (0.27) (0.09) (0.41) 0.19
====================================================================================================================================
Total from Investment Operations 0.41 (0.43) 0.16 0.34 0.02 0.62
====================================================================================================================================
Less Dividends and Distributions 0.15 0.33 0.43 0.43 0.55 0.60
====================================================================================================================================
Net Asset Value - End of Period $ 5.29 $ 5.03 $ 5.79 $ 6.06 $ 6.15 $ 6.68
====================================================================================================================================
TOTAL RETURN 8.16%(a) (7.45%) 2.73% 5.78% 0.15% 9.58%
RATIOS
Net Assets - End of Period ($000 Omitted) $ 284,051 $ 321,228 $ 593,629 $ 574,518 $ 549,438 $ 502,624
Ratio of Expenses to Average Net Assets(b)(c) 0.52%(a) 1.05% 1.05% 1.06% 1.06% 1.06%
Ratio of Net Investment Income to Average Net
Assets(c) 2.84%(a) 6.37% 7.18% 7.10% 6.56% 6.36%
Portfolio Turnover Rate 41%(a) 60% 79% 82% 135% 140%
(a) Based on operations for the period shown and, accordingly, is not representative of a full year.
(b) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(c) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003 and the years ended
August 31, 2002, 2001, 2000, 1999 and 1998. If such expenses had not been voluntarily absorbed, ratio of expenses to average net
assets would have been 0.77%, 1.39%, 1.32%, 1.19%, 1.16% and 1.10%, respectively, and ratio of net investment income to average
net assets would have been 2.59%, 6.03%, 6.91%, 6.97%, 6.46% and 6.32%, respectively.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND - CLASS A & CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28 AUGUST 31 FEBRUARY 28 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 5.02 $ 5.06 $ 5.03 $ 5.06
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14 0.13 0.12 0.11
Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.27 (0.04) 0.26 (0.03)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.41 0.09 0.38 0.08
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.14 0.13 0.12 0.11
====================================================================================================================================
Net Asset Value - End of Period $ 5.29 $ 5.02 $ 5.29 $ 5.03
====================================================================================================================================
TOTAL RETURN(b) 8.23%(c) 1.81%(c) 7.75%(c) 1.62%(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 1,463 $ 281 $ 352 $ 90
Ratio of Expenses to Average Net Assets(d)(e) 0.49%(c) 1.07%(f) 0.90%(c) 1.86%(f)
Ratio of Net Investment Income to Average Net Assets(e) 2.23%(c) 6.02%(f) 2.38%(c) 4.99%(f)
Portfolio Turnover Rate 41%(c) 60%(g) 41%(c) 60%(g)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charge for Class A or CDSC for Class B is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is before any
expense offset arrangements (which may include custodian fees).
(e) Various expenses of Class B were voluntarily absorbed by IFG for the six months ended February 28, 2003. If such expenses had
not been voluntarily absorbed for Class B, ratio of expenses to expenses to average net assets would have been 1.42% and ratio
of net investment income to average net assets would have been 1.86%.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2002.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND - CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 5.03 $ 5.79 $ 6.06 $ 6.02
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.13 0.29 0.39 0.21
Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.26 (0.76) (0.27) 0.04
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.39 (0.47) 0.12 0.25
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.13 0.29 0.39 0.21
====================================================================================================================================
Net Asset Value - End of Period $ 5.29 $ 5.03 $ 5.79 $ 6.06
====================================================================================================================================
TOTAL RETURN(b) 7.76%(c) (8.14%) 1.97% 4.24%(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 2,675 $ 1,632 $ 2,839 $ 377
Ratio of Expenses to Average Net Assets(d)(e) 0.90%(c) 1.80% 1.79% 1.83%(f)
Ratio of Net Investment Income to Average Net Assets(e) 2.45%(c) 5.61% 6.23% 6.42%(f)
Portfolio Turnover Rate 41%(c) 60% 79% 82%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is before any
expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003 and the years ended
August 31, 2002 and 2001. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have
been 1.22%, 2.31% and 1.79%, respectively, and ratio of net investment income to average net assets would have been 2.13%, 5.10%
and 6.23%, respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2000.
FINANCIAL HIGHLIGHTS
SELECT INCOME FUND - CLASS K
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED
FEBRUARY 28 AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001(a)
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 5.02 $ 5.78 $ 5.93
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14 0.32 0.28
Net Gains or (Losses) on Securities (Both Realized and Unrealized) 0.27 (0.76) (0.15)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.41 (0.44) 0.13
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.14 0.32 0.28
====================================================================================================================================
Net Asset Value - End of Period $ 5.29 $ 5.02 $ 5.78
====================================================================================================================================
TOTAL RETURN 8.05%(b) (7.47%) 2.25%(b)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 4,785 $ 5,097 $ 2
Ratio of Expenses to Average Net Assets(c)(d) 0.62%(b) 1.25% 1.24%(e)
Ratio of Net Investment Income to Average Net Assets(d) 2.75%(b) 6.13% 6.60%(e)
Portfolio Turnover Rate 41%(b) 60% 79%(f)
(a) From December 14, 2000, since inception of Class, to August 31, 2001.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003, the year ended August
31, 2002 and the period ended August 31, 2001. If such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.02%, 1.85% and 3.63% (annualized), respectively, and ratio of net investment income would have been
2.35%, 5.53% and 4.21% (annualized), respectively.
(e) Annualized
(f) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2001.
FINANCIAL HIGHLIGHTS
TAX-FREE BOND FUND - INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31 AUGUST 31 YEAR ENDED JUNE 30
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999(a) 1999 1998
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 15.56 $ 15.49 $ 14.72 $ 14.53 $ 14.71 $ 15.57 $ 15.34
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.32 0.66 0.68 0.64 0.10 0.62 0.63
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.17 0.07 0.77 0.24 (0.18) (0.40) 0.40
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.49 0.73 1.45 0.88 (0.08) 0.22 1.03
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.32 0.66 0.68 0.69 0.10 1.08 0.80
====================================================================================================================================
Net Asset Value - End of Period $ 15.73 $ 15.56 $ 15.49$ 14.72$ 14.53 $ 14.71 $ 15.57
====================================================================================================================================
TOTAL RETURN 3.21%(b) 4.89 10.07 6.32 (0.53%)(b) 1.30% 6.87%
RATIOS
Net Assets - End of Period ($000 Omitted) $ 202,770 $ 196,673 $ 214,617 $ 178,154 $ 191,836 $ 201,791 $ 211,471
Ratio of Expenses to Average Net Assets(c)(d) 0.45%(b) 0.90 0.90 0.91 0.90%(e) 0.91% 0.91%
Ratio of Net Investment Income to
Average Net Assets(d) 2.08%(b) 4.33 4.46 4.45 4.08%(e) 4.03% 4.06%
Portfolio Turnover Rate 13%(b) 33% 33% 50% 3%(b) 66% 173%
(a) From July 1, 1999 to August 31, 1999.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003, the years ended
August 31, 2002, 2001 and 2000, the period ended August 31, 1999 and the years ended June 30, 1999 and 1998. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets would have been 0.54%, 1.08%, 1.08%, 1.11%, 1.14%
(annualized), 1.06% and 1.04%, respectively, and ratio of net investment income to average net assets would have been 1.99%,
4.15%, 4.28%, 4.25%, 3.84% (annualized), 3.88% and 3.93%, respectively.
(e) Annualized
FINANCIAL HIGHLIGHTS
TAX-FREE BOND FUND - CLASS A & CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28 AUGUST 31 FEBRUARY 28 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 15.56 $ 14.88 $ 15.56 $ 14.88
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.26 0.25 0.21
Net Gains on Securities (Both Realized and Unrealized) 0.14 0.68 0.17 0.68
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.44 0.94 0.42 0.89
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.30 0.26 0.25 0.21
====================================================================================================================================
Net Asset Value - End of Period $ 15.70 $ 15.56 $ 15.73 $ 15.56
====================================================================================================================================
TOTAL RETURN(b) 2.87%(c) 6.37%(c) 2.74%(c) 6.00%(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 1,277 $ 229 $ 569 $ 301
Ratio of Expenses to Average Net Assets(d)(e) 0.55%(c) 1.10%(f) 0.90%(c) 1.80%(f)
Ratio of Net Investment Income to Average Net Assets(e) 1.93%(c) 3.86%(f) 1.61%(c) 3.13%(f)
Portfolio Turnover Rate 13%(c) 33%(g) 13%(c) 33%(g)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charge for Class A or CDSC for Class B is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by IFG for the six months ended February 28, 2003 and the period ended
August 31, 2002. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been
0.75% and 1.70% (annualized), respectively, for Class A and 1.00% and 2.39% (annualized), respectively, for Class B, and ratio
of net investment income to average net assets would have been 1.73% and 3.26% (annualized), respectively, for Class A and 1.50%
and 2.54% (annualized), respectively for Class B.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2002.
FINANCIAL HIGHLIGHTS
TAX-FREE BOND FUND - CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 17.58 $ 17.50 $ 14.71 $ 14.05
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.30 0.62 0.58 0.29
Net Gains on Securities (Both Realized and Unrealized) 0.20 0.08 2.79 0.66
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.50 0.70 3.37 0.95
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.30 0.62 0.58 0.29
====================================================================================================================================
Net Asset Value - End of Period $ 17.78 $ 17.58 $ 17.50 $ 14.71
====================================================================================================================================
TOTAL RETURN(b) 2.87%(c) 4.12% 23.26% 6.86%(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 1,624 $ 797 $ 1,279 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 0.82%(c) 1.65% 1.66% 1.66%(f)
Ratio of Net Investment Income to Average Net Assets(e) 1.69%(c) 3.59% 3.58% 3.79%(f)
Portfolio Turnover Rate 13%(c) 33% 33% 50%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003, the years ended
August 31, 2002 and 2001 and the period ended August 31, 2000. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.08%, 2.01%, 1.84% and 6.90% (annualized), respectively, and ratio of net
investment income (loss) to average net assets would have been 1.43%, 3.23%, 3.40% and (1.45%) (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2000.
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND - INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 7.65 $ 7.41 $ 7.05 $ 6.81 $ 7.99 $ 7.49
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.11 0.30 0.36 0.36 0.35 0.40
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.13 0.24 0.36 0.24 (0.58) 0.67
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.24 0.54 0.72 0.60 (0.23) 1.07
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.25 0.30 0.36 0.36 0.95 0.57
====================================================================================================================================
Net Asset Value - End of Period $ 7.64 $ 7.65 $ 7.41 $ 7.05 $ 6.81 $ 7.99
====================================================================================================================================
TOTAL RETURN 3.23%(a) 7.52% 10.45% 9.12% (3.40%) 14.75%
RATIOS
Net Assets - End of Period ($000 Omitted) $ 168,059 $ 158,974 $ 130,510 $ 74,870 $ 79,899 $ 79,485
Ratio of Expenses to Average Net Assets(b)(c) 0.50%(a) 1.00% 1.00% 1.02% 1.01% 1.01%
Ratio of Net Investment Income to Average Net
Assets(c) 1.39%(a) 4.08% 4.87% 5.28% 4.80% 5.22%
Portfolio Turnover Rate 89%(a) 166% 90% 21% 114% 323%
(a) Based on operations for the period shown and, accordingly, is not representative of a full year.
(b) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(c) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003 and the years ended
August 31, 2002, 2001, 2000, 1999 and 1998. If such expenses had not been voluntarily absorbed, ratio of expenses to average net
assets would have been 0.71%, 1.43%, 1.43%, 1.61%, 1.60% and 1.41%, respectively, and ratio of net investment income to average
net assets would have been 1.18%, 3.65%, 4.44%, 4.69%, 4.21% and 4.82%, respectively.
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND - CLASS A & CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
FEBRUARY 28 AUGUST 31 FEBRUARY 28 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002(a) 2003 2002(a)
UNAUDITED UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 9.31 $ 7.20 $ 7.65 $ 7.20
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.12 0.08 0.09
Net Gains on Securities (Both Realized and Unrealized) 0.18 2.11 0.13 0.45
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.30 2.23 0.21 0.54
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.27 0.12 0.22 0.09
====================================================================================================================================
Net Asset Value - End of Period $ 9.34 $ 9.31 $ 7.64 $ 7.65
====================================================================================================================================
TOTAL RETURN(b) 3.24%(c) 31.08%(c)(d) 2.84%(c) 7.56%(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 11,096 $ 1,331 $ 1,639 $ 981
Ratio of Expenses to Average Net Assets(e)(f) 0.55%(c) 1.06%(g) 0.87%(c) 1.72%(g)
Ratio of Net Investment Income to Average Net Assets(f) 1.23%(c) 3.11%(g) 1.00%(c) 2.95%(g)
Portfolio Turnover Rate 89%(c) 166%(h) 89%(c) 166%(h)
(a) From April 1, 2002, since inception of Class, to August 31, 2002.
(b) The applicable sales charge for Class A or CDSC for Class B is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Total Return includes large fluctuations in asset size and shareholder transactions.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is before any
expense offset arrangements (which may include custodian fees).
(f) Various expenses of each Class were voluntarily absorbed by IFG for the six months ended February 28, 2003. If such expenses had
not been voluntarily absorbed, ratio of expenses to average net assets would have been 0.57% for Class A and 1.03% for Class B,
and ratio of net investment income to average net assets would have been 1.21% for Class A and 0.84% for Class B.
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2002.
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND - CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
FEBRUARY 28 YEAR ENDED AUGUST 31 AUGUST 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
UNAUDITED
PER SHARE DATA
Net Asset Value - Beginning of Period $ 7.64 $ 7.40 $ 7.06 $ 6.72
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.25 0.30 0.17
Net Gains or on Securities (Both Realized and Unrealized) 0.13 0.24 0.34 0.34
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.21 0.49 0.64 0.51
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.22 0.25 0.30 0.17
====================================================================================================================================
Net Asset Value - End of Period $ 7.63 $ 7.64 $ 7.40 $ 7.06
====================================================================================================================================
TOTAL RETURN(b) 2.85%(c) 6.72% 9.23% 7.64%(c)
RATIOS
Net Assets - End of Period ($000 Omitted) $ 7,792 $ 5,309 $ 7,431 $ 241
Ratio of Expenses to Average Net Assets(d)(e) 0.87%(c) 1.75% 1.70% 1.94%(f)
Ratio of Net Investment Income to Average Net Assets(e) 1.01%(c) 3.40% 3.81% 4.65%(f)
Portfolio Turnover Rate 89%(c) 166% 90% 21%(g)
(a) From February 15, 2000, since inception of Class, to August 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the six months ended February 28, 2003, the years ended
August 31, 2002 and 2001 and the period ended August 31, 2000. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.16%, 2.04%, 1.82% and 2.29% (annualized), respectively, and ratio of net
investment income to average net assets would have been 0.72%, 3.11%, 3.69% and 4.30% (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended August 31, 2000.
[INVESCO ICON] INVESCO(R)
1-800-525-8085
Personal Account Line: 1-800-424-8085
Advisor Services: 1-800-6-INVESCO
invescofunds.com
INVESCO Distributors, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied
by a current prospectus.
SINC 900442 3/02
APPENDIX V
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF INVESCO HIGH YIELD FUND INTO AIM HIGH YIELD FUND
JANUARY 31, 2003
(UNAUDITED)
PRINCIPAL AMOUNT
- ------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- --------------------------------------------------------------------------------------------------------------------------
BONDS & NOTES- 92.07%
ADVERTISING- 0.20%
RH Donnelley Finance Corp. I, Sr. Notes, 8.88%,
$ - $2,340,000 $ 2,340,000 12/15/10 (a)
- --------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE- 0.40%
Dunlop Standard Aerospace Holdings PLC (United
Kingdom), Sr. Unsec. Sub. Yankee Notes, 11.88%,
3,525,000 3,525,000 05/15/09
- --------------------------------------------------------------------------------------------------------------------------
1,275,000 1,275,000 L-3 Communications. Sr. Sub. Notes, 7.63% , 6/15/12
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
AGRICULTURAL PRODUCTS- 0.16%
Central Garden & Pet Co., Sr. Sub. Notes, 9.13%,
625,000 1,345,000 1,970,000 02/01/13 (a)
- --------------------------------------------------------------------------------------------------------------------------
AIRLINES- 0.99%
Air Canada (Canada), Sr. Unsec. Global Notes, 10.25%,
8,130,000 8,130,000 03/15/11
- --------------------------------------------------------------------------------------------------------------------------
Northwest Airlines Inc.,
7,780,000 7,780,000 Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06
- --------------------------------------------------------------------------------------------------------------------------
3,760,000 3,760,000 Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
ALTERNATIVE CARRIERS- 0.74%
2,250,000 2,250,000 Block Communications, Notes, 9.25%, 04/15/09
- --------------------------------------------------------------------------------------------------------------------------
2,680,000 2,680,000 LCI International, Inc. Sr. Notes, 7.25%, 06/15/07
- --------------------------------------------------------------------------------------------------------------------------
Level 3 Communications, Sr. Disc. Notes, 10.50%, (b)
10,475,000 10,475,000 12/01/08
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
APPAREL RETAIL- 1.85%
- --------------------------------------------------------------------------------------------------------------------------
Big 5 Corp.-Series B, Sr. Unsec. Notes, 10.88%,
7,579,000 7,579,000 11/15/07
- --------------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The), Unsec. Unsub. Global Notes, 9.90%,
8,085,000 8,085,000 12/15/05
- --------------------------------------------------------------------------------------------------------------------------
Mothers Work, Inc., Sr. Unsec. Gtd. Notes, 11.25%,
5,790,000 5,790,000 08/01/10
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS- 0.88%
Perry Ellis International, Inc.-Series B, Sr. Sec.
1,790,000 1,790,000 Notes, 9.50%, 03/15/09
- --------------------------------------------------------------------------------------------------------------------------
Russell Corp., Sr. Unsec. Gtd. Global Notes, 9.25%,
4,400,000 4,400,000 05/01/10
- --------------------------------------------------------------------------------------------------------------------------
Samsonite Corp., Sr. Unsec. Sub Notes, 10.75%,
150,000 150,000 06/15/08
- --------------------------------------------------------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec. Gtd.
3,805,000 3,805,000 Sub. Global Notes, 10.88%, 08/15/11
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT- 0.83%
American Axle & Manufacturing, Sr. Sub. Notes, 9.75%,
1,000,000 1,000,000 03/01/09
- --------------------------------------------------------------------------------------------------------------------------
1,800,000 1,800,000 Dana Corp, Notes, 10.13%, 03/15/10
- --------------------------------------------------------------------------------------------------------------------------
Dura Operating Corp.-Series B, Sr. Unsec. Gtd. Global
830,000 425,000 1,255,000 Notes, 8.63%, 04/15/12
- --------------------------------------------------------------------------------------------------------------------------
Intermet Corp., Sr. Unsec. Gtd. Global Notes, 9.75%,
2,670,000 2,670,000 06/15/09
- --------------------------------------------------------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr. Unsec. Gtd. (a)(c)
23,770,000 23,770,000 Sub. Notes, 10.25%, 03/15/07
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 Lear Corp.-Series B, Sr. Notes, 7.96% 05/15/05
- --------------------------------------------------------------------------------------------------------------------------
1,275,000 1,275,000 Metaldyne Corp., Sr. Sub. Notes, 11.00%, 06/15/12
- --------------------------------------------------------------------------------------------------------------------------
1,595,000 1,595,000 Universal Compression, Sr. Disc. Notes, 9.88%, 02/15/08(b)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
BANKS- 0.50%
Western Financial Bank, Unsec. Sub. Deb., 9.63%,
6,300,000 6,300,000 05/15/12
- --------------------------------------------------------------------------------------------------------------------------
BROADCASTING & CABLE TV- 14.26%
Acme Communications, Inc.-Series B, Sr. Unsec. Unsub.
1,235,000 14,105,000 15,340,000 Gtd. Notes, 10.88%, 09/30/04
- --------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp.
4,220,000 4,220,000 Series B, Sr. Unsec. Notes, 9.88%, 03/01/07 (c)
- --------------------------------------------------------------------------------------------------------------------------
1,750,000 - 1,750,000 Sr. Notes, 10.25%, 06/15/11 (c)
- --------------------------------------------------------------------------------------------------------------------------
9,595,000 9,595,000 Sr. Unsec. Notes, 10.88%, 10/01/10 (c)
- --------------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., Sr. Sub. Notes, 7.75%, (a)
760,000 7,950,000 8,710,000 12/15/12
<Caption>
MARKET VALUE
--------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ---------------------------------------------------------------------------------------------------------------------------
BONDS & NOTES- 92.07%
ADVERTISING- 0.20%
RH Donnelley Finance Corp. I, Sr. Notes, 8.88%,
12/15/10 (a) $ - $ 2,503,800 $ 2,503,800
- ---------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE- 0.40%
Dunlop Standard Aerospace Holdings PLC (United
Kingdom), Sr. Unsec. Sub. Yankee Notes, 11.88%,
05/15/09 3,595,500 3,595,500
- ---------------------------------------------------------------------------------------------------------------------------
L-3 Communications. Sr. Sub. Notes, 7.63% , 6/15/12 1,332,375 1,332,375
- ---------------------------------------------------------------------------------------------------------------------------
1,332,375 3,595,500 4,927,875
- ---------------------------------------------------------------------------------------------------------------------------
AGRICULTURAL PRODUCTS- 0.16%
Central Garden & Pet Co., Sr. Sub. Notes, 9.13%,
02/01/13 (a) 643,750 1,385,350 2,029,100
- ---------------------------------------------------------------------------------------------------------------------------
AIRLINES- 0.99%
Air Canada (Canada), Sr. Unsec. Global Notes, 10.25%,
03/15/11 3,943,050 3,943,050
- ---------------------------------------------------------------------------------------------------------------------------
Northwest Airlines Inc.,
Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 5,173,700 5,173,700
- ---------------------------------------------------------------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04 3,064,400 3,064,400
- ---------------------------------------------------------------------------------------------------------------------------
12,181,150 12,181,150
- ---------------------------------------------------------------------------------------------------------------------------
ALTERNATIVE CARRIERS- 0.74%
Block Communications, Notes, 9.25%, 04/15/09 2,345,625 2,345,625
- ---------------------------------------------------------------------------------------------------------------------------
LCI International, Inc. Sr. Notes, 7.25%, 06/15/07 1,514,200 1,514,200
- ---------------------------------------------------------------------------------------------------------------------------
Level 3 Communications, Sr. Disc. Notes, 10.50%, (b)
12/01/08 5,289,875 5,289,875
- ---------------------------------------------------------------------------------------------------------------------------
7,635,500 1,514,200 9,149,700
- ---------------------------------------------------------------------------------------------------------------------------
APPAREL RETAIL- 1.85%
Big 5 Corp.-Series B, Sr. Unsec. Notes, 10.88%,
11/15/07 7,920,055 7,920,055
- ---------------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The), Unsec. Unsub. Global Notes, 9.90%,
12/15/05 8,731,800 8,731,800
- ---------------------------------------------------------------------------------------------------------------------------
Mothers Work, Inc., Sr. Unsec. Gtd. Notes, 11.25%,
08/01/10 6,195,300 6,195,300
- ---------------------------------------------------------------------------------------------------------------------------
22,847,155 22,847,155
- ---------------------------------------------------------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS- 0.88%
Perry Ellis International, Inc.-Series B, Sr. Sec.
Notes, 9.50%, 03/15/09 1,843,700 1,843,700
- ---------------------------------------------------------------------------------------------------------------------------
Russell Corp., Sr. Unsec. Gtd. Global Notes, 9.25%,
05/01/10 4,708,000 4,708,000
- ---------------------------------------------------------------------------------------------------------------------------
Samsonite Corp., Sr. Unsec. Sub Notes, 10.75%,
06/15/08 127,500 127,500
- ---------------------------------------------------------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.88%, 08/15/11 4,214,037 4,214,037
- ---------------------------------------------------------------------------------------------------------------------------
10,893,237 10,893,237
- ---------------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT- 0.83%
American Axle & Manufacturing, Sr. Sub. Notes, 9.75%,
03/01/09 1,076,250 1,076,250
- ---------------------------------------------------------------------------------------------------------------------------
Dana Corp, Notes, 10.13%, 03/15/10 1,804,500 1,804,500
- ---------------------------------------------------------------------------------------------------------------------------
Dura Operating Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 8.63%, 04/15/12 823,775 425,000 1,248,775
- ---------------------------------------------------------------------------------------------------------------------------
Intermet Corp., Sr. Unsec. Gtd. Global Notes, 9.75%,
06/15/09 2,362,950 2,362,950
- ---------------------------------------------------------------------------------------------------------------------------
Key Plastics Holdings, Inc.-Series B, Sr. Unsec. Gtd. (a)(c)(d)
Sub. Notes, 10.25%, 03/15/07 2 2
- ---------------------------------------------------------------------------------------------------------------------------
Lear Corp.-Series B, Sr. Notes, 7.96% 05/15/05 1,052,500 1,052,500
- ---------------------------------------------------------------------------------------------------------------------------
Metaldyne Corp., Sr. Sub. Notes, 11.00%, 06/15/12 994,500 994,500
- ---------------------------------------------------------------------------------------------------------------------------
Universal Compression, Sr. Disc. Notes, 9.88%, 02/15/08 (b) 1,658,800 1,658,800
- ---------------------------------------------------------------------------------------------------------------------------
7,410,325 2,787,952 10,198,277
- ---------------------------------------------------------------------------------------------------------------------------
BANKS- 0.50%
Western Financial Bank, Unsec. Sub. Deb., 9.63%,
05/15/12 6,174,000 6,174,000
- ---------------------------------------------------------------------------------------------------------------------------
BROADCASTING & CABLE TV- 14.26%
Acme Communications, Inc.-Series B, Sr. Unsec. Unsub.
Gtd. Notes, 10.88%, 09/30/04 1,262,787 14,492,887 15,755,674
- ----------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp.
Series B, Sr. Unsec. Notes, 9.88%, 03/01/07 (c) 1,888,450 1,888,450
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Notes, 10.25%, 06/15/11 (c) 752,500 - 752,500
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 10.88%, 10/01/10 (c) 4,293,762 4,293,762
- ----------------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., Sr. Sub. Notes, 7.75%, (a)
12/15/12 752,400 7,890,375 8,642,775
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ----------------------------------------------------------------------------------------------------------------------------
Alliance Atlantis Communications Inc. (Canada), Sr.
$ - $ 7,045,000 $ 7,045,000 Unsec. Sub. Yankee Notes, 13.00%, 12/15/09
- ----------------------------------------------------------------------------------------------------------------------------
925,000 925,000 Century Communications, Sr. Notes, 9.50%, 03/01/05 (c)
- ----------------------------------------------------------------------------------------------------------------------------
Chancellor Media Los Angeles-Series B, Sr. Sub. Notes,
7,565,000 7,565,000 8.13%, 12/15/07
- ----------------------------------------------------------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
1,500,000 1,500,000 Sr. Notes, 8.25%, 04/01/07
- ----------------------------------------------------------------------------------------------------------------------------
11,460,000 11,460,000 Sr. Unsec. Sub. Disc. Notes, 9.92%, 04/01/11 (b)
- ----------------------------------------------------------------------------------------------------------------------------
4,610,000 4,610,000 Sr. Unsec. Sub. Global Notes, 11.13%, 01/15/11
- ----------------------------------------------------------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr. Unsec.
9,395,000 9,395,000 Yankee Deb., 11.20%, 11/15/07
- ----------------------------------------------------------------------------------------------------------------------------
CSC Holdings Inc.-Series B, Sr. Unsec. Notes, 7.63%,
9,895,000 9,895,000 04/01/11
- ----------------------------------------------------------------------------------------------------------------------------
Echostar DBS Corp.,
1,500,000 1,500,000 Sr. Notes, 9.13%, 01/15/09
- ----------------------------------------------------------------------------------------------------------------------------
4,605,000 4,605,000 Sr. Unsec. Global Notes, 10.38%, 10/01/07
- ----------------------------------------------------------------------------------------------------------------------------
Granite Broadcasting Corp., Sr. Sub. Notes, 10.38%,
1,778,000 1,778,000 05/15/05
- ----------------------------------------------------------------------------------------------------------------------------
Gray Television Inc., Sr. Unsec. Gtd. Sub. Global
1,570,000 2,230,000 3,800,000 Notes, 9.25%, 12/15/11
- ----------------------------------------------------------------------------------------------------------------------------
Insight Midwest, L.P., Sr. Unsec. Global Notes,
6,435,000 6,435,000 10.50%, 11/01/10
- ----------------------------------------------------------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Unsec. Notes, 12.00%, (a)
10,698,000 10,698,000 11/30/09
- ----------------------------------------------------------------------------------------------------------------------------
LBI Media Inc., Sr. Unsec. Gtd. Sub. Notes, 10.13%, (a)
5,340,000 5,340,000 07/15/12
- ----------------------------------------------------------------------------------------------------------------------------
LIN Holdings Corp., Sr. Unsec. Disc. Notes, 10.00%, (b)
7,135,000 7,135,000 03/01/08
- ----------------------------------------------------------------------------------------------------------------------------
8,140,000 8,140,000 Mediacomm LLC, Sr. Unsec. Notes, 9.50%, 01/15/13
- ----------------------------------------------------------------------------------------------------------------------------
Paxson Communications, Sr. Disc. Notes, 12.25%,
1,000,000 1,000,000 01/15/09 (b)
- ----------------------------------------------------------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd. Sub. Notes,
4,515,000 10.75%, 07/01/11
- ----------------------------------------------------------------------------------------------------------------------------
Pegasus Communications Corp.-Series B,
7,700,000 7,700,000 Sr. Notes, 9.63%, 10/15/05
- ----------------------------------------------------------------------------------------------------------------------------
11,960,000 11,960,000 Sr. Unsec. Notes, 12.50%, 08/01/07
- ----------------------------------------------------------------------------------------------------------------------------
Radio One, Inc.-Series B, Sr. Unsec. Gtd. Sub. Global
6,595,000 6,595,000 Notes, 8.88%, 07/01/11
- ----------------------------------------------------------------------------------------------------------------------------
Renaissance Media Group LLC, Sr. Unsec. Disc. Notes,
3,498,000 3,498,000 10.00%, 4/15/08 (b)
- ----------------------------------------------------------------------------------------------------------------------------
Salem Communications Holding Corp.-Series B, Sr.
5,070,000 5,070,000 Unsec. Gtd. Sub. Global Notes, 9.00%, 07/01/11
- ----------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.,
775,000 775,000 Sr. Sub. Notes, 8.00%, 03/15/12 (a)
- ----------------------------------------------------------------------------------------------------------------------------
1,690,000 1,690,000 Sr. Unsec. Gtd. Sub. Notes, 8.75%, 12/15/11
- ----------------------------------------------------------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec. Gtd.
6,114,000 6,114,000 Sub. Global Notes, 9.63%, 11/01/09
- ----------------------------------------------------------------------------------------------------------------------------
Star Choice Communication (Canada), Sr. Notes, 13.00%
9,300,000 9,300,000 12/15/05
- ----------------------------------------------------------------------------------------------------------------------------
3,100,000 3,100,000 TCI Communications, Sr. Notes, 6.38%, 05/01/03
- ----------------------------------------------------------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee Notes,
12,385,000 12,385,000 11.25%, 02/01/10 (c)
- ----------------------------------------------------------------------------------------------------------------------------
8,200,000 8,200,000 11.50%, 02/01/10 (c)
- ----------------------------------------------------------------------------------------------------------------------------
400,000 400,000 Sun Media Corp. (Canada), Sr. Notes, 7.63%, 02/15/13 (a)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS- 0.37%
Associated Materials Inc., Sr. Unsec. Sub. Global
1,780,000 1,780,000 Notes, 9.75%, 04/15/12
- ----------------------------------------------------------------------------------------------------------------------------
Atrium Cos., Inc.-Series B, Sr. Unsec. Gtd. Sub.
2,660,000 2,660,000 Notes, 10.50%, 05/01/09
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
CASINOS & GAMBLING- 4.52%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub. Global
2,320,000 2,320,000 Notes, 10.75%, 02/15/09
- ----------------------------------------------------------------------------------------------------------------------------
1,900,000 1,900,000 Argosy Gaming, Sr. Sub. Notes, 9.00%, 09/01/11
- ----------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp.,
4,705,000 4,705,000 Sr. Unsec. Gtd. Global Notes, 9.25%, 08/01/09
- ----------------------------------------------------------------------------------------------------------------------------
4,450,000 4,450,000 Sr. Unsec. Sub. Global Notes, 8.75%, 04/15/12
- ----------------------------------------------------------------------------------------------------------------------------
Chumash Casino & Resort Enterprise, Sr. Notes, 9.00%, (a)
785,000 785,000 07/15/10
- ----------------------------------------------------------------------------------------------------------------------------
Herbst Gaming, Inc.,
4,450,000 4,450,000 Series B, Sr. Sec. Global Notes, 10.75%, 09/01/08
- ----------------------------------------------------------------------------------------------------------------------------
925,000 925,000 Sr. Sec. Notes, 10.75%, 09/01/08 (a)
- ----------------------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp., Sr. Sec. Gtd. Mortgage Notes,
3,200,000 6,410,000 9,610,000 11.25%, 05/01/07
- ----------------------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp./Shreveport Capital Corp., Sr.
2,960,000 2,960,000 Unsec. Gtd. Mortgage Notes, 13.00%, 08/01/06
- ----------------------------------------------------------------------------------------------------------------------------
Hollywood Park/Hollywood Park Operating-Series B, Sr.
1,710,000 1,710,000 Sub. Notes, 9.50%, 08/01/07
- ----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
--------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Atlantis Communications Inc. (Canada), Sr.
Unsec. Sub. Yankee Notes, 13.00%, 12/15/09 $ - $ 7,925,625 $ 7,925,625
- ---------------------------------------------------------------------------------------------------------------------------
Century Communications, Sr. Notes, 9.50%, 03/01/05 (c) 259,000 259,000
- ---------------------------------------------------------------------------------------------------------------------------
Chancellor Media Los Angeles-Series B, Sr. Sub. Notes,
8.13%, 12/15/07 7,872,366 7,872,366
- ---------------------------------------------------------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Notes, 8.25%, 04/01/07 727,500 727,500
- ---------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Sub. Disc. Notes, 9.92%, 04/01/11 (b) 4,985,100 4,985,100
- ---------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 11.13%, 01/15/11 2,328,050 2,328,050
- ---------------------------------------------------------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr. Unsec.
Yankee Deb., 11.20%, 11/15/07 6,811,375 6,811,375
- ---------------------------------------------------------------------------------------------------------------------------
CSC Holdings Inc.-Series B, Sr. Unsec. Notes, 7.63%,
04/01/11 9,548,675 9,548,675
- ---------------------------------------------------------------------------------------------------------------------------
Echostar DBS Corp.,
Sr. Notes, 9.13%, 01/15/09 1,582,500 1,582,500
- ---------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Global Notes, 10.38%, 10/01/07 4,973,400 4,973,400
- ---------------------------------------------------------------------------------------------------------------------------
Granite Broadcasting Corp., Sr. Sub. Notes, 10.38%,
05/15/05 1,626,870 1,626,870
- ---------------------------------------------------------------------------------------------------------------------------
Gray Television Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 1,679,900 2,380,525 4,060,425
- ---------------------------------------------------------------------------------------------------------------------------
Insight Midwest, L.P., Sr. Unsec. Global Notes,
10.50%, 11/01/10 6,402,825 6,402,825
- ---------------------------------------------------------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Unsec. Notes, 12.00%, (a)
11/30/09 6,445,545 6,445,545
- ---------------------------------------------------------------------------------------------------------------------------
LBI Media Inc., Sr. Unsec. Gtd. Sub. Notes, 10.13%, (a)
07/15/12 5,633,700 5,633,700
- ---------------------------------------------------------------------------------------------------------------------------
LIN Holdings Corp., Sr. Unsec. Disc. Notes, 10.00%, (b)
03/01/08 7,313,375 7,313,375
- ---------------------------------------------------------------------------------------------------------------------------
Mediacomm LLC, Sr. Unsec. Notes, 9.50%, 01/15/13 7,855,100 7,855,100
- ---------------------------------------------------------------------------------------------------------------------------
Paxson Communications, Sr. Disc. Notes, 12.25%,
01/15/09 (b) 675,000 675,000
- ---------------------------------------------------------------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd. Sub. Notes,
10.75%, 07/01/11 4,853,625 4,853,625
- ---------------------------------------------------------------------------------------------------------------------------
Pegasus Communications Corp.-Series B,
Sr. Notes, 9.63%, 10/15/05 5,582,500 5,582,500
- ---------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 12.50%, 08/01/07 8,431,800 8,431,800
- ---------------------------------------------------------------------------------------------------------------------------
Radio One, Inc.-Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 07/01/11 7,089,625 7,089,625
- ---------------------------------------------------------------------------------------------------------------------------
Renaissance Media Group LLC, Sr. Unsec. Disc. Notes,
10.00%, 4/15/08 (b) 3,008,280 3,008,280
- ---------------------------------------------------------------------------------------------------------------------------
Salem Communications Holding Corp.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 9.00%, 07/01/11 5,348,850 5,348,850
- ---------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.,
Sr. Sub. Notes, 8.00%, 03/15/12 (a) 798,250 798,250
- ---------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 8.75%, 12/15/11 1,804,075 1,804,075
- ---------------------------------------------------------------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 9.63%, 11/01/09 6,327,990 6,327,990
- ---------------------------------------------------------------------------------------------------------------------------
Star Choice Communication (Canada), Sr. Notes, 13.00%
12/15/05 8,835,000 8,835,000
- ---------------------------------------------------------------------------------------------------------------------------
TCI Communications, Sr. Notes, 6.38%, 05/01/03 3,099,904 3,099,904
- ---------------------------------------------------------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Series B, Sr. Unsec. Yankee Notes,
11.25%, 02/01/10 (c) 1,300,425 1,300,425
- ---------------------------------------------------------------------------------------------------------------------------
11.50%, 02/01/10 (c) 861,000 861,000
- ---------------------------------------------------------------------------------------------------------------------------
Sun Media Corp. (Canada), Sr. Notes, 7.63%, 02/15/13 (a) 403,000 403,000
- ---------------------------------------------------------------------------------------------------------------------------
33,512,462 142,591,454 176,103,916
- ---------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS- 0.37%
Associated Materials Inc., Sr. Unsec. Sub. Global
Notes, 9.75%, 04/15/12 1,895,700 1,895,700
- ---------------------------------------------------------------------------------------------------------------------------
Atrium Cos., Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 10.50%, 05/01/09 2,686,600 2,686,600
- ---------------------------------------------------------------------------------------------------------------------------
4,582,300 4,582,300
- ---------------------------------------------------------------------------------------------------------------------------
CASINOS & GAMBLING- 4.52%
Ameristar Casinos, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.75%, 02/15/09 2,470,800 2,470,800
- ---------------------------------------------------------------------------------------------------------------------------
Argosy Gaming, Sr. Sub. Notes, 9.00%, 09/01/11 1,995,000 1,995,000
- ---------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp.,
Sr. Unsec. Gtd. Global Notes, 9.25%, 08/01/09 5,128,450 5,128,450
- ---------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 8.75%, 04/15/12 4,672,500 4,672,500
- ---------------------------------------------------------------------------------------------------------------------------
Chumash Casino & Resort Enterprise, Sr. Notes, 9.00%, (a)
07/15/10 831,119 831,119
- ---------------------------------------------------------------------------------------------------------------------------
Herbst Gaming, Inc.,
Series B, Sr. Sec. Global Notes, 10.75%, 09/01/08 4,705,875 4,705,875
- ---------------------------------------------------------------------------------------------------------------------------
Sr. Sec. Notes, 10.75%, 09/01/08 (a) 978,187 978,187
- ---------------------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp., Sr. Sec. Gtd. Mortgage Notes,
11.25%, 05/01/07 3,432,000 6,906,775 10,338,775
- ---------------------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp./Shreveport Capital Corp., Sr.
Unsec. Gtd. Mortgage Notes, 13.00%, 08/01/06 2,619,600 2,619,600
- ---------------------------------------------------------------------------------------------------------------------------
Hollywood Park/Hollywood Park Operating-Series B, Sr.
Sub. Notes, 9.50%, 08/01/07 1,543,275 1,543,275
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ---------------------------------------------------------------------------------------------------------------------------
Mandalay Resort Group,
$ 1,000,000 $ - $ 1,000,000 Sr. Notes, 9.50%, 08/01/08
- ---------------------------------------------------------------------------------------------------------------------------
1,500,000 1,500,000 Sr. Sub. Notes, 9.38%, 02/15/10
- ---------------------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec. Gtd. Sub.
1,370,000 1,370,000 Global Notes, 8.00%, 04/01/12
- ---------------------------------------------------------------------------------------------------------------------------
Park Place Entertainment Corp.
1,150,000 1,150,000 Sr. Sub. Notes, 7.88%, 12/15/05
- ---------------------------------------------------------------------------------------------------------------------------
3,615,000 3,615,000 Sr. Sub. Notes, 8.13%, 05/15/11
- ---------------------------------------------------------------------------------------------------------------------------
5,235,000 5,235,000 Sr. Unsec. Global Notes, 7.50%, 09/01/09
- ---------------------------------------------------------------------------------------------------------------------------
Penn National Gaming, Sr. Unsec. Sub. Notes, 11.13%,
2,230,000 2,230,000 03/01/08
- ---------------------------------------------------------------------------------------------------------------------------
Venetian Casino Resort LLC, Sec. Gtd. Mortgage Global
3,565,000 3,565,000 Notes, 11.00%, 06/15/10
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
COMMODITY CHEMICALS-0.57%
ISP Chemo Inc.-Series B, Sr. Unsec. Gtd. Sub. Global
3,590,000 3,590,000 Notes, 10.25%, 07/01/11
- ---------------------------------------------------------------------------------------------------------------------------
Lyondell Chemical-Series B, Sr. Sec. Notes, 9.88%,
1,000,000 1,000,000 05/01/07
- ---------------------------------------------------------------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes, 8.75%,
2,225,000 2,225,000 08/15/12
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.04%
Seagate Technology, Sr. Unsec. Gtd. Global Notes,
480,000 480,000 8.00%, 05/15/09
- ---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.59%
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%,
9,020,000 9,020,000 06/01/08
- ---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.58%
Terex Corp., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%,
1,260,000 6,380,000 7,640,000 07/15/11
- ---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIAL-0.53%
MMI Products, Inc.-Series B, Sr. Unsec. Sub. Notes,
7,720,000 7,720,000 11.25%, 04/15/07
- ---------------------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES-0.52%
6,240,000 6,240,000 JC Penney Co. Inc., Unsec. Notes, 7.60%, 04/01/07
- ---------------------------------------------------------------------------------------------------------------------------
DISTILLERS & VINTNERS-0.35%
Constellation Brands, Inc.-Series B, Sr. Gtd. Sub.
4,330,000 4,330,000 Notes, 8.13%, 01/15/12
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTORS-0.14%
AmeriGas Partners, L.P., Sr. Unsec. Global Notes,
810,000 810,000 8.88%, 05/20/11
- ---------------------------------------------------------------------------------------------------------------------------
Collins & Aikman Floorcoverings-Series B, Sr. Sub.
900,000 900,000 Notes, 9.75%, 02/15/10
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CHEMICALS-1.27%
Equistar Chemicals LP/Equistar Funding Corp., Sr.
6,580,000 6,580,000 Unsec. Gtd. Global Notes, 10.13%, 09/01/08
- ---------------------------------------------------------------------------------------------------------------------------
785,000 2,000,000 2,785,000 FMC Corp., Sr. Sec. Notes, 10.25%, 11/01/09 (a)
- ---------------------------------------------------------------------------------------------------------------------------
1,250,000 5,500,000 6,750,000 Huntsman International LLC, Sr. Notes, 9.88%, 03/01/09
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-0.07%
Pierce Leahy Command (Canada), Sr. Notes, 8.13%,
825,000 825,000 05/15/08
- ---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-1.23%
Bear Island Paper LLC/Bear Island Finance II-Series B,
2,300,000 2,300,000 Sr. Sec. Notes, 10.00%, 12/01/07
- ---------------------------------------------------------------------------------------------------------------------------
Qwest Capital Funding, Inc., Unsec. Gtd. Global Notes,
5,370,000 5,370,000 7.00%, 08/03/09
- ---------------------------------------------------------------------------------------------------------------------------
4,475,000 4,475,000 7.25%, 02/15/11
- ---------------------------------------------------------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd. Global
6,170,000 6,170,000 Notes, 9.00%, 07/01/10
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
DRUG RETAIL-0.49%
Rite Aid Corp., Sr. Unsec. Unsub. Notes, 7.13%,
7,070,000 7,070,000 01/15/07
- ---------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ----------------------------------------------------------------------------------------------------------------------------
Mandalay Resort Group,
Sr. Notes, 9.50%, 08/01/08 $1,110,000 $ - $ 1,110,000
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Sub. Notes, 9.38%, 02/15/10 1,593,750 1,593,750
- ----------------------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec. Gtd. Sub.
Global Notes, 8.00%, 04/01/12 1,417,950 1,417,950
- ----------------------------------------------------------------------------------------------------------------------------
Park Place Entertainment Corp.
Sr. Sub. Notes, 7.88%, 12/15/05 1,170,125 1,170,125
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Sub. Notes, 8.13%, 05/15/11 3,746,044 3,746,044
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.50%, 09/01/09 5,365,875 5,365,875
- ----------------------------------------------------------------------------------------------------------------------------
Penn National Gaming, Sr. Unsec. Sub. Notes, 11.13%,
03/01/08 2,441,850 2,441,850
- ----------------------------------------------------------------------------------------------------------------------------
Venetian Casino Resort LLC, Sec. Gtd. Mortgage Global
Notes, 11.00%, 06/15/10 3,707,600 3,707,600
- ----------------------------------------------------------------------------------------------------------------------------
17,863,163 37,973,612 55,836,775
- ----------------------------------------------------------------------------------------------------------------------------
COMMODITY CHEMICALS-0.57%
ISP Chemo Inc.-Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 10.25%, 07/01/11 3,778,475 3,778,475
- ----------------------------------------------------------------------------------------------------------------------------
Lyondell Chemical-Series B, Sr. Sec. Notes, 9.88%,
05/01/07 935,000 935,000
- ----------------------------------------------------------------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes, 8.75%,
08/15/12 2,358,500 2,358,500
- ----------------------------------------------------------------------------------------------------------------------------
935,000 6,136,975 7,071,975
- ----------------------------------------------------------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.04%
Seagate Technology, Sr. Unsec. Gtd. Global Notes,
8.00%, 05/15/09 502,800 502,800
- ----------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.59%
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%,
06/01/08 7,261,100 7,261,100
- ----------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION, FARM MACHINERY & HEAVY TRUCKS-0.58%
- ----------------------------------------------------------------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%,
07/15/11 1,159,200 5,965,300 7,124,500
- ----------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIAL-0.53%
MMI Products, Inc.-Series B, Sr. Unsec. Sub. Notes,
11.25%, 04/15/07 6,600,600 6,600,600
- ---------------------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES-0.52%
JC Penney Co. Inc., Unsec. Notes, 7.60%, 04/01/07 6,372,600 6,372,600
- ----------------------------------------------------------------------------------------------------------------------------
DISTILLERS & VINTNERS-0.35%
Constellation Brands, Inc.-Series B, Sr. Gtd. Sub.
Notes, 8.13%, 01/15/12 4,384,125 4,384,125
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTORS-0.14%
AmeriGas Partners, L.P., Sr. Unsec. Global Notes,
8.88%, 05/20/11 878,850 878,850
- ----------------------------------------------------------------------------------------------------------------------------
Collins & Aikman Floorcoverings-Series B, Sr. Sub.
Notes, 9.75%, 02/15/10 911,250 911,250
- ----------------------------------------------------------------------------------------------------------------------------
911,250 878,850 1,790,100
- ----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CHEMICALS-1.27%
Equistar Chemicals LP/Equistar Funding Corp., Sr.
Unsec. Gtd. Global Notes, 10.13%, 09/01/08 6,020,700 6,020,700
- ----------------------------------------------------------------------------------------------------------------------------
FMC Corp., Sr. Sec. Notes, 10.25%, 11/01/09 (a) 832,100 2,140,000 2,972,100
- ----------------------------------------------------------------------------------------------------------------------------
Huntsman International LLC, Sr. Notes, 9.88%, 03/01/09 1,256,250 5,472,500 6,728,750
- ----------------------------------------------------------------------------------------------------------------------------
2,088,350 13,633,200 15,721,550
- ----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-0.07%
Pierce Leahy Command (Canada), Sr. Notes, 8.13%,
05/15/08 836,344 836,344
- ----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-1.23%
Bear Island Paper LLC/Bear Island Finance II-Series B,
Sr. Sec. Notes, 10.00%, 12/01/07 1,955,000 1,955,000
- ----------------------------------------------------------------------------------------------------------------------------
Qwest Capital Funding, Inc., Unsec. Gtd. Global Notes,
7.00%, 08/03/09
3,973,800 3,973,800
- ----------------------------------------------------------------------------------------------------------------------------
7.25%, 02/15/11 3,266,750 3,266,750
- ----------------------------------------------------------------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd. Global
Notes, 9.00%, 07/01/10 5,954,050 5,954,050
- ----------------------------------------------------------------------------------------------------------------------------
1,955,000 13,194,600 15,149,600
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
DRUG RETAIL-0.49%
Rite Aid Corp., Sr. Unsec. Unsub. Notes, 7.13%,
01/15/07 6,062,525 6,062,525
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- ------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES-2.02%
1,950,000 3,608,000 5,558,000 AES Corp. (The), Sec. Notes, 10.00%, 07/15/05 (a)
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,135,000 $ - $ 1,135,000 Appalachian Power, Notes, 4.80%, 06/15/05
- ----------------------------------------------------------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada), Sr. Unsec.
5,870,000 5,870,000 Gtd. Notes, 8.50%, 05/01/08
- ----------------------------------------------------------------------------------------------------------------------------
CMS Energy Corp.,
3,425,000 3,425,000 Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08
- ----------------------------------------------------------------------------------------------------------------------------
825,000 825,000 Series B, Sr. Notes, 6.75%, 01/15/04
- ----------------------------------------------------------------------------------------------------------------------------
Consumers Energy, 1st & Refunding Mortgage Notes,
1,840,000 1,840,000 7.38%, 09/15/23
- ----------------------------------------------------------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global Notes,
2,385,000 11,150,000 13,535,000 13.50%, 07/15/08
- ----------------------------------------------------------------------------------------------------------------------------
5,375,000 5,375,000 Niagara Mohawk Power, 1st Mortgage, 9.75%, 11/01/05
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.86%
Flextronics International Ltd. (Singapore), Sr. Unsec.
5,530,000 5,530,000 Sub. Yankee Notes, 9.88%, 07/01/10
- ----------------------------------------------------------------------------------------------------------------------------
4,475,000 4,475,000 Sanmina-SCI Corp., Sr. Sec. Notes, 10.38%, 01/15/10 (a)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS-1.59%
Fisher Scientific International Inc.,
1,000,000 3,620,000 4,620,000 Sr. Sub. Global Notes, 8.13%, 05/01/12 (a)
- ----------------------------------------------------------------------------------------------------------------------------
4,395,000 4,395,000 Sr. Unsec. Sub. Notes, 8.13%, 05/01/12
- ----------------------------------------------------------------------------------------------------------------------------
Knowles Electronics Inc., Sr. Unsec. Gtd. Sub. Notes,
8,860,000 8,860,000 13.13%, 10/15/09
- ----------------------------------------------------------------------------------------------------------------------------
1,560,000 1,560,000 PerkinElmer Inc., Sr. Sub. Notes, 8.88%, 01/15/13 (a)
- ----------------------------------------------------------------------------------------------------------------------------
2,645,000 2,645,000 Solectron Corp., Sr. Unsec. Notes, 9.63%, 02/15/09
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT SERVICES-0.25%
MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes,
8,075,000 8,075,000 11.38%, 01/15/08
- ----------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES-1.00%
Allied Waste North America Inc.
850,000 850,000 Series B, Notes, 8.88%, 04/01/08
- ----------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Gtd. Sub. Global Notes, 8.50%,
4,365,000 4,365,000 12/01/08
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 4,000,000 5,000,000 Sr. Sec. Gtd. Notes, 9.25%, 09/01/12 (a)
- ----------------------------------------------------------------------------------------------------------------------------
515,000 515,000 IESI Corp., Sr. Sub. Notes, 10.25%, 06/15/12
- ----------------------------------------------------------------------------------------------------------------------------
1,280,000 1,280,000 Synagro Technologies, Sr. Sub. Notes, 9.50%, 04/01/09
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS-0.13%
IMC Global Inc.-Series B, Sr. Unsec. Gtd. Notes,
1,450,000 1,450,000 11.25%, 06/01/11
- ----------------------------------------------------------------------------------------------------------------------------
FOOD DISTRIBUTORS-0.66%
Fleming Cos., Inc.,
1,110,000 1,110,000 Sr. Notes, 9.25%, 06/15/10
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 Sr. Unsec. Gtd. Global Notes, 10.13%, 04/01/08
- ----------------------------------------------------------------------------------------------------------------------------
Series D, Sr. Unsec. Gtd. Sub. Global Notes,
3,565,000 3,565,000 10.63%, 07/31/07
- ----------------------------------------------------------------------------------------------------------------------------
Roundy's Inc.,
670,000 3,125,000 3,795,000 Sr. Sub. Notes, Series B, 8.88%, 06/15/12
- ----------------------------------------------------------------------------------------------------------------------------
1,275,000 1,275,000 Series B, Sr. Sub. Notes, 8.88%, 06/15/12 (a)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS-1.62%
Georgia-Pacific Corp.,
1,625,000 1,625,000 Sr. Notes, 9.38%, 02/01/13 (a)
- ----------------------------------------------------------------------------------------------------------------------------
4,935,000 4,935,000 Sr. Unsec. Notes, 8.88%, 02/01/10 (a)
- ----------------------------------------------------------------------------------------------------------------------------
Louisiana-Pacific Corp.,
5,355,000 5,355,000 Sr. Unsec. Notes, 8.50%, 08/15/05
- ----------------------------------------------------------------------------------------------------------------------------
2,610,000 2,610,000 Sr. Unsec. Sub. Notes, 10.88%, 11/15/08
- ----------------------------------------------------------------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada), Sr.
5,180,000 5,180,000 Unsec. Yankee Notes, 9.88%, 05/15/08
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
GENERAL MERCHANDISE STORE-0.73%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub. Notes,
9,500,000 9,500,000 10.25%, 10/15/07
- ----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.63%
1,000,000 2,685,000 3,685,000 AmerisourceBergen Corp., Sr. Notes, 7.25%, 11/15/12 (a)
- ----------------------------------------------------------------------------------------------------------------------------
NDCHealth Corp., Sr. Unsec. Sub. Notes, 10.50%,
2,710,000 2,710,000 12/01/12 (a)
- ----------------------------------------------------------------------------------------------------------------------------
1,150,000 1,150,000 Rotech Healthcare Inc., Sr. Sub. Notes, 9.50%, 04/01/12(a)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
--------------------------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES-2.02%
AES Corp. (The), Sec. Notes, 10.00%, 07/15/05 (a) 1,940,250 3,589,960 5,530,210
- ----------------------------------------------------------------------------------------------------------------------------
Appalachian Power, Notes, 4.80%, 06/15/05 1,137,348 $ - $ 1,137,348
- ----------------------------------------------------------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada), Sr. Unsec.
Gtd. Notes, 8.50%, 05/01/08 2,788,250 2,788,250
- ----------------------------------------------------------------------------------------------------------------------------
CMS Energy Corp.,
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 2,945,500 2,945,500
- ----------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Notes, 6.75%, 01/15/04 775,500 775,500
- ----------------------------------------------------------------------------------------------------------------------------
Consumers Energy, 1st & Refunding Mortgage Notes,
7.38%, 09/15/23 1,758,830 1,758,830
- ----------------------------------------------------------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global Notes,
13.50%, 07/15/08 643,950 3,066,250 3,710,200
- ----------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power, 1st Mortgage, 9.75%, 11/01/05 6,252,103 6,252,103
- ----------------------------------------------------------------------------------------------------------------------------
12,507,981 12,389,960 24,897,941
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.86%
Flextronics International Ltd. (Singapore), Sr. Unsec.
Sub. Yankee Notes, 9.88%, 07/01/10 5,972,400 5,972,400
- ----------------------------------------------------------------------------------------------------------------------------
Sanmina-SCI Corp., Sr. Sec. Notes, 10.38%, 01/15/10 (a) 4,654,000 4,654,000
- ----------------------------------------------------------------------------------------------------------------------------
10,626,400 10,626,400
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS-1.59%
Fisher Scientific International Inc.,
Sr. Sub. Global Notes, 8.13%, 05/01/12 (a) 1,045,000 3,801,000 4,846,000
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.13%, 05/01/12 4,625,737 4,625,737
- ----------------------------------------------------------------------------------------------------------------------------
Knowles Electronics Inc., Sr. Unsec. Gtd. Sub. Notes,
13.13%, 10/15/09 5,891,900 5,891,900
- ----------------------------------------------------------------------------------------------------------------------------
PerkinElmer Inc., Sr. Sub. Notes, 8.88%, 01/15/13 (a) 1,521,000 1,521,000
- ----------------------------------------------------------------------------------------------------------------------------
Solectron Corp., Sr. Unsec. Notes, 9.63%, 02/15/09 2,697,900 2,697,900
- ----------------------------------------------------------------------------------------------------------------------------
2,566,000 17,016,537 19,582,537
- ----------------------------------------------------------------------------------------------------------------------------
EMPLOYMENT SERVICES-0.25%
MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes,
11.38%, 01/15/08 3,108,875 3,108,875
- ----------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES-1.00%
Allied Waste North America Inc.
Series B, Notes, 8.88%, 04/01/08 867,000 867,000
- ----------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Gtd. Sub. Global Notes, 8.50%,
12/01/08 4,430,475 4,430,475
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Sec. Gtd. Notes, 9.25%, 09/01/12 (a) 1,022,500 4,150,000 5,172,500
- ----------------------------------------------------------------------------------------------------------------------------
IESI Corp., Sr. Sub. Notes, 10.25%, 06/15/12 504,700 504,700
- ----------------------------------------------------------------------------------------------------------------------------
Synagro Technologies, Sr. Sub. Notes, 9.50%, 04/01/09 1,344,000 1,344,000
- ----------------------------------------------------------------------------------------------------------------------------
3,738,200 8,580,475 12,318,675
- ----------------------------------------------------------------------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS-0.13%
IMC Global Inc.-Series B, Sr. Unsec. Gtd. Notes,
11.25%, 06/01/11 1,551,500 1,551,500
- ----------------------------------------------------------------------------------------------------------------------------
FOOD DISTRIBUTORS-0.66%
Fleming Cos., Inc.,
Sr. Notes, 9.25%, 06/15/10 765,900 765,900
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.13%, 04/01/08 715,000 715,000
- ----------------------------------------------------------------------------------------------------------------------------
Series D, Sr. Unsec. Gtd. Sub. Global Notes,
10.63%, 07/31/07 1,764,675 1,764,675
- ----------------------------------------------------------------------------------------------------------------------------
Roundy's Inc.,
Sr. Sub. Notes, Series B, 8.88%, 06/15/12 653,250 3,062,594 3,715,844
- ----------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Sub. Notes, 8.88%, 06/15/12 (a) 1,243,125 1,243,125
- ----------------------------------------------------------------------------------------------------------------------------
2,662,275 5,542,269 8,204,544
- ----------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS-1.62%
Georgia-Pacific Corp.,
Sr. Notes, 9.38%, 02/01/13 (a) 1,616,875 1,616,875
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 8.88%, 02/01/10 (a) 4,910,325 4,910,325
- ----------------------------------------------------------------------------------------------------------------------------
Louisiana-Pacific Corp.,
Sr. Unsec. Notes, 8.50%, 08/15/05 5,569,200 5,569,200
- ----------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.88%, 11/15/08 2,831,850 2,831,850
- ----------------------------------------------------------------------------------------------------------------------------
Millar Western Forest Products Ltd. (Canada), Sr.
Unsec. Yankee Notes, 9.88%, 05/15/08 5,050,500 5,050,500
- ----------------------------------------------------------------------------------------------------------------------------
1,616,875 18,361,875 19,978,750
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
GENERAL MERCHANDISE STORE-0.73%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub. Notes,
10.25%, 10/15/07 8,977,500 8,977,500
- ----------------------------------------------------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.63%
AmerisourceBergen Corp., Sr. Notes, 7.25%, 11/15/12 (a) 1,025,000 2,772,262 3,797,262
- ----------------------------------------------------------------------------------------------------------------------------
NDCHealth Corp., Sr. Unsec. Sub. Notes, 10.50%,
12/01/12 (a) 2,791,300 2,791,300
- ----------------------------------------------------------------------------------------------------------------------------
Rotech Healthcare Inc., Sr. Sub. Notes, 9.50%, 04/01/12 (a) 1,150,000 1,150,000
- ----------------------------------------------------------------------------------------------------------------------------
2,175,000 5,563,562 7,738,562
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT- 0.90%
$ -- $ 2,140,000 $ 2,140,000 CONMED Corp., Sr. Unsec. Gtd. Sub. Notes, 9.00%, 03/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
2,650,000 2,650,000 Medquest Inc., Sr. Sub. Notes, 11.88%, 08/15/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Radiologix, Inc.-Series B, Sr. Unsec. Gtd. Global Notes, 10.50%,
3,540,000 3,540,000 12/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
3,420,000 3,420,000 Vicar Operating, Inc., Sr. Unsec. Gtd. Notes, 9.88%, 12/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE FACILITIES- 2.58%
2,140,000 2,140,000 Alderwoods Group, Gtd, Notes, 12.25%, 01/02/09
- ------------------------------------------------------------------------------------------------------------------------------------
2,145,000 2,145,000 Extendicare Health Services, Sr. Notes, 9.50%, 07/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
Hanger Orthopedic Group, Inc.,
4,750,000 4,750,000 Sr. Gtd. Sub. Notes, 11.25%, 06/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 840,000 1,840,000 Sr. Unsec. Gtd. Global Notes, 10.38%, 02/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
Healthsouth Corp, Sr. Notes,
1,670,000 1,670,000 3.25%, 04/01/03
- ------------------------------------------------------------------------------------------------------------------------------------
1,165,000 1,165,000 7.63%, 06/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
8,285,000 8,285,000 Select Medical Corp., Sr. Unsec. Sub. Global Notes, 9.50%, 06/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
Triad Hospitals, Inc.-Series B, Sr. Unsec. Gtd. Global Notes, 8.75%,
2,665,000 2,665,000 05/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
United Surgical Partners International, Inc., Sr. Unsec. Gtd. Sub.
2,100,000 4,275,000 6,375,000 Global Notes, 10.00%, 12/15/11
====================================================================================================================================
====================================================================================================================================
HEALTH CARE SUPPLIES- 0.55%
1,560,000 1,560,000 Advanced Medical Optics, Sr. Sub. Notes, 9.25%, 07/15/10
- ------------------------------------------------------------------------------------------------------------------------------------
5,275,000 5,275,000 DJ Orthopedics LLC, Sr. Unsec. Gtd. Sub. Notes, 12.63%, 06/15/09
====================================================================================================================================
====================================================================================================================================
HOME FURNISHINGS- 0.79%
8,130,000 8,130,000 Sealy Mattress Co.-Series B, Sr. Gtd. Sub. Notes, 9.88%, 12/15/07
- ------------------------------------------------------------------------------------------------------------------------------------
Winsloew Furniture, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 12.75%,
2,025,000 2,025,000 08/15/07
====================================================================================================================================
====================================================================================================================================
HOMEBUILDING- 2.48%
3,515,000 3,515,000 Beazer Homes USA, Inc., Sr. Unsec. Gtd. Notes, 8.38%, 04/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
3,400,000 3,400,000 K Hovnanian Enterprises, Inc., Sr. Unsec. Gtd. Notes, 10.50%, 10/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
4,485,000 4,485,000 KB HOME, Sr. Sub. Notes, 7.75%, 02/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
Ryland Group,
815,000 815,000 Sr. Notes, 9.75%, 09/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 150,000 Sr. Sub. Notes, 8.25%, 04/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
Schuler Homes, Inc.,
3,000,000 3,017,000 6,017,000 Sr. Unsec. Gtd. Global Notes, 10.50%, 07/15/11
- ------------------------------------------------------------------------------------------------------------------------------------
4,050,000 4,050,000 Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 Standard Pacific, Sr. Notes, 8.50%, 04/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
WCI Communities Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.63%,
6,250,000 6,250,000 02/15/11
====================================================================================================================================
====================================================================================================================================
HOTELS, RESORTS & CRUISE LINES- 2.64%
1,805,000 1,805,000 HMH Properties Inc., Sr. Sec. Gtd. Notes, 7.88%, 08/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
Intrawest Corp. (Canada),
1,250,000 1,250,000 Notes, 9.75%, 08/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
405,000 5,990,000 6,395,000 Sr. Unsec. Gtd. Global Notes, 10.50%, 02/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
John Q Hammons Hotels, Inc., Sr. First Mortgage Global Notes, 8.88%,
1,580,000 3,510,000 5,090,000 05/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr. Unsec. Gtd. Sub. Global
4,380,000 4,380,000 Notes, 8.88%, 08/15/11
- ------------------------------------------------------------------------------------------------------------------------------------
Resorts International Hotel and Casino, Inc., Sr. Gtd. Notes, 11.50%,
1,350,000 1,350,000 03/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia), Sr. Unsec. Unsub. Global Notes,
6,920,000 6,920,000 8.75%, 02/02/11
- ------------------------------------------------------------------------------------------------------------------------------------
4,025,000 4,025,000 Starwood Hotels & Resorts Worldwide, Inc., Notes, 7.88%, 05/01/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Wynn Las Vegas LLC/Wynn Las Vegas Capital, 2nd Mortgage, Notes, 12.00%,
1,525,000 1,525,000 11/01/10
====================================================================================================================================
====================================================================================================================================
MARKET VALUE
---------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- --------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT- 0.90%
CONMED Corp., Sr. Unsec. Gtd. Sub. Notes, 9.00%, 03/15/08 $ -- $ 2,214,900 $ 2,214,900
- --------------------------------------------------------------------------------------------------------------------------------
Medquest Inc., Sr. Sub. Notes, 11.88%, 08/15/12 (a) 2,544,000 2,544,000
- --------------------------------------------------------------------------------------------------------------------------------
Radiologix, Inc.-Series B, Sr. Unsec. Gtd. Global Notes, 10.50%,
12/15/08 2,672,700 2,672,700
- --------------------------------------------------------------------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes, 9.88%, 12/01/09 3,744,900 3,744,900
=================================================================================================================================
11,176,500 11,176,500
=================================================================================================================================
HEALTH CARE FACILITIES- 2.58%
Alderwoods Group, Gtd, Notes, 12.25%, 01/02/09 1,974,150 1,974,150
- --------------------------------------------------------------------------------------------------------------------------------
Extendicare Health Services, Sr. Notes, 9.50%, 07/01/10 2,037,750 2,037,750
- --------------------------------------------------------------------------------------------------------------------------------
Hanger Orthopedic Group, Inc.,
Sr. Gtd. Sub. Notes, 11.25%, 06/15/09 4,987,500 4,987,500
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.38%, 02/15/09 1,055,000 890,400 1,945,400
- --------------------------------------------------------------------------------------------------------------------------------
Healthsouth Corp, Sr. Notes,
3.25%, 04/01/03 1,661,650 1,661,650
- --------------------------------------------------------------------------------------------------------------------------------
7.63%, 06/01/12 1,004,812 1,004,812
- --------------------------------------------------------------------------------------------------------------------------------
Select Medical Corp., Sr. Unsec. Sub. Global Notes, 9.50%, 06/15/09 8,740,675 8,740,675
- --------------------------------------------------------------------------------------------------------------------------------
Triad Hospitals, Inc.-Series B, Sr. Unsec. Gtd. Global Notes, 8.75%,
05/01/09 2,864,875 2,864,875
- --------------------------------------------------------------------------------------------------------------------------------
United Surgical Partners International, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.00%, 12/15/11 2,184,000 4,467,375 6,651,375
=================================================================================================================================
9,917,362 21,950,825 31,868,187
=================================================================================================================================
HEALTH CARE SUPPLIES- 0.55%
Advanced Medical Optics, Sr. Sub. Notes, 9.25%, 07/15/10 1,599,000 1,599,000
- --------------------------------------------------------------------------------------------------------------------------------
DJ Orthopedics LLC, Sr. Unsec. Gtd. Sub. Notes, 12.63%, 06/15/09 5,248,625 5,248,625
=================================================================================================================================
1,599,000 5,248,625 6,847,625
=================================================================================================================================
HOME FURNISHINGS- 0.79%
Sealy Mattress Co.-Series B, Sr. Gtd. Sub. Notes, 9.88%, 12/15/07 8,130,000 8,130,000
- --------------------------------------------------------------------------------------------------------------------------------
Winsloew Furniture, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 12.75%,
08/15/07 1,670,625 1,670,625
=================================================================================================================================
9,800,625 9,800,625
=================================================================================================================================
HOMEBUILDING- 2.48%
Beazer Homes USA, Inc., Sr. Unsec. Gtd. Notes, 8.38%, 04/15/12 3,664,388 3,664,388
- --------------------------------------------------------------------------------------------------------------------------------
K Hovnanian Enterprises, Inc., Sr. Unsec. Gtd. Notes, 10.50%, 10/01/07 3,723,000 3,723,000
- --------------------------------------------------------------------------------------------------------------------------------
KB HOME, Sr. Sub. Notes, 7.75%, 02/01/10 4,456,969 4,456,969
- --------------------------------------------------------------------------------------------------------------------------------
Ryland Group,
Sr. Notes, 9.75%, 09/01/10 900,575 900,575
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Sub. Notes, 8.25%, 04/01/08 153,750 153,750
- --------------------------------------------------------------------------------------------------------------------------------
Schuler Homes, Inc.,
Sr. Unsec. Gtd. Global Notes, 10.50%, 07/15/11 3,157,500 3,182,935 6,340,435
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 4,181,625 4,181,625
- --------------------------------------------------------------------------------------------------------------------------------
Standard Pacific, Sr. Notes, 8.50%, 04/01/09 1,020,000 1,020,000
- --------------------------------------------------------------------------------------------------------------------------------
WCI Communities Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.63%,
02/15/11 6,187,500 6,187,500
=================================================================================================================================
5,231,825 25,396,417 30,628,242
=================================================================================================================================
HOTELS, RESORTS & CRUISE LINES- 2.64%
HMH Properties Inc., Sr. Sec. Gtd. Notes, 7.88%, 08/01/08 1,696,700 1,696,700
- --------------------------------------------------------------------------------------------------------------------------------
Intrawest Corp. (Canada),
Notes, 9.75%, 08/15/08 1,275,000 1,275,000
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.50%, 02/01/10 423,225 6,319,450 6,742,675
- --------------------------------------------------------------------------------------------------------------------------------
John Q Hammons Hotels, Inc., Sr. First Mortgage Global Notes, 8.88%,
05/15/12 1,580,000 3,580,200 5,160,200
- --------------------------------------------------------------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/15/11 4,533,300 4,533,300
- --------------------------------------------------------------------------------------------------------------------------------
Resorts International Hotel and Casino, Inc., Sr. Gtd. Notes, 11.50%,
03/15/09 1,235,250 1,235,250
- --------------------------------------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia), Sr. Unsec. Unsub. Global Notes,
8.75%, 02/02/11 6,470,200 6,470,200
- --------------------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., Notes, 7.88%, 05/01/12 (a) 3,994,813 3,994,813
- --------------------------------------------------------------------------------------------------------------------------------
Wynn Las Vegas LLC/Wynn Las Vegas Capital, 2nd Mortgage, Notes, 12.00%,
11/01/10 1,547,875 1,547,875
=================================================================================================================================
6,061,350 26,594,663 32,656,013
=================================================================================================================================
PRINCIPAL AMOUNT
- -----------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD APPLIANCES- 0.47%
$ -- $ 5,850,000 $ 5,850,000 Salton, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.75%, 12/15/05
====================================================================================================================================
HOUSEWARES & SPECIALTIES- 0.09%
1,000,000 1,000,000 Johnson Diversey Inc.-Series B, Sr. Sub. Notes, 9.63%, 05/15/12
====================================================================================================================================
INDUSTRIAL CONGLOMERATES- 0.38%
Tyco International Group S.A. (Luxembourg),
2,232,000 2,232,000 Sr. Gtd. Conv. Putable Notes, 2.75%, 01/15/08 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
2,477,000 2,477,000 Sr. Gtd. Conv. Putable Notes, 3.13%, 01/15/15 (a)
====================================================================================================================================
====================================================================================================================================
INDUSTRIAL GASES- 0.50%
6,255,000 6,255,000 Constar International Inc., Sr. Sub. Notes, 11.00%, 12/01/12
====================================================================================================================================
INDUSTRIAL MACHINERY- 1.10%
856,000 856,000 Actuant Corp., Sr. Unsec. Gtd. Sub. Notes, 13.00%, 05/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
8,000,000 8,000,000 Cabot Safety Corp., Sr. Sub. Notes, 12.50%, 07/15/05
- ------------------------------------------------------------------------------------------------------------------------------------
2,690,000 2,690,000 Manitowoc Co. Inc. (The), Sr. Sub. Notes, 10.50%, 08/01/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1,180,000 1,180,000 National Waterworks, Sr. Sub. Notes, 10.50%, 12/01/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
395,000 395,000 Rexnord Corp., Sr. Sub. Notes, 10.13%, 12/15/12 (a)
====================================================================================================================================
====================================================================================================================================
INTEGRATED OIL & GAS- 1.46%
4,560,000 4,560,000 El Paso CGP Co., Unsec. Notes, 7.75%, 06/15/10
El Paso Energy Partners, L.P.,
- ------------------------------------------------------------------------------------------------------------------------------------
415,000 2,330,000 2,745,000 Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.50%, 06/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
1,140,000 1,140,000 Sr. Sub. Notes, 10.63%, 12/01/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
10,470,000 10,470,000 Sr. Unsec. Gtd. Sub. Notes, 8.50%, 06/01/11 (a)
====================================================================================================================================
====================================================================================================================================
INTEGRATED TELECOMMUNICATION SERVICES- 3.23%
17,365,000 17,365,000 Allegiance Telecom-Series B, Sr. Disc. Notes, 11.75%, 02/15/08 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
10,480,000 10,480,000 AT&T Canada Inc. (Canada), Sr. Disc. Notes, 9.95%, 06/15/08 (b)(c)
- ------------------------------------------------------------------------------------------------------------------------------------
7,250,000 7,250,000 CFW Communications, Sr. Notes, 13.00%. 08/15/10
COLT Telecom Group PLC (United Kingdom), Sr. Disc. Notes, 12.00%,
- ------------------------------------------------------------------------------------------------------------------------------------
4,873,000 4,873,000 12/15/06
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 France Telecom (France), Notes, 9.25%, 03/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
1,660,000 1,660,000 GCI Inc, Sr. Notes, 9.75%, 08/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
17,220,000 Madison River Capital LLC/Madison River Finance Corp., Sr. Unsec.
- ------------------------------------------------------------------------------------------------------------------------------------
6,500,000 10,720,000 17,220,000 Notes, 13.25%, 03/01/10
PTC International Finance II S.A. (Luxembourg), Sr. Unsec. Gtd. Sub.
- ------------------------------------------------------------------------------------------------------------------------------------
6,380,000 6,380,000 Yankee Notes, 11.25%, 12/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 Qwest Services Corp., Sr. Sub. Sec. Notes, 13.00%, 12/15/07 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Unsub. Gtd. Global Notes, 6.13%,
2,000,000 2,000,000 11/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
US West Communications, Notes,
1,500,000 1,500,000 5.65%, 11/01/04
- ------------------------------------------------------------------------------------------------------------------------------------
3,515,000 3,515,000 7.20%, 11/01/04
====================================================================================================================================
====================================================================================================================================
LEISURE FACILITIES- 1.21%
3,830,000 3,830,000 Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%, 12/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
Six Flags, Inc.,
100,000 100,000 Sr. Disc. Notes, 10.00% 04/01/08 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
2,200,000 4,750,000 6,950,000 Sr. Unsec. Global Notes, 8.88%, 02/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
875,000 875,000 Sr. Unsec. Global Notes, 9.50%, 02/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
3,835,000 3,835,000 Sr. Unsec. Notes, 9.75%, 06/15/07
====================================================================================================================================
====================================================================================================================================
MARINE- 0.11%
1,305,000 1,305,000 Stena A.B. (Sweden), Sr. Notes, 9.63%, 12/01/12 (a)
====================================================================================================================================
METAL & GLASS CONTAINERS- 3.05%
1,900,000 1,900,000 AEP Industries Inc., Sr. Unsec. Sub. Notes, 9.88%, 11/15/07
- ------------------------------------------------------------------------------------------------------------------------------------
Anchor Glass Container Corp.,
6,245,000 6,245,000 Sr. Sec. Notes, 11.00%, 02/15/13 (a)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
5,800,000 5,800,000 Sr. Sec. Sub. First Mortgage Notes, 11.25%, 04/01/05
- ------------------------------------------------------------------------------------------------------------------------------------
1,820,000 1,820,000 Ball Corp., Sr. Notes, 6.88%, 12/15/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
----------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ---------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD APPLIANCES- 0.47%
Salton, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.75%, 12/15/05 $ -- $ 5,850,000 $ 5,850,000
=================================================================================================================================
HOUSEWARES & SPECIALTIES- 0.09%
Johnson Diversey Inc.-Series B, Sr. Sub. Notes, 9.63%, 05/15/12 1,050,000 1,050,000
=================================================================================================================================
INDUSTRIAL CONGLOMERATES- 0.38%
Tyco International Group S.A. (Luxembourg),
Sr. Gtd. Conv. Putable Notes, 2.75%, 01/15/08 (a) 2,243,160 2,243,160
- ---------------------------------------------------------------------------------------------------------------------------------
Sr. Gtd. Conv. Putable Notes, 3.13%, 01/15/15 (a) 2,492,481 2,492,481
=================================================================================================================================
4,735,641 4,735,641
=================================================================================================================================
INDUSTRIAL GASES- 0.50%
Constar International Inc., Sr. Sub. Notes, 11.00%, 12/01/12 6,129,900 6,129,900
=================================================================================================================================
INDUSTRIAL MACHINERY- 1.10%
Actuant Corp., Sr. Unsec. Gtd. Sub. Notes, 13.00%, 05/01/09 1,005,800 1,005,800
- ---------------------------------------------------------------------------------------------------------------------------------
Cabot Safety Corp., Sr. Sub. Notes, 12.50%, 07/15/05 8,120,000 8,120,000
- ---------------------------------------------------------------------------------------------------------------------------------
Manitowoc Co. Inc. (The), Sr. Sub. Notes, 10.50%, 08/01/12 (a) 2,837,950 2,837,950
- ---------------------------------------------------------------------------------------------------------------------------------
National Waterworks, Sr. Sub. Notes, 10.50%, 12/01/12 (a) 1,253,750 1,253,750
- ---------------------------------------------------------------------------------------------------------------------------------
Rexnord Corp., Sr. Sub. Notes, 10.13%, 12/15/12 (a) 406,850 406,850
=================================================================================================================================
1,660,600 11,963,750 13,624,350
=================================================================================================================================
INTEGRATED OIL & GAS- 1.46%
El Paso CGP Co., Unsec. Notes, 7.75%, 06/15/10 3,807,600 3,807,600
- ---------------------------------------------------------------------------------------------------------------------------------
El Paso Energy Partners, L.P.,
Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.50%, 06/01/11 406,700 2,283,400 2,690,100
- ---------------------------------------------------------------------------------------------------------------------------------
Sr. Sub. Notes, 10.63%, 12/01/12 (a) 1,219,800 1,219,800
- ---------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Notes, 8.50%, 06/01/11 (a) 10,260,600 10,260,600
=================================================================================================================================
1,626,500 16,351,600 17,978,100
=================================================================================================================================
INTEGRATED TELECOMMUNICATION SERVICES- 3.23%
Allegiance Telecom-Series B, Sr. Disc. Notes, 11.75%, 02/15/08 (b) 3,516,412 3,516,412
- ---------------------------------------------------------------------------------------------------------------------------------
AT&T Canada Inc. (Canada), Sr. Disc. Notes, 9.95%, 06/15/08 (b)(c) 1,781,600 1,781,600
- ---------------------------------------------------------------------------------------------------------------------------------
CFW Communications, Sr. Notes, 13.00%. 08/15/10 1,957,500 1,957,500
- ---------------------------------------------------------------------------------------------------------------------------------
COLT Telecom Group PLC (United Kingdom), Sr. Disc. Notes, 12.00%,
12/15/06 3,411,100 3,411,100
- ---------------------------------------------------------------------------------------------------------------------------------
France Telecom (France), Notes, 9.25%, 03/01/11 1,146,979 1,146,979
- ---------------------------------------------------------------------------------------------------------------------------------
GCI Inc, Sr. Notes, 9.75%, 08/01/07 1,460,800 1,460,800
- ---------------------------------------------------------------------------------------------------------------------------------
Madison River Capital LLC/Madison River Finance Corp., Sr. Unsec
Notes, 13.25%, 03/01/10 4,550,000 7,504,000 12,054,000
PTC International Finance II S.A. (Luxembourg), Sr. Unsec. Gtd. Sub.
Yankee Notes, 11.25%, 12/01/09 6,922,300 6,922,300
Qwest Services Corp., Sr. Sub. Sec. Notes, 13.00%, 12/15/07 (a) 1,035,000 1,035,000
Sprint Capital Corp., Sr. Unsec. Unsub. Gtd. Global Notes, 6.13%,
11/15/08 1,742,500 1,742,500
US West Communications, Notes,
5.65%, 11/01/04 1,410,000 1,410,000
7.20%, 11/01/04 3,453,488 3,453,488
=================================================================================================================================
23,722,879 16,168,800 39,891,679
=================================================================================================================================
LEISURE FACILITIES- 1.21%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%, 12/01/12 3,782,125 3,782,125
Six Flags, Inc.,
Sr. Disc. Notes, 10.00% 04/01/08 (b) 96,000 96,000
Sr. Unsec. Global Notes, 8.88%, 02/01/10 2,051,500 4,441,250 6,492,750
Sr. Unsec. Global Notes, 9.50%, 02/01/09 835,625 835,625
Sr. Unsec. Notes, 9.75%, 06/15/07 3,719,950 3,719,950
=================================================================================================================================
2,147,500 12,778,950 14,926,450
=================================================================================================================================
MARINE- 0.11%
Stena A.B. (Sweden), Sr. Notes, 9.63%, 12/01/12 (a) 1,363,725 1,363,725
=================================================================================================================================
METAL & GLASS CONTAINERS- 3.05%
AEP Industries Inc., Sr. Unsec. Sub. Notes, 9.88%, 11/15/07 1,700,500 1,700,500
- ---------------------------------------------------------------------------------------------------------------------------------
Anchor Glass Container Corp.,
Sr. Sec. Notes, 11.00%, 02/15/13 (a)(d) 6,245,000 6,245,000
- ---------------------------------------------------------------------------------------------------------------------------------
Sr. Sec. Sub. First Mortgage Notes, 11.25%, 04/01/05 5,785,500 5,785,500
- ---------------------------------------------------------------------------------------------------------------------------------
Ball Corp., Sr. Notes, 6.88%, 12/15/12 (a) 1,856,400 1,856,400
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
800,000 800,000 Bway Corp., Sr. Sub. Notes, 10.00%, 10/15/10 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
$ -- $ 6,290,000 $ 6,290,000 Greif Bros. Corp., Sr. Unsec. Sub. Global Notes, 8.88%, 08/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
1,550,000 4,194,000 5,744,000 Jarden Corp., Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 05/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
3,600,000 3,600,000 Owens-Brockway, Sr. Sec. Notes, 8.75%, 11/15/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
4,535,000 4,535,000 Plastipak Holdings Inc., Sr. Unsec. Gtd. Global Notes, 10.75%, 09/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 150,000 Stone Container Corp., Sr. Unsec. Global Notes, 8.38%, 07/01/12
====================================================================================================================================
====================================================================================================================================
MOVIE & ENTERTAINMENT - 1.22%
AMC Entertainment Inc.,
10,330,000 10,330,000 Sr. Unsec. Sub. Notes, 9.50%, 02/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
4,040,000 4,040,000 Sr. Unsec. Sub. Notes, 9.88%, 02/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
1,175,000 1,175,000 Regal Cinemas, Sr. Sub. Notes, 9.38%, 02/01/12 (a)
====================================================================================================================================
====================================================================================================================================
MULTI-UTILITIES & UNREGULATED POWER - 0.78%
Aquila Inc., Sr. Notes,
850,000 850,000 6.88%, 10/01/04 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
345,000 345,000 8.70%, 02/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
1,425,000 1,425,000 14.38%, 07/01/12
Nevada Power-Series E, General & Refunding Mortgage, Notes,
- ------------------------------------------------------------------------------------------------------------------------------------
625,000 625,000 10.88%, 10/15/09 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
3,095,000 3,095,000 Transcontinental Gas Pipe Line, Notes, 6.13%, 01/15/05
- ------------------------------------------------------------------------------------------------------------------------------------
4,105,000 4,105,000 Western Resources Inc., Notes, 6.25%, 08/15/18
====================================================================================================================================
====================================================================================================================================
NATURAL GAS PIPELINES - 0.04%
Plains All American Pipeline LP/Plains All American Pipeline Finance,
495,000 495,000 Sr. Notes, 7.75%, 10/15/12
====================================================================================================================================
OFFICE ELECTRONICS - 0.15%
1,810,000 1,810,000 Xerox Corp., Sr. Notes, 9.75%, 01/15/09 (a)
====================================================================================================================================
OFFICE SERVICES & SUPPLIES - 0.41%
Falcon Products, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 11.38%,
4,230,000 4,230,000 06/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
2,275,000 2,275,000 Mail Well I Corp., Sr. Unsec. Gtd. Notes, 9.63%, 03/15/12
====================================================================================================================================
====================================================================================================================================
OIL & GAS DRILLING - 0.77%
8,765,000 8,765,000 Pride International, Inc., Sr. Unsec. Notes, 10.00%, 06/01/09
====================================================================================================================================
OIL & GAS EQUIPMENT & SERVICES - 1.69%
Grant Prideco Escrow Corp.,
790,000 1,805,000 2,595,000 Sr. Notes, 9.00%, 12/15/09 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1,475,000 1,475,000 Series B, Notes, 9.63%, 12/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
3,600,000 3,600,000 Gulfmark Offshore, Sr. Notes, 8.75, 06/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
5,390,000 5,390,000 Hanover Equipment Trust-Series 2001-A, Sr. Sec. Notes, 8.50%, 09/01/08 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1,165,000 1,165,000 Petroleum Helicopters-Series B, Gtd. Notes, 9.38%, 05/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
6,335,000 6,335,000 SESI, LLC, Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/11
====================================================================================================================================
====================================================================================================================================
OIL & GAS EXPLORATION & PRODUCTION - 2.53%
Chesapeake Energy Corp.,
2,220,000 2,220,000 Sr. Notes, 7.75%, 01/15/15 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
2,720,000 2,720,000 Sr. Unsec. Gtd. Notes, 8.38%, 11/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
1,040,000 1,040,000 Series B, Sr. Notes, 8.50%, 03/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
2,000,000 3,060,000 5,060,000 Comstock Resources, Inc., Sr. Unsec. Gtd. Notes, 11.25%, 05/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
2,995,000 2,995,000 Forest Oil, Sr. Notes, 8.00%, 06/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
2,550,000 2,550,000 Parker & Parsley Petroleum, Sr. Notes, 8.88%, 04/15/05
- ------------------------------------------------------------------------------------------------------------------------------------
4,880,000 4,880,000 Pogo Producing Co.-Series B, Sr. Unsec. Sub. Notes, 10.38%, 02/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
2,200,000 2,200,000 Swift Energy Co., Sr. Unsec. Sub. Notes, 9.38%, 05/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
1,165,000 2,710,000 3,875,000 Westport Resources Corp., Sr. Sub. Notes, 8.25%, 11/01/11 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Vintage Petroleum,
1,685,000 1,685,000 Sr. Notes, 8.25%, 05/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
300,000 300,000 Sr. Sub. Notes, 9.00%, 12/15/05
====================================================================================================================================
====================================================================================================================================
MARKET VALUE
---------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- --------------------------------------------------------------------------------------------------------------------------------
Bway Corp., Sr. Sub. Notes, 10.00%, 10/15/10 (a) 840,000 840,000
- --------------------------------------------------------------------------------------------------------------------------------
Greif Bros. Corp., Sr. Unsec. Sub. Global Notes, 8.88%, 08/01/12 $ -- $ 6,698,850 $ 6,698,850
- --------------------------------------------------------------------------------------------------------------------------------
Jarden Corp., Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 05/01/12 1,608,125 4,372,245 5,980,370
- --------------------------------------------------------------------------------------------------------------------------------
Owens-Brockway, Sr. Sec. Notes, 8.75%, 11/15/12 (a) 3,636,000 3,636,000
- --------------------------------------------------------------------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd. Global Notes, 10.75%, 09/01/11 4,807,100 4,807,100
- --------------------------------------------------------------------------------------------------------------------------------
Stone Container Corp., Sr. Unsec. Global Notes, 8.38%, 07/01/12 156,000 156,000
=================================================================================================================================
2,448,125 35,257,595 37,705,720
=================================================================================================================================
MOVIE & ENTERTAINMENT - 1.22%
AMC Entertainment Inc.,
Sr. Unsec. Sub. Notes, 9.50%, 02/01/11 9,994,275 9,994,275
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 9.88%, 02/01/12 3,858,200 3,858,200
- --------------------------------------------------------------------------------------------------------------------------------
Regal Cinemas, Sr. Sub. Notes, 9.38%, 02/01/12 (a) 1,236,688 1,236,688
=================================================================================================================================
5,094,888 9,994,275 15,089,163
=================================================================================================================================
MULTI-UTILITIES & UNREGULATED POWER - 0.78%
Aquila Inc., Sr. Notes,
6.88%, 10/01/04 (a) 645,996 645,996
- --------------------------------------------------------------------------------------------------------------------------------
8.70%, 02/01/11 235,242 235,242
- --------------------------------------------------------------------------------------------------------------------------------
14.38%, 07/01/12 1,097,250 1,097,250
- --------------------------------------------------------------------------------------------------------------------------------
Nevada Power-Series E, General & Refunding Mortgage, Notes,
10.88%, 10/15/09 (a) 650,000 650,000
- --------------------------------------------------------------------------------------------------------------------------------
Transcontinental Gas Pipe Line, Notes, 6.13%, 01/15/05 3,017,625 3,017,625
- --------------------------------------------------------------------------------------------------------------------------------
Western Resources Inc., Notes, 6.25%, 08/15/18 4,022,900 4,022,900
=================================================================================================================================
6,651,388 3,017,625 9,669,013
=================================================================================================================================
NATURAL GAS PIPELINES - 0.04%
Plains All American Pipeline LP/Plains All American Pipeline Finance,
Sr. Notes, 7.75%, 10/15/12 519,750 519,750
=================================================================================================================================
OFFICE ELECTRONICS - 0.15%
Xerox Corp., Sr. Notes, 9.75%, 01/15/09 (a) 1,873,350 1,873,350
=================================================================================================================================
OFFICE SERVICES & SUPPLIES - 0.41%
Falcon Products, Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 11.38%,
06/15/09 2,982,150 2,982,150
- --------------------------------------------------------------------------------------------------------------------------------
Mail Well I Corp., Sr. Unsec. Gtd. Notes, 9.63%, 03/15/12 2,058,875 2,058,875
=================================================================================================================================
2,058,875 2,982,150 5,041,025
=================================================================================================================================
OIL & GAS DRILLING - 0.77%
Pride International, Inc., Sr. Unsec. Notes, 10.00%, 06/01/09 9,510,025 9,510,025
=================================================================================================================================
OIL & GAS EQUIPMENT & SERVICES - 1.69%
Grant Prideco Escrow Corp.,
Sr. Notes, 9.00%, 12/15/09 (a) 819,625 1,877,200 2,696,825
- --------------------------------------------------------------------------------------------------------------------------------
Series B, Notes, 9.63%, 12/01/07 1,548,750 1,548,750
- --------------------------------------------------------------------------------------------------------------------------------
Gulfmark Offshore, Sr. Notes, 8.75, 06/01/08 3,708,000 3,708,000
- --------------------------------------------------------------------------------------------------------------------------------
Hanover Equipment Trust-Series 2001-A, Sr. Sec. Notes, 8.50%, 09/01/08 (a) 5,120,500 5,120,500
- --------------------------------------------------------------------------------------------------------------------------------
Petroleum Helicopters-Series B, Gtd. Notes, 9.38%, 05/01/09 1,239,269 1,239,269
- --------------------------------------------------------------------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/11 6,556,725 6,556,725
=================================================================================================================================
7,315,644 13,554,425 20,870,069
=================================================================================================================================
OIL & GAS EXPLORATION & PRODUCTION - 2.53%
Chesapeake Energy Corp.,
Sr. Notes, 7.75%, 01/15/15 (a) 2,264,400 2,264,400
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 8.38%, 11/01/08 2,862,800 2,862,800
- --------------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Notes, 8.50%, 03/15/12 1,086,800 1,086,800
- --------------------------------------------------------------------------------------------------------------------------------
Comstock Resources, Inc., Sr. Unsec. Gtd. Notes, 11.25%, 05/01/07 2,150,000 3,304,800 5,454,800
- --------------------------------------------------------------------------------------------------------------------------------
Forest Oil, Sr. Notes, 8.00%, 06/15/08 3,129,775 3,129,775
- --------------------------------------------------------------------------------------------------------------------------------
Parker & Parsley Petroleum, Sr. Notes, 8.88%, 04/15/05 2,755,729 2,755,729
- --------------------------------------------------------------------------------------------------------------------------------
Pogo Producing Co.-Series B, Sr. Unsec. Sub. Notes, 10.38%, 02/15/09 5,294,800 5,294,800
- --------------------------------------------------------------------------------------------------------------------------------
Swift Energy Co., Sr. Unsec. Sub. Notes, 9.38%, 05/01/12 2,189,000 2,189,000
- --------------------------------------------------------------------------------------------------------------------------------
Westport Resources Corp., Sr. Sub. Notes, 8.25%, 11/01/11 (a) 1,229,075 2,872,600 4,101,675
- --------------------------------------------------------------------------------------------------------------------------------
Vintage Petroleum,
Sr. Notes, 8.25%, 05/01/12 1,777,675 1,777,675
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Sub. Notes, 9.00%, 12/15/05 303,000 303,000
=================================================================================================================================
12,432,054 18,788,400 31,220,454
=================================================================================================================================
PRINCIPAL AMOUNT
- -----------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING & TRANSPORTATION- 3.57%
Ferrellgas Partners LP/Ferrellgas Partners Finance, Sr. Notes, 8.75%,
$ 1,935,000 $ -- $ 1,935,000 6/15/12 $ 2,012,400
- ------------------------------------------------------------------------------------------------------------------------------------
10,000,000 10,000,000 Frontier Oil Corp., Sr. Unsec. Sub. Notes, 11.75%, 11/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
5,000,000 5,000,000 Pride International, Sr. Notes, 10.00%, 06/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
Premco Refining Group Inc. (The),
835,000 2,680,000 3,515,000 Sr. Notes, 9.25%, 02/01/10 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1,665,000 3,600,000 5,265,000 Sr. Notes, 9.50%, 02/01/13 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
2,350,000 890,000 3,240,000 Tesoro Petroleum Corp., Sr. Unsec. Sub. Global Notes, 9.63%, 04/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
10,045,000 10,045,000 Texas Petrochemical Corp., Sr. Unsec. Sub. Notes, 11.13%, 07/01/06
- ------------------------------------------------------------------------------------------------------------------------------------
Western Gas Resources, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.00%,
8,000,000 8,000,000 06/15/09
====================================================================================================================================
====================================================================================================================================
PACKAGED FOODS & MEATS- 0.34%
780,000 780,000 Del Monte Foods, Sr. Sub. Notes, 8.63%, 12/15/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
3,445,000 3,445,000 Dole Foods Co., Inc., Sr. Unsec. Global Notes, 7.25%, 05/01/09
====================================================================================================================================
====================================================================================================================================
PAPER PACKAGING- 0.44%
1,700,000 3,425,000 5,125,000 Graphic Packaging Corp., Unsec. Gtd. Sub. Global Notes, 8.63%, 02/15/12
====================================================================================================================================
PAPER PRODUCTS- 0.95%
Appleton Papers Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 12.50%,
1,490,000 1,490,000 12/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
3,570,000 3,570,000 Cascades Inc. (Canada), Sr. Notes, 7.25%, 02/15/13 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
850,000 850,000 Jefferson Smurfit, Sr. Notes, 8.25%, 10/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
1,565,000 1,565,000 MDP Acquisitions PLC (Ireland), Sr. Notes, 9.63%, 10/01/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Tembec Industries Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.75%,
4,255,000 4,255,000 03/15/12
====================================================================================================================================
====================================================================================================================================
PERSONAL PRODUCTS- 1.38%
3,160,000 3,160,000 Armkel LLC, Sr. Sub. Global Notes, 9.50%, 08/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
8,045,000 8,045,000 Elizabeth Arden, Inc., Sr. Sec. Global Notes, 11.75%, 02/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
425,000 4,520,000 4,945,000 Herbalife International, Inc., Sr. Sub. Notes, 11.75%, 07/15/10 (a)
====================================================================================================================================
====================================================================================================================================
PHARMACEUTICALS- 1.66%
2,550,000 10,240,000 12,790,000 aaiPharma Inc., Sr. Unsec. Gtd. Sub. Global Notes, 11.00%, 04/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
7,010,000 7,010,000 Biovail Corp. (Canada), Sr. Sub. Yankee Notes, 7.88%, 04/01/10
====================================================================================================================================
====================================================================================================================================
PUBLISHING - 1.60%
American Media Operations, Inc.
4,350,000 4,350,000 Series B, Sr. Unsec. Gtd. Sub. Global Notes, 10.25%, 05/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
1,245,000 1,245,000 Sr. Sub. Notes, 8.88%, 01/15/11 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
Dex Media East LLC,
1,175,000 2,660,000 3,835,000 Sr. Notes, 9.88%, 11/15/09 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
400,000 400,000 Sr. Notes, 9.88%, 11/15/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
815,000 815,000 Hollinger International Publishing, Sr. Notes, 9.00%, 12/15/10 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1,665,000 1,665,000 Houghton Mifflin, Sr. Notes, 8.25%, 02/01/11 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 Nebraska Book Co., Sr. Sub. Notes, 8.75%, 02/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
PRIMEDIA Inc.,
1,000,000 1,000,000 Sr. Notes, 10.25%, 06/01/04
- ------------------------------------------------------------------------------------------------------------------------------------
4,910,000 4,910,000 Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/11
====================================================================================================================================
====================================================================================================================================
RAILROADS- 1.42%
Kansas City Southern Railway, Sr. Unsec. Gtd. Global Notes, 9.50%,
5,739,000 5,739,000 10/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec. Gtd. Sub. Notes, 12.88%,
5,560,000 5,560,000 08/15/10
- ------------------------------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr. Unsec. Gtd. Yankee Deb., 11.75%,
5,858,000 5,858,000 06/15/09
====================================================================================================================================
====================================================================================================================================
REAL ESTATE - 1.12%
Host Marriott LP
MARKET VALUE
---------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING & TRANSPORTATION- 3.57%
Ferrellgas Partners LP/Ferrellgas Partners Finance, Sr. Notes, 8.75%,
6/15/12 $ 2,012,400 $ -- $ 2,012,400
- --------------------------------------------------------------------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Sub. Notes, 11.75%, 11/15/09 10,600,000 10,600,000
- --------------------------------------------------------------------------------------------------------------------------------
Pride International, Sr. Notes, 10.00%, 06/01/09 5,400,000 5,400,000
- --------------------------------------------------------------------------------------------------------------------------------
Premco Refining Group Inc. (The),
Sr. Notes, 9.25%, 02/01/10 (a) 837,088 2,700,100 3,537,188
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Notes, 9.50%, 02/01/13 (a) 1,669,163 3,627,000 5,296,163
- --------------------------------------------------------------------------------------------------------------------------------
Tesoro Petroleum Corp., Sr. Unsec. Sub. Global Notes, 9.63%, 04/01/12 1,527,500 582,950 2,110,450
- --------------------------------------------------------------------------------------------------------------------------------
Texas Petrochemical Corp., Sr. Unsec. Sub. Notes, 11.13%, 07/01/06 6,479,025 6,479,025
- --------------------------------------------------------------------------------------------------------------------------------
Western Gas Resources, Inc., Sr. Unsec. Gtd. Sub. Notes, 10.00%,
06/15/09 8,600,000 8,600,000
=================================================================================================================================
11,446,151 32,589,075 44,035,226
=================================================================================================================================
PACKAGED FOODS & MEATS- 0.34%
Del Monte Foods, Sr. Sub. Notes, 8.63%, 12/15/12 (a) 803,400 803,400
- --------------------------------------------------------------------------------------------------------------------------------
Dole Foods Co., Inc., Sr. Unsec. Global Notes, 7.25%, 05/01/09 3,350,263 3,350,263
=================================================================================================================================
803,400 3,350,263 4,153,663
=================================================================================================================================
PAPER PACKAGING- 0.44%
Graphic Packaging Corp., Unsec. Gtd. Sub. Global Notes, 8.63%, 02/15/12 1,785,000 3,647,625 5,432,625
=================================================================================================================================
PAPER PRODUCTS- 0.95%
Appleton Papers Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 12.50%,
12/15/08 1,646,450 1,646,450
- --------------------------------------------------------------------------------------------------------------------------------
Cascades Inc. (Canada), Sr. Notes, 7.25%, 02/15/13 (a) 3,570,000 3,570,000
- --------------------------------------------------------------------------------------------------------------------------------
Jefferson Smurfit, Sr. Notes, 8.25%, 10/01/12 873,375 873,375
- --------------------------------------------------------------------------------------------------------------------------------
MDP Acquisitions PLC (Ireland), Sr. Notes, 9.63%, 10/01/12 (a) 1,619,775 1,619,775
- --------------------------------------------------------------------------------------------------------------------------------
Tembec Industries Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.75%,
03/15/12 4,042,250 4,042,250
=================================================================================================================================
4,139,600 7,612,250 11,751,850
=================================================================================================================================
PERSONAL PRODUCTS- 1.38%
Armkel LLC, Sr. Sub. Global Notes, 9.50%, 08/15/09 3,444,400 3,444,400
- --------------------------------------------------------------------------------------------------------------------------------
Elizabeth Arden, Inc., Sr. Sec. Global Notes, 11.75%, 02/01/11 8,447,250 8,447,250
- --------------------------------------------------------------------------------------------------------------------------------
Herbalife International, Inc., Sr. Sub. Notes, 11.75%, 07/15/10 (a) 442,000 4,723,400 5,165,400
=================================================================================================================================
442,000 16,615,050 17,057,050
=================================================================================================================================
PHARMACEUTICALS- 1.66%
aaiPharma Inc., Sr. Unsec. Gtd. Sub. Global Notes, 11.00%, 04/01/10 2,652,000 10,596,498 13,248,498
- --------------------------------------------------------------------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee Notes, 7.88%, 04/01/10 7,220,300 7,220,300
=================================================================================================================================
2,652,000 17,816,798 20,468,798
=================================================================================================================================
PUBLISHING - 1.60%
American Media Operations, Inc.
Series B, Sr. Unsec. Gtd. Sub. Global Notes, 10.25%, 05/01/09 4,654,500 4,654,500
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Sub. Notes, 8.88%, 01/15/11 (a) 1,276,125 1,276,125
- --------------------------------------------------------------------------------------------------------------------------------
Dex Media East LLC,
Sr. Notes, 9.88%, 11/15/09 (a) 1,251,375 2,839,550 4,090,925
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Notes, 9.88%, 11/15/12 (a) 441,000 441,000
- --------------------------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Sr. Notes, 9.00%, 12/15/10 (a) 851,675 851,675
- --------------------------------------------------------------------------------------------------------------------------------
Houghton Mifflin, Sr. Notes, 8.25%, 02/01/11 (a) 1,702,463 1,702,463
- --------------------------------------------------------------------------------------------------------------------------------
Nebraska Book Co., Sr. Sub. Notes, 8.75%, 02/15/08 997,500 997,500
- --------------------------------------------------------------------------------------------------------------------------------
PRIMEDIA Inc.,
Sr. Notes, 10.25%, 06/01/04 1,005,000 1,005,000
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/11 4,689,050 4,689,050
=================================================================================================================================
7,525,138 12,183,100 19,708,238
=================================================================================================================================
RAILROADS- 1.42%
Kansas City Southern Railway, Sr. Unsec. Gtd. Global Notes, 9.50%,
10/01/08 6,341,595 6,341,595
- --------------------------------------------------------------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec. Gtd. Sub. Notes, 12.88%,
08/15/10 5,671,200 5,671,200
- --------------------------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V. (Mexico), Sr. Unsec. Gtd. Yankee Deb., 11.75%,
06/15/09 5,477,230 5,477,230
=================================================================================================================================
17,490,025 17,490,025
=================================================================================================================================
REAL ESTATE - 1.12%
Host Marriott LP
PRINCIPAL AMOUNT
- -----------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
300,000 300,000 Series E, Sr. Sec. Gtd. Notes, 8.38%, 02/15/06
- ------------------------------------------------------------------------------------------------------------------------------------
2,845,000 2,845,000 Series G, Sr. Gtd. Global Notes, 9.25%, 10/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,000,000 $ 2,035,000 $ 3,035,000 Series I, Unsec. Gtd. Global Notes, 9.50%, 01/15/07
- ------------------------------------------------------------------------------------------------------------------------------------
570,000 570,000 iStar Financial Inc., Sr. Unsec. Notes, 8.75%, 08/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
5,320,000 5,320,000 MeriStar Hospitality Corp., Sr. Unsec. Gtd. Notes, 9.13%, 01/15/11
- ------------------------------------------------------------------------------------------------------------------------------------
980,000 980,000 RFS Partnership LP, Sr. Unsec. Gtd. Global Notes, 9.75%, 03/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
1,525,000 1,525,000 Ventas Realty LP/Ventas Capital, Sr. Notes, 8.75%, 5/01/09
====================================================================================================================================
====================================================================================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT- 0.09%
1,000,000 1,000,000 Corrections Corp. of America, Sr. Notes, 9.88%, 05/01/09 (a)
====================================================================================================================================
RESTAURANTS- 0.07%
Perkins Family Restaurants, L.P.-Series B, Sr. Unsec. Notes, 10.13%,
970,000 970,000 12/15/07
====================================================================================================================================
SEMICONDUCTORS- 0.29%
4,515,000 4,515,000 ON Semiconductor Corp., Sr. Sec. Gtd. Notes, 12.00%, 05/15/08 (a)
====================================================================================================================================
SPECIALTY CHEMICALS- 0.84%
830,000 830,000 Macdermid Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.13%, 07/15/11
- ------------------------------------------------------------------------------------------------------------------------------------
1,285,000 4,935,000 6,220,000 Millennium America, Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
4,485,000 4,485,000 OM Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 12/15/11
====================================================================================================================================
====================================================================================================================================
SPECIALTY STORES- 2.74%
Advance Stores Co., Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 10.25%,
7,655,000 7,655,000 04/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
900,000 900,000 Cole National Group, Inc., Sr. Sub. Notes, 8.88%, 05/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
3,100,000 3,100,000 CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes, 12.00%, 06/15/06
- ------------------------------------------------------------------------------------------------------------------------------------
780,000 780,000 Hollywood Entertainment, Sr. Sub. Notes, 9.63%, 03/15/11
- ------------------------------------------------------------------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.75%,
4,390,000 4,390,000 11/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
2,160,000 2,160,000 Petro Stopping Centers LP, Sr. Unsec. Notes, 10.50%, 02/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
400,000 400,000 Sonic Automotive-Series D, Sr. Sub. Notes, 11.00%, 08/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
1,850,000 1,850,000 United Auto Group, Sr. Sub. Notes, 9.63%, 3/15/12 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
United Rentals North America Inc.
6,035,000 6,035,000 Series B, Sr. Sub. Notes, 8.80%, 08/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
4,085,000 4,085,000 Series B, Sr. Unsec. Gtd. Global Notes, 10.75%, 04/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
2,710,000 2,710,000 Sr. Unsec. Gtd. Notes, 10.75%, 04/15/08 (a)
====================================================================================================================================
====================================================================================================================================
STEEL- 0.23%
2,765,000 2,765,000 Steel Dynamics, Sr. Notes, 9.50%, 03/15/09
====================================================================================================================================
TEXTILES- 0.13%
1,500,000 1,500,000 Simmons Co.-Series B, Sr. Sub. Notes, 10.25%, 03/15/09
====================================================================================================================================
TRUCKING- 0.84%
Avis Group Holdings, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 11.00%,
3,005,000 3,005,000 05/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
North American Van Lines Inc., Sr. Unsec. Gtd. Sub. Global Notes,
6,825,000 6,825,000 13.38%, 12/01/09
====================================================================================================================================
====================================================================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 3.67%
5,745,000 5,745,000 AirGate PCS, Inc., Sr. Sub. Disc. Notes, 13.50%, 10/01/09 (b)(e)
- ------------------------------------------------------------------------------------------------------------------------------------
2,725,000 2,725,000 Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc. Notes, 12.88%, 02/15/10 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
4,500,000 4,500,000 Crown Castle International Corp., Sr. Notes, 9.38%, 08/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
4,035,000 4,035,000 American Tower Escrow Corp., Sr. Sub. Disc. Notes, 12.26%, 08/01/08 (a)(e)(f)
- ------------------------------------------------------------------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc. Global Notes, 14.00%,
4,865,000 4,865,000 10/01/10 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
5,760,000 5,760,000 iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%, 07/15/10 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
10,020,000 10,020,000 IWO Holdings, Inc., Sr. Unsec. Gtd. Global Notes, 14.00%, 01/15/11
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- --------------------------------------------------------------------------------------------------------------------------------
Series E, Sr. Sec. Gtd. Notes, 8.38%, 02/15/06 295,500 295,500
- --------------------------------------------------------------------------------------------------------------------------------
Series G, Sr. Gtd. Global Notes, 9.25%, 10/01/07 2,859,225 2,859,225
- --------------------------------------------------------------------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes, 9.50%, 01/15/07 $ 990,000 $ 2,065,525 $ 3,055,525
- --------------------------------------------------------------------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes, 8.75%, 08/15/08 601,350 601,350
- --------------------------------------------------------------------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd. Notes, 9.13%, 01/15/11 4,362,400 4,362,400
- --------------------------------------------------------------------------------------------------------------------------------
RFS Partnership LP, Sr. Unsec. Gtd. Global Notes, 9.75%, 03/01/12 999,600 999,600
- --------------------------------------------------------------------------------------------------------------------------------
Ventas Realty LP/Ventas Capital, Sr. Notes, 8.75%, 5/01/09 1,608,875 1,608,875
================================================================================================================================
2,598,875 11,183,600 13,782,475
================================================================================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT- 0.09%
Corrections Corp. of America, Sr. Notes, 9.88%, 05/01/09 (a) 1,065,000 1,065,000
================================================================================================================================
RESTAURANTS- 0.07%
Perkins Family Restaurants, L.P.-Series B, Sr. Unsec. Notes, 10.13%,
12/15/07 873,000 873,000
================================================================================================================================
SEMICONDUCTORS- 0.29%
ON Semiconductor Corp., Sr. Sec. Gtd. Notes, 12.00%, 05/15/08 (a) 3,634,575 3,634,575
================================================================================================================================
SPECIALTY CHEMICALS- 0.84%
Macdermid Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.13%, 07/15/11 900,550 900,550
- --------------------------------------------------------------------------------------------------------------------------------
Millennium America, Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/08 1,342,825 5,113,894 6,456,719
- --------------------------------------------------------------------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 12/15/11 3,027,375 3,027,375
================================================================================================================================
1,342,825 9,041,819 10,384,644
================================================================================================================================
SPECIALTY STORES- 2.74%
Advance Stores Co., Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes, 10.25%,
04/15/08 8,114,300 8,114,300
- --------------------------------------------------------------------------------------------------------------------------------
Cole National Group, Inc., Sr. Sub. Notes, 8.88%, 05/15/12 846,000 846,000
- --------------------------------------------------------------------------------------------------------------------------------
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes, 12.00%, 06/15/06 3,301,500 3,301,500
- --------------------------------------------------------------------------------------------------------------------------------
Hollywood Entertainment, Sr. Sub. Notes, 9.63%, 03/15/11 772,200 772,200
- --------------------------------------------------------------------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.75%,
11/01/11 4,829,000 4,829,000
- --------------------------------------------------------------------------------------------------------------------------------
Petro Stopping Centers LP, Sr. Unsec. Notes, 10.50%, 02/01/07 2,062,800 2,062,800
- --------------------------------------------------------------------------------------------------------------------------------
Sonic Automotive-Series D, Sr. Sub. Notes, 11.00%, 08/01/08 420,000 420,000
- --------------------------------------------------------------------------------------------------------------------------------
United Auto Group, Sr. Sub. Notes, 9.63%, 3/15/12 (a) 1,813,000 1,813,000
- --------------------------------------------------------------------------------------------------------------------------------
United Rentals North America Inc.
Series B, Sr. Sub. Notes, 8.80%, 08/15/08 4,888,350 4,888,350
- --------------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Global Notes, 10.75%, 04/15/08 4,064,575 4,064,575
- --------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 10.75%, 04/15/08 (a) 2,696,450 2,696,450
================================================================================================================================
8,739,550 25,068,625 33,808,175
================================================================================================================================
STEEL- 0.23%
Steel Dynamics, Sr. Notes, 9.50%, 03/15/09 2,889,425 2,889,425
================================================================================================================================
TEXTILES- 0.13%
Simmons Co.-Series B, Sr. Sub. Notes, 10.25%, 03/15/09 1,612,500 1,612,500
================================================================================================================================
TRUCKING- 0.84%
Avis Group Holdings, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 11.00%,
05/01/09 3,358,088 3,358,088
- --------------------------------------------------------------------------------------------------------------------------------
North American Van Lines Inc., Sr. Unsec. Gtd. Sub. Global Notes,
13.38%, 12/01/09 6,995,625 6,995,625
================================================================================================================================
10,353,713 10,353,713
================================================================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 3.67%
AirGate PCS, Inc., Sr. Sub. Disc. Notes, 13.50%, 10/01/09 (b)(e) 545,775 545,775
- --------------------------------------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., Sr. Unsec. Gtd. Disc. Notes, 12.88%, 02/15/10 (b) 545,000 545,000
- --------------------------------------------------------------------------------------------------------------------------------
Crown Castle International Corp., Sr. Notes, 9.38%, 08/01/11 3,690,000 3,690,000
- --------------------------------------------------------------------------------------------------------------------------------
American Tower Escrow Corp., Sr. Sub. Disc. Notes, 12.26%, 08/01/08 (a)(e)(f) 2,400,825 2,400,825
- --------------------------------------------------------------------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc. Global Notes, 14.00%,
10/01/10 (b) 267,575 267,575
- --------------------------------------------------------------------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%, 07/15/10 (b) 259,200 259,200
- --------------------------------------------------------------------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Global Notes, 14.00%, 01/15/11 1,853,700 1,853,700
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- --------------------------------------------------------------------------------------
Nextel Communications, Sr. Notes,
$ 2,305,000 - $ 2,305,000 9.38%, 11/15/09
- --------------------------------------------------------------------------------------
800,000 800,000 9.50%, 02/01/11
- --------------------------------------------------------------------------------------
9,705,000 9,705,000 12.00%, 11/01/08
- --------------------------------------------------------------------------------------
NII Holdings Ltd., Sr. Sec. Disc.
1,012,189 1,012,189 Notes, 13.00%, 11/01/09 (b)
- --------------------------------------------------------------------------------------
Rural Cellular Corp., Sr. Sub. Notes,
3,425,000 3,425,000 9.75%, 01/15/10
- --------------------------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
7,860,000 7,860,000 08/15/10
- --------------------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec.
5,105,000 5,105,000 Global Notes, 10.25%, 02/01/09
- --------------------------------------------------------------------------------------
Spectrasite Holdings, Inc.,
8,555,000 8,555,000 Sr. Disc. Notes, 12.00%, 07/15/08 (b)
- --------------------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%,
1,490,000 1,490,000 04/15/09 (b)
- --------------------------------------------------------------------------------------
Tritel PCS Inc.,
40,000 40,000 Sr. Sub. Disc. Notes, 11%, 05/01/08 (b)
- --------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Disc. Notes,
2,690,000 2,690,000 12.75%, 05/15/09 (b)
- --------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes,
2,679,000 2,679,000 10.38%, 01/15/11
- --------------------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec.
3,800,000 7,980,000 11,780,000 Gtd. Disc. Notes, 14.00%, 04/15/10 (b)
- --------------------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec.
Gtd. Sub. Disc. Notes, 13.38%,
4,575,000 4,580,000 9,155,000 11/01/09 (b)
- --------------------------------------------------------------------------------------
VoiceStream Wireless, Sr. Notes,
2,999,000 2,999,000 10.38%, 11/15/09
======================================================================================
======================================================================================
Total Bonds & Notes
(Cost $1,287,099,544)
======================================================================================
STOCKS & OTHER EQUITY INTERESTS- 1.27%
BROADCASTING & CABLE TV- 0.44%
500 500 Cumulus Media-Series A, 13.75% Pfd PIK
- --------------------------------------------------------------------------------------
18,000 18,000 CSC Holdings Inc. $11.75 Conv. Pfd. (a)
- --------------------------------------------------------------------------------------
17,750 17,750 CSC Holdings Inc.-Series M, 11.13% Pfd.
- --------------------------------------------------------------------------------------
91,503 91,503 NTL Inc. (g)
======================================================================================
======================================================================================
ELECTRIC UTILITIES- 0.15%
Alliant Energy Resources , $ 7.25
76,000 76,000 Conv. Pfd. (a)
======================================================================================
INTEGRATED TELECOMMUNICATION
SERVICES- 0.02%
132,775 132,775 Focal communications (g)
- --------------------------------------------------------------------------------------
52,873 52,873 McLeod USA Inc.-Class A, Pfd. (g)
- --------------------------------------------------------------------------------------
34,072 34,072 XO Communications
======================================================================================
======================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 0.66%
1,670,000 1,670,000 American Tower Escrow Corp -Unit
- --------------------------------------------------------------------------------------
Nextel Communications-Series E
5,836 5,836 11.13%PIK Pfd.
- --------------------------------------------------------------------------------------
109,549 109,549 NII Holdings-Class B (g)
======================================================================================
======================================================================================
Total Stocks & Other Equity Interests
(Cost $25,763,196)
======================================================================================
WARRANTS & OTHER EQUITY INTERESTS- 1.96%
BROADCASTING & CABLE TV- 0.87%
Cablevision Systems New York Group
35,680 35,680 Series H, 11.75% Pfd.
- --------------------------------------------------------------------------------------
69,120 69,120 Series M, 11.13% PIK Pfd.
- --------------------------------------------------------------------------------------
Knology Inc
605,183 605,183 Series D, Conv. Pfd. (a)(g)
- --------------------------------------------------------------------------------------
47,295 47,295 Wts., expiring 10/22/07 (a)(d)(h)
- --------------------------------------------------------------------------------------
United Pan-Europe Communications N.V.
6,593 6,593 (Netherlands)-Rts., expiring 02/14/03 (d)(g)
- --------------------------------------------------------------------------------------
XM Satellite Radio-Wts. , expiring
3,750 3,750 03/15/10 (a)(g)
======================================================================================
======================================================================================
CONSTRUCTIONAL MATERIALS- 0.00%
Dayton Superior -Wts., expiring
9,580 9,580 06/15/09 (a)(h)
======================================================================================
DERIVATIVES- 0.00%
17,100 17,100 Wam!Net-Wts., expiring 03/01/05 (a)(g)
======================================================================================
<Caption>
MARKET VALUE
-------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ----------------------------------------------------------------------------------------------
Nextel Communications, Sr. Notes,
9.38%, 11/15/09 $ 2,218,563 $ - $ 2,218,563
- ----------------------------------------------------------------------------------------------
9.50%, 02/01/11 768,000 768,000
- ----------------------------------------------------------------------------------------------
12.00%, 11/01/08 10,141,725 10,141,725
- ----------------------------------------------------------------------------------------------
NII Holdings Ltd., Sr. Sec. Disc.
Notes, 13.00%, 11/01/09 (b) 779,385 779,385
- ----------------------------------------------------------------------------------------------
Rural Cellular Corp., Sr. Sub. Notes,
9.75%, 01/15/10 2,140,625 2,140,625
- ----------------------------------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
08/15/10 2,240,100 2,240,100
- ----------------------------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec.
Global Notes, 10.25%, 02/01/09 3,190,625 3,190,625
- ----------------------------------------------------------------------------------------------
Spectrasite Holdings, Inc.,
Sr. Disc. Notes, 12.00%, 07/15/08 (b) 3,229,513 3,229,513
- ----------------------------------------------------------------------------------------------
Sr. Unsec. Disc. Notes, 11.25%,
04/15/09 (b) 521,500 521,500
- ----------------------------------------------------------------------------------------------
Tritel PCS Inc.,
Sr. Sub. Disc. Notes, 11%, 05/01/08 (b) 34,800 34,800
- ----------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Disc. Notes,
12.75%, 05/15/09 (b) 2,595,850 2,595,850
- ----------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes,
10.38%, 01/15/11 2,980,388 2,980,388
- ----------------------------------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec.
Gtd. Disc. Notes, 14.00%, 04/15/10 (b) 228,000 518,700 746,700
- ----------------------------------------------------------------------------------------------
US Unwired Inc.-Series B, Sr. Unsec.
Gtd. Sub. Disc. Notes, 13.38%,
11/01/09 (b) 468,937 480,900 949,837
- ----------------------------------------------------------------------------------------------
VoiceStream Wireless, Sr. Notes,
10.38%, 11/15/09 3,261,412 3,261,412
==============================================================================================
13,589,722 31,771,376 45,361,098
==============================================================================================
Total Bonds & Notes
(Cost $1,287,099,544) 253,269,476 883,908,598 1,137,178,074
==============================================================================================
STOCKS & OTHER EQUITY INTERESTS- 1.27%
BROADCASTING & CABLE TV- 0.44%
Cumulus Media-Series A, 13.75% Pfd PIK 559,375 559,375
- ----------------------------------------------------------------------------------------------
CSC Holdings Inc. $11.75 Conv. Pfd. (a) 1,755,000 1,755,000
- ----------------------------------------------------------------------------------------------
CSC Holdings Inc.-Series M, 11.13% Pfd. 1,712,875 1,712,875
- ----------------------------------------------------------------------------------------------
NTL Inc. (g) 1,278,297 1,278,297
==============================================================================================
5,305,547 5,305,547
==============================================================================================
ELECTRIC UTILITIES- 0.15%
Alliant Energy Resources , $ 7.25
Conv. Pfd. (a) 1,900,000 1,900,000
==============================================================================================
INTEGRATED TELECOMMUNICATION
SERVICES- 0.02%
Focal communications (g) 6,639 6,639
- ----------------------------------------------------------------------------------------------
McLeod USA Inc.-Class A, Pfd. (g) 173,423 173,423
- ----------------------------------------------------------------------------------------------
XO Communications 124,363 124,363
==============================================================================================
304,425 304,425
==============================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 0.66%
American Tower Escrow Corp -Unit 981,125 981,125
- ----------------------------------------------------------------------------------------------
Nextel Communications-Series E
11.13%PIK Pfd. 5,544,200 5,544,200
- ----------------------------------------------------------------------------------------------
NII Holdings-Class B (g) 1,676,100 1,676,100
==============================================================================================
8,201,425 8,201,425
==============================================================================================
Total Stocks & Other Equity Interests
(Cost $25,763,196) 15,711,397 15,711,397
==============================================================================================
WARRANTS & OTHER EQUITY INTERESTS- 1.96%
BROADCASTING & CABLE TV- 0.87%
Cablevision Systems New York Group
Series H, 11.75% Pfd. 3,478,800 3,478,800
- ----------------------------------------------------------------------------------------------
Series M, 11.13% PIK Pfd. 6,808,320 6,808,320
- ----------------------------------------------------------------------------------------------
Knology Inc
Series D, Conv. Pfd. (a)(g) 453,887 453,887
- ----------------------------------------------------------------------------------------------
Wts., expiring 10/22/07 (a)(d)(h) 0 -
- ----------------------------------------------------------------------------------------------
United Pan-Europe Communications N.V.
(Netherlands)-Rts., expiring 02/14/03 (d)(g) 0 -
- ----------------------------------------------------------------------------------------------
XM Satellite Radio-Wts. , expiring
03/15/10 (a)(g) 937 937
==============================================================================================
937 10,741,007 10,741,944
==============================================================================================
CONSTRUCTIONAL MATERIALS- 0.00%
Dayton Superior -Wts., expiring
06/15/09 (a)(h) 4,790 4,790
==============================================================================================
DERIVATIVES- 0.00%
Wam!Net-Wts., expiring 03/01/05 (a)(g) 171 171
==============================================================================================
PRINCIPAL AMOUNT
- -----------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES- 0.01%
Travelcenters of America Inc.-Wts.,
$ - $ 13,500 $ 13,500 expiring 05/01/09 (a)(h)
==========================================================================================
HOME FURNISHINGS- 0.00%
O'Sullivan Industries, Inc.
20,195 20,195 Series B-Pfd. Wts.,expiring 11/15/09 (a)(h)
- ------------------------------------------------------------------------------------------
20,195 20,195 Wts., expiring 11/15/09 (a)(h)
- ------------------------------------------------------------------------------------------
Winsloew Escrow Corp.-Wts.,
2,025 2,025 expiring 08/15/07 (a)(h)
==========================================================================================
==========================================================================================
INTEGRATED TELECOMMUNICATION SERVICES- 0.00%
KMC Telecom Holdings, Inc. -Wts.,
35 35 expiring 04/15/08 (h)
- ------------------------------------------------------------------------------------------
McLeod USA Inc.-Class A-Wts.,
117,164 117,164 expiring 04/16/07 (g)
- ------------------------------------------------------------------------------------------
XO Communications- Rts.,
10,600,000 10,600,000 expiring 04/15/08 (g)
- ------------------------------------------------------------------------------------------
5,650,000 5,650,000 expiring 11/15/08 (g)
- ------------------------------------------------------------------------------------------
16,065,000 16,065,000 expiring 04/15/06 (g)
- ------------------------------------------------------------------------------------------
3,825,000 3,825,000 expiring 10/01/07 (g)
==========================================================================================
==========================================================================================
RAILROADS- 0.00%
14,375 14,375 Railamerica Inc.-Wts., expiring 08/15/10 (a)(h)
- ------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT- 0.00%
Loral Space & Communications, Ltd.-Wts.,
68,302 68,302 expiring 12/26/06 (h)
==========================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 1.09%
2,276,400 2,276,400 Celcaribe S.A., Ordinary Trust Ctfs. (a)(d)(g)
- ------------------------------------------------------------------------------------------
22,658 22,658 Dobson Communications Corp.-12.25% PIK Pfd.
- ------------------------------------------------------------------------------------------
27,480 27,480 Horizon PCS, Inc.-Wts., expiring 10/01/1 0 (a)(h)
- ------------------------------------------------------------------------------------------
5,880 5,880 iPCS, Inc.-Wts., expiring 07/15/10 (a)(h)
- ------------------------------------------------------------------------------------------
13,320 13,320 IWO Holdings Inc.-Wts., expiring 01/15/11 (a)(h)
- ------------------------------------------------------------------------------------------
16,500 15,155 31,655 NTELOS Inc.-Wts., expiring 08/15/10 (a)(h)
- ------------------------------------------------------------------------------------------
25,910 25,910 Ubiquitel Inc.-Wts., expiring 04/15/10 (a)(h)
==========================================================================================
==========================================================================================
Total Warrants & Other Equity Interests
(Cost $30,350,052)
==========================================================================================
SHORT-TERM INVESTMENTS- 0.81%
CORPORATE BONDS
American General Finance, 1.28%, 02/03/03
10,000,000 10,000,000 (Cost $10,000,000)
==========================================================================================
REPURCHASE AGREEMENTS- 0.17% (i)
State Street Bank & Trust
2,052,000 2,052,000 1.22%, 02/03/03 (Cost $2,052,000) (j)
==========================================================================================
MONEY MARKET FUNDS- 2.16%
13,333,553 13,333,553 STIC Liquid Assets Portfolio (k)
13,333,553 13,333,553 STIC Prime Portfolio (k)
==========================================================================================
Total Money Market Funds (Cost $26,667,106)
==========================================================================================
TOTAL INVESTMENTS - (COST $1,381,931,898) - 98.45%
=====================================================
OTHER ASSETS LESS LIABILITIES- 1.55%
=====================================================
NET ASSETS- 100.00%
=====================================================
<Caption>
MARKET VALUE
-------------------------------------------
INVESCO AIM AIM
HIGH YIELD HIGH YIELD HIGH YIELD
FUND FUND FUND
PRO FORMA
COMBINING
- -------------------------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES- 0.01%
Travelcenters of America Inc.-Wts.,
expiring 05/01/09 (a)(h) $ - $ 138,375 $ 138,375
=================================================================================================
HOME FURNISHINGS- 0.00%
O'Sullivan Industries, Inc.
Series B-Pfd. Wts.,expiring 11/15/09 (a)(h) 202 202
- -------------------------------------------------------------------------------------------------
Wts., expiring 11/15/09 (a)(h) 202 202
- -------------------------------------------------------------------------------------------------
Winsloew Escrow Corp.-Wts.,
expiring 08/15/07 (a)(h) 21,263 21,263
=================================================================================================
21,667 21,667
=================================================================================================
INTEGRATED TELECOMMUNICATION SERVICES- 0.00%
KMC Telecom Holdings, Inc. -Wts.,
expiring 04/15/08 (h) 9 9
- -------------------------------------------------------------------------------------------------
McLeod USA Inc.-Class A-Wts.,
expiring 04/16/07 (g) 25,776 25,776
- -------------------------------------------------------------------------------------------------
XO Communications- Rts.,
expiring 04/15/08 (g) 10 10
- -------------------------------------------------------------------------------------------------
expiring 11/15/08 (g) 6 6
- -------------------------------------------------------------------------------------------------
expiring 04/15/06 (g) 16 16
- -------------------------------------------------------------------------------------------------
expiring 10/01/07 (g) 4 4
=================================================================================================
25,812 9 25,821
=================================================================================================
RAILROADS- 0.00%
Railamerica Inc.-Wts., expiring 08/15/10 (a)(h) 17,969 17,969
- -------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT- 0.00%
Loral Space & Communications, Ltd.-Wts.,
expiring 12/26/06 (h) 4,098 4,098
=================================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 1.09%
Celcaribe S.A., Ordinary Trust Ctfs. (a)(d)(g) 22,764 22,764
- -------------------------------------------------------------------------------------------------
Dobson Communications Corp.-12.25% PIK Pfd. 13,368,220 13,368,220
- -------------------------------------------------------------------------------------------------
Horizon PCS, Inc.-Wts., expiring 10/01/1 0 (a)(h) 27 27
- -------------------------------------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (a)(h) 1,470 1,470
- -------------------------------------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11 (a)(h) 3,330 3,330
- -------------------------------------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (a)(h) 16,500 152 16,652
- -------------------------------------------------------------------------------------------------
Ubiquitel Inc.-Wts., expiring 04/15/10 (a)(h) 9,716 9,716
=================================================================================================
16,500 13,405,679 13,422,179
=================================================================================================
Total Warrants & Other Equity Interests
(Cost $30,350,052) 43,420 24,333,594 24,377,014
=================================================================================================
SHORT-TERM INVESTMENTS- 0.81%
CORPORATE BONDS
American General Finance, 1.28%, 02/03/03
(Cost $10,000,000) 10,000,000 10,000,000
=================================================================================================
REPURCHASE AGREEMENTS- 0.17% (i)
State Street Bank & Trust
1.22%, 02/03/03 (Cost $2,052,000) (j) 2,052,000 2,052,000
=================================================================================================
MONEY MARKET FUNDS- 2.16%
STIC Liquid Assets Portfolio (k) 13,333,553 13,333,553
STIC Prime Portfolio (k) 13,333,553 13,333,553
=================================================================================================
Total Money Market Funds (Cost $26,667,106) 26,667,106 26,667,106
=================================================================================================
TOTAL INVESTMENTS - (COST $1,381,931,898) - 98.45% 281,076,293 934,909,298 1,215,985,591
================================================================================================
OTHER ASSETS LESS LIABILITIES- 1.55% 8,999,187 10,183,863 19,183,050
================================================================================================
NET ASSETS- 100.00% $290,075,480 $945,093,161 $1,235,168,641
================================================================================================
INVESTMENT ABBREVIATIONS:
Conv. Convertible
Ctfs. Certificates
Deb. Debentures
Disc. Discounted
Gtd. Guaranteed
Pfd. Preferred
PIK Payment in Kind
Rts. Rights
Sec. Secured
Sr. Senior
Sub. Subordinated
Unsec. Unsecured
Unsub. Unsubordinated
Wts. Warrants
Notes to Pro Forma Combining Schedule of Investments:
(a) Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction); the security may be resold only pursuant
to an exemption from registration under the 1933 Act, typically to
qualified institutional buyers. AIM High Yield Fund has no rights to
demand registration of these securities. The aggregate market value
of these securities for INVESCO High Yield Fund at 01/31/03 was
$42,879,266, which represented 14.78% of INVESCO High Yield Fund's
net assets. The aggregate market value of these securities for AIM
High Yield Fund at 01/31/03 was $131,994,032, which represented
13.97% of AIM High Yield Fund's net assets. The aggregate market
value of all unregistered securities was $174,873,298, which
represented 14.16% of the pro forma combining net assets of AIM High
Yield Fund.
(b) Discounted bond at issue. The interest rate represents the coupon
rate at which the bond will accrue at a specified future date.
(c) Defaulted security. Currently, the issuer is in default with respect
to interest payments.
(d) Security fair valued in accordance with the procedures established
by the AIM High Yield Fund Board of Trustees.
(e) Consists of more than one class of securities traded together as a
unit. In addition to the security listed, each unit includes
warrants to purchase common or preferred shares of the issuer.
(f) Zero coupon bond issued at a discount. The interest rate shown
represents the yield to maturity at issue.
(g) Non-income producing security.
(h) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(i) Repurchase agreements held by the INVESCO High Yield Fund are fully
collateralized by securities issued by the U.S. Government, its
agencies or instrumentalities and such collateral is in the
possession of the INVESCO High Yield Fund's custodian. The
collateral is evaluated daily to ensure its market value exceeds the
current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase,
the INVESCO High Yield Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation.
In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or
proceeds may be subject to legal proceedings.
(j) Repurchase agreement entered into 01/31/03 with a maturing value of
$2,052,209 and collateralized by U.S. Government obligations.
(k) STIC Liquid Assets Portfolio, STIC Prime Portfolio and AIM High
Yield Fund are affiliated by having the same investment advisor.
* As of 1/31/03, all of the securities held by the INVESCO High Yield
Fund would comply with the compliance guidelines and/or investment
restrictions of the AIM High Yield Fund.
See Accompanying Notes to Pro Forma Combining Financial Statements.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF INVESCO HIGH YIELD FUND INTO AIM HIGH YIELD FUND
JANUARY 31, 2003
(UNAUDITED)
AIM
INVESCO AIM HIGH YIELD
HIGH YIELD HIGH YIELD PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
ASSETS:
Investments, at market value 279,024,293 934,909,298 - 1,213,933,591
(cost $319,637,988 - INVESCO High Yield Fund)
(cost $1,062,293,910 - AIM High Yield Fund)
(cost $1,381,931,898 - Pro Forma combining)
Repurchase agreements 2,052,000 - - 2,052,000
Cash 12,023 - - 12,023
Receivables for:
Investments sold 975,872 19,349,196 - 20,325,068
Fund shares sold 5,792,100 2,253,462 - 8,045,562
Dividends and interest 6,200,465 22,248,268 - 28,448,733
Amount due from advisor - - 186,300 186,300
Investment for deferred compensation plan 13,320 74,498 - 87,818
Other assets 51,683 52,118 - 103,801
Total assets 294,121,756 978,886,840 186,300 1,273,194,896
LIABILITIES:
Payables for:
Investments purchased 2,893,194 25,768,337 - 28,661,531
Fund shares reacquired 705,097 3,177,663 - 3,882,760
Dividends 277,185 3,578,939 - 3,856,124
Deferred compensation plan 13,320 74,498 - 87,818
Accrued distribution fees 70,272 538,783 - 609,055
Accrued transfer agent fees - 394,583 - 394,583
Accrued directors'/trustees' fees 1,574 1,083 - 2,657
Accrued merger expenses - - 186,300 186,300
Accrued operating expenses 85,634 259,793 - 345,427
Total liabilities 4,046,276 33,793,679 186,300 38,026,255
Net assets applicable to shares outstanding $290,075,480 $945,093,161 $ - $1,235,168,641
NET ASSETS:
Class A $ 10,415,076 $449,581,469 $ 882,419 $ 460,878,964
Class B $ 458,602 $444,139,531 $ - $ 444,598,133
Class C $ 9,272,573 $ 51,372,161 $ - $ 60,644,734
Class K $ 882,419 $ - $ (882,419) $ -
Investor Class $269,046,810 $ - $ - $ 269,046,810
CAPITAL STOCK OUTSTANDING, $0.01 PAR VALUE PER SHARE (INVESCO HIGH YIELD FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE (AIM HIGH YIELD FUND):
Class A 3,080,084 119,512,104 3,003,820 122,515,924
Class B 137,637 117,727,154 121,573 117,848,727
Class C 2,787,153 13,665,008 2,468,409 16,133,417
Class K 264,575 - (264,575) -
Investor Class 80,500,612 - 71,508,522 71,508,522
Class A:
Net asset value per share $ 3.38 $ 3.76 $ - $ 3.76
Offering price per share:
(Net asset value of $3.38 / 95.25% - INVESCO High Yield Fund) $ 3.55 $ 3.95
(Net asset value of $3.76 / 95.25% - AIM High Yield Fund)
Class B:
Net asset value and offering price per share $ 3.33 $ 3.77 $ - $ 3.77
Class C:
Net asset value and offering price per share $ 3.33 $ 3.76 $ - $ 3.76
Class K:
Net asset value and offering price per share $ 3.34 $ - $ - $ -
Investor Class:
Net asset value and offering price per share $ 3.34 $ - $ - $ 3.76
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF INVESCO HIGH YIELD FUND INTO AIM HIGH YIELD FUND
FOR THE YEAR ENDED JANUARY 31, 2003
(UNAUDITED)
AIM
INVESCO AIM HIGH YIELD
HIGH YIELD HIGH YIELD PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 29,102,509 $ 123,151,896 $ - $ 152,254,405
- --------------------------------------------------------------------------------------------------------------------------------
Dividends 2,243,260 2,609,803 - 4,853,063
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds - 509,283 - 509,283
- --------------------------------------------------------------------------------------------------------------------------------
Total investment income 31,345,769 126,270,982 - 157,616,751
================================================================================================================================
EXPENSES:
Advisory fees 1,461,915 5,700,745 (142,227) 7,020,433
- --------------------------------------------------------------------------------------------------------------------------------
Administrative services fees 142,751 212,790 (85,403) 270,138
- --------------------------------------------------------------------------------------------------------------------------------
Custodian fees 49,359 107,379 - 156,738
- --------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 8,423 1,225,690 (209) 1,233,904
- --------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 1,929 5,210,604 - 5,212,533
- --------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 51,249 554,956 - 606,205
- --------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class K 3,941 - (3,941) -
- --------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Investor Class 715,620 - - 715,620
- --------------------------------------------------------------------------------------------------------------------------------
Transfer agent fees 1,510,257 2,887,193 (768,450) 3,629,000
- --------------------------------------------------------------------------------------------------------------------------------
Directors'/Trustees' fees 34,390 14,071 - 48,461
- --------------------------------------------------------------------------------------------------------------------------------
Interest 1,047 - (1,047) -
- --------------------------------------------------------------------------------------------------------------------------------
Professional fees 41,233 40,363 (16,818) 64,778
- --------------------------------------------------------------------------------------------------------------------------------
Registration & filing fees 37,192 91,508 - 128,700
- --------------------------------------------------------------------------------------------------------------------------------
Reports to shareholders 165,897 247,452 (92,399) 320,950
- --------------------------------------------------------------------------------------------------------------------------------
Other 29,550 21,085 - 50,635
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses 4,254,753 16,313,836 (1,110,494) 19,458,095
================================================================================================================================
Less: Fees waived (510,979) (5,226) 510,979 (5,226)
- --------------------------------------------------------------------------------------------------------------------------------
Expenses paid indirectly (3,239) (50,886) - (54,125)
- --------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,740,535 16,257,724 (599,515) 19,398,744
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 27,605,234 110,013,258 599,515 138,218,007
================================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (194,919,411) (474,678,586) - (669,597,997)
- --------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities 179,618,329 259,359,984 - 438,978,313
- --------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investment securities (15,301,082) (215,318,602) - (230,619,684)
================================================================================================================================
Net increase (decrease) in net assets resulting from operations $ 12,304,152 $(105,305,344) $ 599,515 $ (92,401,677)
================================================================================================================================
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF INVESCO HIGH YIELD FUND INTO AIM HIGH YIELD FUND
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Agreement and Plan") between AIM High Yield Fund and INVESCO High Yield
Fund and the consummation of the transactions contemplated therein to be
accounted for as a tax-free reorganization of investment companies. The
Agreement and Plan would be accomplished by an exchange of shares of AIM High
Yield Fund for the net assets of INVESCO High Yield Fund and the distribution of
AIM High Yield Fund shares to INVESCO High Yield Fund shareholders. If the
Agreement and Plan were to have taken place at January 31, 2003, INVESCO High
Yield Fund - Class A shareholders would have received 3,003,820 shares of AIM
High Yield Fund - Class A shares, INVESCO High Yield Fund - Class B shareholders
would have received 121,573 shares of AIM High Yield Fund - Class B shares,
INVESCO High Yield Fund - Class C shareholders would have received 2,468,409
shares of AIM High Yield Fund - Class C shares and INVESCO High Yield Fund -
Investor Class shareholders would have received 71,508,522 shares of AIM High
Yield Fund - Investor Class.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the investment advisory agreement of AIM High Yield Fund,
the advisory fees based on pro forma combined assets for the year ended January
31, 2003 were $7,020,433. The pro forma advisory fees were adjusted to reflect
the advisory fees rates in effect for the AIM High Yield Fund. Correspondingly,
the advisory fee waivers have been adjusted to reflect the termination of
INVESCO High Yield Fund's expense limitation.
(b) Pursuant to the master administrative services agreement for AIM High Yield
Fund, fees paid on pro forma combined assets for the year ended January 31, 2003
were $270,138. The administrative services fees were adjusted to reflect the
fees in effect under the administrative services agreement for the AIM High
Yield Fund.
(c) Pursuant to the terms of the master distribution agreement for Class A
shares of the AIM High Yield Fund, the fund pays AIM Distributors, Inc. a fee
calculated at 0.25% of the average daily net assets of AIM Class A shares. The
Class A distribution fees on the pro forma combined assets for the year ended
January 31, 2003 were $1,233,904 after the reorganization of Class K shares of
INVESCO High Yield Fund into Class A shares of AIM High Yield Fund. The
distribution fees were adjusted to reflect the lower distribution rate paid in
accordance with AIM High Yield Fund's Class A distribution agreement.
(d) Interest expense has been adjusted to reflect the investment policies of AIM
High Yield Fund.
(e) Reports to shareholders were reduced by $92,399 to eliminate the effects of
duplicative fixed costs of production of reports to shareholders.
(f) Professional fees were reduced by $16,818 to eliminate the effects of
duplicative fixed cost of professional services fees.
(g) Transfer agent fees were reduced by $768,450 to reflect the fees on the pro
forma combined number of open accounts under the transfer and agency agreement
for AIM High Yield Fund.
NOTE 3 - MERGER COSTS
Merger costs related to the Agreement and Plan are estimated at approximately
$186,300 and because these are non recurring costs they have not been included
in the unaudited pro forma statement of operations. These costs represent the
estimated expense of INVESCO High Yield Fund carrying out its obligation under
the Agreement and Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger. INVESCO Funds Group, Inc. has agreed to pay 100% of these costs.
APPENDIX VI
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS
OF AIM GLOBAL INCOME FUND
AIM STRATEGIC INCOME FUND
INVESCO SELECT INCOME FUND
INTO AIM INCOME FUND
JANUARY 31, 2003
(UNAUDITED)
<Table>
<Caption>
PRINCIPAL AMOUNT
- -------------------------------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-
68.48%
ADVERTISING- 0.49%
Interpublic Group of Cos., Inc. (The),
Unsec. Sub. Conv. Disc.
$ -- $ -- $ -- $ 4,900,000 $ 4,900,000 Notes, 1.87%, 06/01/06(a)
- ----------------------------------------------------------------------------------------------------------------------------------
-- 1,300,000 1,300,000 Lamar Advertising Co., Conv. Unsec.
Notes, 5.25%, 09/15/06
==================================================================================================================================
==================================================================================================================================
AEROSPACE & DEFENSE- 0.54%
Lockheed Martin Corp., Unsec. Gtd.
Unsub. Deb., 7.25%,
400,000 500,000 1,800,000 2,700,000 05/15/06
- ----------------------------------------------------------------------------------------------------------------------------------
425,000 315,000 1,700,000 2,440,000 Raytheon Co., Notes, 6.75%, 08/15/07
==================================================================================================================================
==================================================================================================================================
AGRICULTURAL PRODUCTS- 0.29%
Archer-Daniels-Midland Co., Unsec.
Unsub. Deb., 6.95%,
440,000 600,000 1,750,000 2,790,000 12/15/97
==================================================================================================================================
AIRLINES- 0.02%
Northwest Airlines Inc., Sr. Unsec.
Gtd. Notes, 8.78%,
280,000 280,000 06/01/06
==================================================================================================================================
==================================================================================================================================
APPAREL RETAIL- 0.25%
212,000 1,377,000 1,589,000 Big 5 Corp.-Series B, Sr. Unsec. Notes,
10.88%, 11/15/07
- ----------------------------------------------------------------------------------------------------------------------------------
15,000 365,000 565,000 945,000 Gap, Inc. (The), Unsec. Unsub. Notes,
9.90%, 12/15/05
==================================================================================================================================
==================================================================================================================================
APPAREL, ACCESSORIES & LUXURY GOODS- 0.02%
90,000 90,000 Russell Corp., Sr. Unsec. Gtd. Global
Notes, 9.25%, 05/01/10
- ----------------------------------------------------------------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr.
Unsec. Gtd. Sub.
95,000 95,000 Global Notes, 10.88%, 08/15/11
==================================================================================================================================
==================================================================================================================================
AUTO PARTS & EQUIPMENT- 0.00%
Key Plastics Holdings, Inc.-Series B, Sr.
Unsec. Gtd. Sub.
1,325,000 1,325,000 Notes, 10.25%, 03/15/07(b)(c)
==================================================================================================================================
AUTOMOBILE MANUFACTURERS- 0.92%
DaimlerChrysler N.A. Holding Corp.
250,000 200,000 1,500,000 1,950,000 Series D, Gtd. Medium Term Notes,
3.40%, 12/15/04
- ----------------------------------------------------------------------------------------------------------------------------------
1,600,000 1,600,000 Gtd. Notes, 4.75%, 01/15/08
- ----------------------------------------------------------------------------------------------------------------------------------
1,000,000 750,000 4,000,000 5,750,000 General Motors Corp., Unsec. Deb.,
8.80%, 03/01/21
==================================================================================================================================
==================================================================================================================================
BANKS- 7.16%
African Development Bank (Luxembourg), Sr.
Unsec. Unsub.
-- -- -- 1,700,000 1,700,000 Global Notes, 3.25%, 07/29/05
- ----------------------------------------------------------------------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global
Notes, 7.63%,
500,000 400,000 1,950,000 2,850,000 08/01/05
- ----------------------------------------------------------------------------------------------------------------------------------
1,000,000 2,500,000 3,500,000 Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09
- ----------------------------------------------------------------------------------------------------------------------------------
Barclays O/S Investment Co. (Netherlands),
Unsec. Gtd.
750,000 650,000 4,000,000 5,400,000 Unsub. Floating Rate Euro Notes, 1.63%,
05/14/03
- ----------------------------------------------------------------------------------------------------------------------------------
600,000 1,930,000 2,530,000 BB&T Corp., RAPS Sub. Notes, 6.38%,
06/30/05
- ----------------------------------------------------------------------------------------------------------------------------------
250,000 250,000 Chase Manhattan Corp., Sub. Deb., 7.88%,
07/15/06
- ----------------------------------------------------------------------------------------------------------------------------------
Citicorp,
375,000 300,000 1,500,000 2,175,000 Jr. Unsec. Sub. Notes, 6.38%, 01/15/06
- ----------------------------------------------------------------------------------------------------------------------------------
100,000 200,000 2,900,000 3,200,000 Sub. Global Notes, 6.75%, 08/15/05
- ----------------------------------------------------------------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee
Notes, 6.38%,
850,000 850,000 06/15/08(d)
- ----------------------------------------------------------------------------------------------------------------------------------
200,000 3,000,000 3,200,000 Dresdner Funding Trust I, Bonds, 8.15%,
06/30/31(d)
- ----------------------------------------------------------------------------------------------------------------------------------
European Investment Bank (Luxembourg),
Global Notes,
1,000,000 1,000,000 4.63%, 03/01/07
- ----------------------------------------------------------------------------------------------------------------------------------
150,000 1,910,000 Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06
- ----------------------------------------------------------------------------------------------------------------------------------
HSBC Holdings, PLC, Unsec. Unsub. Tier II
Notes, 5.25%,
1,400,000 1,400,000 12/12/12
- ----------------------------------------------------------------------------------------------------------------------------------
-- 400,000 300,000 1,600,000 2,300,000 KeyBank N. A., Sr. Notes,
4.10%, 06/30/05
- ----------------------------------------------------------------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom), Unsec.
Sub. Floating
350,000 550,000 1,350,000 2,250,000 Rate Euro Notes, 1.69%, 06/29/49(e)
- ----------------------------------------------------------------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%,
610,000 600,000 2,500,000 3,710,000 11/01/04
- ----------------------------------------------------------------------------------------------------------------------------------
Santander Financial Issuances (Puerto
Rico), Unsec. Gtd. Sub.
200,000 150,000 900,000 1,250,000 Yankee Notes, 7.00%, 04/01/06
- ----------------------------------------------------------------------------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec. Unsub.
Notes, 7.13%,
200,000 1,500,000 1,700,000 02/15/04
- ----------------------------------------------------------------------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%,
440,000 600,000 1,750,000 2,790,000 10/29/49
- ----------------------------------------------------------------------------------------------------------------------------------
700,000 3,000,000 3,700,000 U.S. Bank N.A., Sub. Global Notes, 6.30%,
02/04/14
- ----------------------------------------------------------------------------------------------------------------------------------
Union Planters Bank N.A., Unsec. Putable
Sub. Notes, 6.50%,
650,000 650,000 2,650,000 3,950,000 03/15/08
- ----------------------------------------------------------------------------------------------------------------------------------
Wachovia Corp., Unsec. Putable Sub. Deb.,
1,500,000 900,000 660,000 3,060,000 6.55%, 10/15/05
- ----------------------------------------------------------------------------------------------------------------------------------
1,000,000 1,200,000 5,000,000 7,200,000 7.50%, 04/15/05
- ----------------------------------------------------------------------------------------------------------------------------------
1,850,000 1,850,000 Unsec. Sub. Notes, 6.80%, 06/01/05
- ----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%,
300,000 575,000 2,500,000 3,375,000 04/01/10
- ----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc., Sr. Unsec. Global
Notes, 4.38%,
455,000 455,000 01/15/08
- ----------------------------------------------------------------------------------------------------------------------------------
1,600,000 1,600,000 Washington Mutual Bank, Sub. Global Notes,
5.50%, 01/15/13
==================================================================================================================================
==================================================================================================================================
<Caption>
MARKET VALUE
---------------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-
68.48%
ADVERTISING- 0.49%
Interpublic Group of Cos., Inc. (The), Unsec. Sub. Conv. Disc
Notes, 1.87%, 06/01/06(a) $ -- $ -- $ -- $ 3,797,500 $ 3,797,500
- ----------------------------------------------------------------------------------------------------------------------------------
Lamar Advertising Co., Conv. Unsec. Notes, 5.25%, 09/15/06 -- 1,363,375 1,363,375
===================================================================================================================================
-- -- 1,363,375 3,797,500 5,160,875
===================================================================================================================================
AEROSPACE & DEFENSE- 0.54%
Lockheed Martin Corp., Unsec. Gtd. Unsub. Deb., 7.25%,
05/15/06 450,108 562,635 2,025,486 3,038,229
- ----------------------------------------------------------------------------------------------------------------------------------
Raytheon Co., Notes, 6.75%, 08/15/07 465,082 344,707 1,860,327 2,670,116
===================================================================================================================================
-- 915,190 907,342 3,885,813 5,708,345
===================================================================================================================================
AGRICULTURAL PRODUCTS- 0.29%
Archer-Daniels-Midland Co., Unsec. Unsub. Deb., 6.95%,
12/15/97 -- 478,777 652,878 1,904,227 3,035,882
===================================================================================================================================
AIRLINES- 0.02%
Northwest Airlines Inc., Sr. Unsec. Gtd. Notes, 8.78%, 06/01/06 186,200 186,200
===================================================================================================================================
-- -- 186,200 -- 186,200
===================================================================================================================================
APPAREL RETAIL- 0.25%
Big 5 Corp.-Series B, Sr. Unsec. Notes, 10.88%, 11/15/07 221,540 1,438,965 1,660,505
- ----------------------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The), Unsec. Unsub. Notes, 9.90%, 12/15/05 16,200 394,200 610,200 1,020,600
===================================================================================================================================
-- 237,740 394,200 2,049,165 2,681,105
===================================================================================================================================
APPAREL, ACCESSORIES & LUXURY GOODS- 0.02%
Russell Corp., Sr. Unsec. Gtd. Global Notes, 9.25%, 05/01/10 96,300 96,300
- ----------------------------------------------------------------------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 10.88%, 08/15/11 105,211 105,211
===================================================================================================================================
-- -- 201,511 -- 201,511
===================================================================================================================================
AUTO PARTS & EQUIPMENT- 0.00%
Key Plastics Holdings, Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 03/15/07(b)(c) -- -- -- -- --
===================================================================================================================================
AUTOMOBILE MANUFACTURERS- 0.92%
DaimlerChrysler N.A. Holding Corp.
Series D, Gtd. Medium Term Notes, 3.40%, 12/15/04 252,115 201,692 1,512,690 1,966,497
- ----------------------------------------------------------------------------------------------------------------------------------
Gtd. Notes, 4.75%, 01/15/08 1,594,389 1,594,389
- ----------------------------------------------------------------------------------------------------------------------------------
General Motors Corp., Unsec. Deb., 8.80%, 03/01/21 1,068,250 801,187 4,273,000 6,142,437
===================================================================================================================================
1,594,389 1,320,365 1,002,879 5,785,690 9,703,323
===================================================================================================================================
BANKS- 7.16%
African Development Bank (Luxembourg), Sr. Unsec. Unsub
Global Notes, 3.25%, 07/29/05 -- -- 1,742,075 1,742,075
- ----------------------------------------------------------------------------------------------------------------------------------
Bank One Corp., Sr. Unsec. Unsub. Global Notes, 7.63%,
08/01/05 560,065 448,052 2,184,253 3,192,370
- ----------------------------------------------------------------------------------------------------------------------------------
Bank United-Series A, Medium Term Notes, 8.00%, 03/15/09 1,157,130 2,892,825 4,049,955
- ----------------------------------------------------------------------------------------------------------------------------------
Barclays O/S Investment Co. (Netherlands), Unsec. Gtd Unsub
Floating Rate Euro Notes, 1.63%, 05/14/03 637,580 552,570 3,400,428 4,590,578
- ----------------------------------------------------------------------------------------------------------------------------------
BB&T Corp., RAPS Sub. Notes, 6.38%, 06/30/05 649,782 2,090,132 2,739,914
- ----------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp., Sub. Deb., 7.88%, 07/15/06 282,687 282,687
- ----------------------------------------------------------------------------------------------------------------------------------
Citicorp,
Jr. Unsec. Sub. Notes, 6.38%, 01/15/06 404,520 323,616 1,618,080 2,346,216
- ----------------------------------------------------------------------------------------------------------------------------------
Sub. Global Notes, 6.75%, 08/15/05 110,015 220,030 3,190,435 3,520,480
- ----------------------------------------------------------------------------------------------------------------------------------
Danske Bank A/S (Denmark), Sub. Yankee Notes, 6.38%,
06/15/08(d) 910,027 910,027
- ----------------------------------------------------------------------------------------------------------------------------------
Dresdner Funding Trust I, Bonds, 8.15%, 06/30/31(d) 202,674 3,040,110 3,242,784
- ----------------------------------------------------------------------------------------------------------------------------------
European Investment Bank (Luxembourg), Global Notes,
4.63%, 03/01/07 1,064,520 1,064,520
- ----------------------------------------------------------------------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb., 10.00%, 10/01/06 179,801 2,109,659 2,289,460
- ----------------------------------------------------------------------------------------------------------------------------------
HSBC Holdings, PLC, Unsec. Unsub. Tier II Notes, 5.25%,
12/12/12 1,421,613 1,421,613
- ----------------------------------------------------------------------------------------------------------------------------------
KeyBank N. A., Sr. Notes, 4.10%, 06/30/05 -- 413,820 310,365 1,655,280 2,379,465
- ----------------------------------------------------------------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom), Unsec. Sub. Floating Rate
Euro Notes, 1.69%, 06/29/49(e) 281,561 442,454 1,086,022 1,810,037
- ----------------------------------------------------------------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub. Deb., 8.25%,
11/01/04 772,168 759,510 3,164,625 4,696,303
- ----------------------------------------------------------------------------------------------------------------------------------
Santander Financial Issuances (Puerto Rico), Unsec. Gtd. Sub.
Yankee Notes, 7.00%, 04/01/06 217,380 163,035 978,210 1,358,625
- ----------------------------------------------------------------------------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec. Unsub. Notes, 7.13%,
02/15/04 209,490 1,571,175 1,780,665
- ----------------------------------------------------------------------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global Bonds, 8.62%,
10/29/49 523,600 714,000 2,082,500 3,320,100
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Bank N.A., Sub. Global Notes, 6.30%, 02/04/14 780,962 3,346,980 4,127,942
- ----------------------------------------------------------------------------------------------------------------------------------
Union Planters Bank N.A., Unsec. Putable Sub. Notes, 6.50%,
03/15/08 723,938 723,938 2,951,437 4,399,313
- ----------------------------------------------------------------------------------------------------------------------------------
Wachovia Corp., Unsec. Putable Sub. Deb.,
6.55%, 10/15/05 1,648,830 989,298 725,485 3,363,613
- ----------------------------------------------------------------------------------------------------------------------------------
7.50%, 04/15/05 1,215,120 1,458,144 6,075,600 8,748,864
- ----------------------------------------------------------------------------------------------------------------------------------
Unsec. Sub. Notes, 6.80%, 06/01/05 2,035,055 2,035,055
- ----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub. Notes, 8.25%,
04/01/10 354,690 679,822 2,955,750 3,990,262
- ----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc., Sr. Unsec. Global Notes, 4.38%,
01/15/08 462,361 462,361
- ----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual Bank, Sub. Global Notes, 5.50%, 01/15/13 1,635,398 1,635,398
===================================================================================================================================
3,519,372 11,043,126 7,784,834 53,153,350 75,500,682
===================================================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- -------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- ----------------------------------------------------------------------------------------------------------------------------------
BREWERS- 0.23%
425,000 1,705,000 2,130,000 Anheuser-Busch Cos., Inc., Sr. Unsec. Deb., 6.50%, 02/01/43
==================================================================================================================================
BROADCASTING & CABLE TV- 8.23%
Adelphia Communications Corp.,
$ -- $ 700,000 $ 550,000 $2,350,000 $3,600,000 Sr. Unsec. Notes, 10.88%, 10/01/10(b)
- ----------------------------------------------------------------------------------------------------------------------------------
900,000 900,000 Sr. Unsec. Notes, 9.50%, 03/01/05(b)
- ----------------------------------------------------------------------------------------------------------------------------------
140,000 140,000 Series B, Sr. Unsec. Notes, 9.88%, 03/01/07(b)
- ----------------------------------------------------------------------------------------------------------------------------------
850,000 850,000 Series B, Sr. Unsec. Notes, 9.25%, 10/01/49(b)
- ----------------------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., Sr. Sub. Notes, 7.75%,
-- -- 160,000 -- 160,000 12/15/12
- ----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
British Sky Broadcasting Group PLC (United Kingdom),
-- 700,000 750,000 3,000,000 4,450,000 Unsec. Gtd. Yankee Notes 7.30%, 10/15/06
- ----------------------------------------------------------------------------------------------------------------------------------
Charter Communications, Inc., Sr. Conv. Notes, 5.75%,
1,500,000 1,500,000 10/15/05(d)
- ----------------------------------------------------------------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp., Sr. Unsec. Sub.
Notes,
290,000 215,000 995,000 1,500,000 10.75%, 10/01/09
- ----------------------------------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.
2,500,000 2,500,000 Sr. Sub. Global Notes, 6.00%, 11/01/06
- ----------------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Unsec. Unsub. Gtd. Notes,
8,520,000 -- -- -- 8,520,000 8.13%, 12/15/07
- ----------------------------------------------------------------------------------------------------------------------------------
4,400,000 4,400,000 8.75%, 06/15/07
- ----------------------------------------------------------------------------------------------------------------------------------
Comcast Cable Communications, Inc., Unsec. Unsub. Notes,
265,000 185,000 1,135,000 1,585,000 8.88%, 05/01/17
- ----------------------------------------------------------------------------------------------------------------------------------
Comcast Corp., Sr. Unsec. Gtd. Unsub. Global Notes, 6.50%,
590,000 420,000 2,100,000 3,110,000 01/15/15
- ----------------------------------------------------------------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr. Unsec.
250,000 500,000 750,000 Yankee Disc. Deb., 11.20%, 11/15/07
- ----------------------------------------------------------------------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Deb.,
1,000,000 1,250,000 1,000,000 3,250,000 7.88%, 02/15/18
- ----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes,
1,295,000 500,000 5,760,000 7,555,000 7.25%, 07/15/08
- ----------------------------------------------------------------------------------------------------------------------------------
1,750,000 700,000 6,680,000 9,130,000 7.88%, 12/15/07
- ----------------------------------------------------------------------------------------------------------------------------------
1,500,000 1,500,000 EchoStar Communications Corp., Sr. Notes, 9.13%, 01/15/09 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
250,000 185,000 1,000,000 1,435,000 Jones Intercable, Inc., Sr. Unsec. Notes, 8.88%, 04/01/07
- ----------------------------------------------------------------------------------------------------------------------------------
305,000 1,123,000 1,428,000 Knology, Inc., Sr. Unsec. Notes, 12.00%, 11/30/09 (d)
- ----------------------------------------------------------------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec. Sub. Notes, 8.25%,
650,000 5,000,000 5,650,000 02/15/08
- ----------------------------------------------------------------------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr. Notes, 9.63%,
500,000 500,000 10/15/05
- ----------------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Sr. Sub. Gtd. Global Notes, 8.75%,
475,000 475,000 12/15/11
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc.,
1,500,000 1,500,000 Medium Term Notes, 8.35%, 02/15/05
- ----------------------------------------------------------------------------------------------------------------------------------
425,000 325,000 2,060,000 2,810,000 Sr. Notes, 8.65%, 09/15/04
- ----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Deb.,
750,000 500,000 4,750,000 6,000,000 8.75%, 08/01/15
- ----------------------------------------------------------------------------------------------------------------------------------
250,000 200,000 1,100,000 1,550,000 7.88%, 02/15/26
- ----------------------------------------------------------------------------------------------------------------------------------
-- Time Warner Inc.,
-- 400,000 1,000,000 5,800,000 7,200,000 Unsec. Deb., 9.15%, 02/01/23
- ----------------------------------------------------------------------------------------------------------------------------------
100,000 1,200,000 1,300,000 Unsec. Notes, 7.75%, 06/15/05
- ----------------------------------------------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc.-Class A, Sr. Notes, 8.38%,
835,000 2,825,000 3,660,000 07/01/13
==================================================================================================================================
==================================================================================================================================
CASINOS & GAMBLING-0.80%
1,545,000 1,545,000 Argosy Gaming Co., Sr. Unsec. Sub. Notes, 9.00%, 09/01/11
- ----------------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 9.25%,
210,000 210,000 08/01/09
- ----------------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., Sr. Unsec. Sub. Global Notes, 8.75%,
290,000 215,000 1,175,000 1,680,000 04/15/12
- ----------------------------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec. Gtd. Sub.
-- 370,000 270,000 1,500,000 2,140,000 Notes, 8.00%, 04/01/12
- ----------------------------------------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec. Global Notes,
200,000 155,000 665,000 1,020,000 7.50%, 09/01/09
- ----------------------------------------------------------------------------------------------------------------------------------
CASINOS & GAMBLING-(CONTINUED)
Penn National Gaming, Inc., Sr. Unsec. Gtd. Sub. Notes,
1,475,000 -- -- -- 1,475,000 11.13%, 03/01/08
==================================================================================================================================
==================================================================================================================================
COMMODITY CHEMICALS- 0.01%
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd. Sub. Global Notes,
70,000 70,000 10.25%, 07/01/11
- ----------------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE- 0.26%
Candescent Technologies Corp., Sr. Conv. Unsec. Gtd. Sub.
600,000 2,000,000 2,600,000 Deb., 8.00%, 05/01/03(b)(c)(d)
- ----------------------------------------------------------------------------------------------------------------------------------
350,000 200,000 1,500,000 2,050,000 International Business Machines Corp., Deb., 8.38%, 11/01/19
==================================================================================================================================
==================================================================================================================================
CONSTRUCTION MACHINERY, FARM MACHINERY & HEAVY
TRUCKS- 0.13%
1,465,000 1,465,000 Terex Corp., Sr. Unsec. Gtd. Sub. Notes, 9.25%, 07/15/11
==================================================================================================================================
CONSTRUCTION MATERIALS-0.19%
MMI Products, Inc.-Series B, Sr. Unsec. Sub. Notes, 11.25%,
400,000 360,000 1,600,000 2,360,000 04/15/07
==================================================================================================================================
CONSUMER FINANCE- 3.81%
CitiFinancial Credit Co.,
100,000 500,000 4,068,000 4,668,000 Notes, 6.63%, 06/01/15
- ----------------------------------------------------------------------------------------------------------------------------------
50,000 1,000,000 1,050,000 Unsec. Notes, 6.75%, 07/01/07
- ----------------------------------------------------------------------------------------------------------------------------------
-- Countrywide Home Loans, Inc.
200,000 175,000 900,000 1,275,000 Series K, Medium Term Global Notes, 3.50%, 12/19/05
- ----------------------------------------------------------------------------------------------------------------------------------
750,000 750,000 Unsec. Gtd. Global Notes, 6.85%, 06/15/04
- ----------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.,
2,260,000 2,260,000 Global Notes, 7.25%, 10/25/11
- ----------------------------------------------------------------------------------------------------------------------------------
400,000 2,000,000 2,400,000 7.88%, 06/15/10
- ----------------------------------------------------------------------------------------------------------------------------------
1,500,000 1,500,000 Unsec. Floating Rate Notes, 1.60%, 03/17/03(f)
- ----------------------------------------------------------------------------------------------------------------------------------
Unsec. Global Notes,
- ----------------------------------------------------------------------------------------------------------------------------------
400,000 750,000 1,800,000 2,950,000 6.88%, 02/01/06
- ----------------------------------------------------------------------------------------------------------------------------------
200,000 1,600,000 1,800,000 7.38%, 10/28/09
<Caption>
MARKET VALUE
------------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- ----------------------------------------------------------------------------------------------------------------------------------
BREWERS- 0.23%
Anheuser-Busch Cos., Inc., Sr. Unsec. Deb., 6.50%, 02/01/43 475,758 1,908,628 2,384,386
==================================================================================================================================
BROADCASTING & CABLE TV- 8.23%
Adelphia Communications Corp.,
Sr. Unsec. Notes, 10.88%, 10/01/10(b) $ -- $ 313,250 $ 246,125 $ 1,051,625 $ 1,611,000
- ----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 9.50%, 03/01/05(b) 252,000 252,000
- ----------------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 9.88%, 03/01/07(b) 62,650 62,650
- ----------------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 9.25%, 10/01/49(b) 352,750 352,750
- ----------------------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., Sr. Sub. Notes, 7.75%,
12/15/12 -- -- 158,800 -- 158,800
- ----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
British Sky Broadcasting Group PLC (United Kingdom),
Unsec. Gtd. Yankee Notes 7.30%, 10/15/06 -- 720,223 771,668 3,086,670 4,578,561
- ----------------------------------------------------------------------------------------------------------------------------------
Charter Communications, Inc., Sr. Conv. Notes, 5.75%,
10/15/05(d) 345,000 345,000
- ----------------------------------------------------------------------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp., Sr. Unsec. Sub.
Notes,
10.75%, 10/01/09 142,100 105,350 487,550 735,000
- ----------------------------------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.
Sr. Sub. Global Notes, 6.00%, 11/01/06 2,646,393 2,646,393
- ----------------------------------------------------------------------------------------------------------------------------------
Series B, Sr. Unsec. Unsub. Gtd. Notes,
8.13%, 12/15/07 8,866,168 -- -- -- 8,866,168
- ----------------------------------------------------------------------------------------------------------------------------------
8.75%, 06/15/07 4,598,000 4,598,000
- ----------------------------------------------------------------------------------------------------------------------------------
Comcast Cable Communications, Inc., Unsec. Unsub. Notes,
8.88%, 05/01/17 314,902 219,837 1,348,732 1,883,471
- ----------------------------------------------------------------------------------------------------------------------------------
Comcast Corp., Sr. Unsec. Gtd. Unsub. Global Notes, 6.50%,
01/15/15 590,903 420,643 2,103,213 3,114,759
- ----------------------------------------------------------------------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr. Unsec
Yankee Disc. Deb., 11.20%, 11/15/07 181,250 362,500 543,750
- ----------------------------------------------------------------------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Deb.,
7.88%, 02/15/18 910,000 1,137,500 910,000 2,957,500
- ----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes,
7.25%, 07/15/08 1,227,012 473,750 5,457,600 7,158,362
- ----------------------------------------------------------------------------------------------------------------------------------
7.88%, 12/15/07 1,706,250 682,500 6,513,000 8,901,750
- ----------------------------------------------------------------------------------------------------------------------------------
EchoStar Communications Corp., Sr. Notes, 9.13%, 01/15/09(d) 1,582,500 1,582,500
- ----------------------------------------------------------------------------------------------------------------------------------
Jones Intercable, Inc., Sr. Unsec. Notes, 8.88%, 04/01/07 265,977 196,823 1,063,910 1,526,710
- ----------------------------------------------------------------------------------------------------------------------------------
Knology, Inc., Sr. Unsec. Notes, 12.00%, 11/30/09(d) 183,762 676,607 860,369
- ----------------------------------------------------------------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec. Sub. Notes, 8.25%,
02/15/08 680,875 5,237,500 5,918,375
- ----------------------------------------------------------------------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr. Notes, 9.63%,
10/15/05 362,500 362,500
- ----------------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Sr. Sub. Gtd. Global Notes, 8.75%,
12/15/11 507,062 507,062
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc.,
Medium Term Notes, 8.35%, 02/15/05 1,623,872 1,623,872
- ----------------------------------------------------------------------------------------------------------------------------------
Sr. Notes, 8.65%, 09/15/04 455,281 348,156 2,206,775 3,010,212
- ----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Deb.,
8.75%, 08/01/15 879,698 586,465 5,571,418 7,037,581
- ----------------------------------------------------------------------------------------------------------------------------------
7.88%, 02/15/26 259,740 207,792 1,142,856 1,610,388
- ----------------------------------------------------------------------------------------------------------------------------------
Time Warner Inc.,
Unsec. Deb., 9.15%, 02/01/23 -- 463,800 1,159,500 6,725,100 8,348,400
- ----------------------------------------------------------------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 106,667 1,280,004 1,386,671
- ----------------------------------------------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc.-Class A, Sr. Notes, 8.38%,
07/01/13 968,066 3,275,192 4,243,258
==================================================================================================================================
18,804,873 10,188,505 7,666,309 50,124,124 86,783,811
==================================================================================================================================
CASINOS & GAMBLING-0.80%
Argosy Gaming Co., Sr. Unsec. Sub. Notes, 9.00%, 09/01/11 1,622,250 1,622,250
- ----------------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 9.25%,
08/01/09 228,900 228,900
- ----------------------------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., Sr. Unsec. Sub. Global Notes, 8.75%,
04/15/12 304,500 225,750 1,233,750 1,764,000
- ----------------------------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec. Gtd. Sub.
Notes, 8.00%, 04/01/12 -- 382,950 279,450 1,552,500 2,214,900
- ----------------------------------------------------------------------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec. Global Notes,
7.50%, 09/01/09 205,000 158,875 681,625 1,045,500
- ----------------------------------------------------------------------------------------------------------------------------------
CASINOS & GAMBLING-(CONTINUED)
Penn National Gaming, Inc., Sr. Unsec. Gtd. Sub. Notes,
11.13%, 03/01/08 1,615,125 -- -- -- 1,615,125
==================================================================================================================================
3,237,375 892,450 892,975 3,467,875 8,490,675
==================================================================================================================================
COMMODITY CHEMICALS- 0.01%
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd. Sub. Global Notes,
10.25%, 07/01/11 73,675 73,675
- ----------------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE- 0.26%
Candescent Technologies Corp., Sr. Conv. Unsec. Gtd. Sub.
Deb., 8.00%, 05/01/03(b)(c)(d) 31,800 106,000 137,800
- ----------------------------------------------------------------------------------------------------------------------------------
International Business Machines Corp., Deb., 8.38%, 11/01/19 442,176 252,672 1,895,040 2,589,888
==================================================================================================================================
-- 442,176 284,472 2,001,040 2,727,688
==================================================================================================================================
CONSTRUCTION MACHINERY, FARM MACHINERY & HEAVY
TRUCKS- 0.13%
Terex Corp., Sr. Unsec. Gtd. Sub. Notes, 9.25%, 07/15/11 1,347,800 1,347,800
==================================================================================================================================
CONSTRUCTION MATERIALS-0.19%
MMI Products, Inc.-Series B, Sr. Unsec. Sub. Notes, 11.25%,
04/15/07 342,000 307,800 1,368,000 2,017,800
==================================================================================================================================
CONSUMER FINANCE- 3.81%
CitiFinancial Credit Co.,
Notes, 6.63%, 06/01/15 112,286 561,430 4,567,794 5,241,510
- ----------------------------------------------------------------------------------------------------------------------------------
Unsec. Notes, 6.75%, 07/01/07 55,860 1,117,190 1,173,050
- ----------------------------------------------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc.
Series K, Medium Term Global Notes, 3.50%, 12/19/05 201,682 176,472 907,569 1,285,723
- ----------------------------------------------------------------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 6.85%, 06/15/04 793,073 793,073
- ----------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., --
Global Notes, 7.25%, 10/25/11 2,152,372 2,152,372
- ----------------------------------------------------------------------------------------------------------------------------------
7.88%, 06/15/10 398,220 -- 1,991,100 2,389,320
- ----------------------------------------------------------------------------------------------------------------------------------
Unsec. Floating Rate Notes, 1.60%, 03/17/03(f) 1,497,631 1,497,631
- ----------------------------------------------------------------------------------------------------------------------------------
Unsec. Global Notes,
- ----------------------------------------------------------------------------------------------------------------------------------
6.88%, 02/01/06 403,648 756,840 1,816,416 2,976,904
- ----------------------------------------------------------------------------------------------------------------------------------
7.38%, 10/28/09 196,378 1,571,024 1,767,402
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- -------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- -----------------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.
Global Bonds,
$ -- $ -- $ -- $ 3,000,000 $ 3,000,000 6.15%, 04/05/07
- -----------------------------------------------------------------------------------------------------------------------------------
375,000 1,760,000 2,135,000 6.85%, 06/17/04
- -----------------------------------------------------------------------------------------------------------------------------------
1,975,000 Global Unsec. Unsub. Notes, 7.00%, 02/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
650,000 400,000 2,200,000 3,250,000 Medium Term Notes, 5.25%, 05/16/05
- -----------------------------------------------------------------------------------------------------------------------------------
200,000 -- 975,000 1,175,000 Unsec. Unsub. Notes, 7.63%, 06/15/04
- -----------------------------------------------------------------------------------------------------------------------------------
Household Finance Corp.,
Global Notes,
950,000 950,000 4.63%, 01/15/08
- -----------------------------------------------------------------------------------------------------------------------------------
1,150,000 1,150,000 5.75%, 01/30/07
- -----------------------------------------------------------------------------------------------------------------------------------
980,000 980,000 6.38%, 11/27/12
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Global Notes,
250,000 200,000 1,000,000 1,450,000 6.50%, 01/24/06
- -----------------------------------------------------------------------------------------------------------------------------------
400,000 750,000 2,235,000 3,385,000 8.00%, 05/09/05
- -----------------------------------------------------------------------------------------------------------------------------------
-- -- 400,000 -- 400,000 MBNA America Bank, N.A., Notes, 6.88%, 04/15/04
===================================================================================================================================
DISTILLERS & VINTNERS- 0.40%
Constellation Brands, Inc.-Series B, Sr. Unsec. Gtd. Sub.
- -----------------------------------------------------------------------------------------------------------------------------------
-- 250,000 170,000 1,000,000 1,420,000 Notes, 8.13%, 01/15/12
- -----------------------------------------------------------------------------------------------------------------------------------
-- 250,000 300,000 1,750,000 2,300,000 Diageo PLC, Sr. Unsec. Gtd. Putable Notes, 7.45%, 04/15/05
===================================================================================================================================
DIVERSIFIED CHEMICALS- 0.09%
Equistar Chemicals L.P./Equistar Funding Corp., Sr. Unsec.
-- 160,000 200,000 680,000 1,040,000 Gtd. Global Notes, 10.13%, 09/01/08
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES- 7.07%
1,370,000 1,370,000 American General Finance Corp., Sr. Notes, 6.75%, 11/15/04
- -----------------------------------------------------------------------------------------------------------------------------------
American General Finance Corp., Medium Term Notes,
800,000 800,000 5.38%, 10/1/12
- -----------------------------------------------------------------------------------------------------------------------------------
265,000 185,000 1,600,000 2,050,000 ASIF Global Financing XIX, Sec. Notes, 4.90%, 01/17/13 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
375,000 175,000 1,000,000 1,550,000 ASIF Global Financing XX, Sec. Notes, 2.65%, 01/17/06 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Associates Corp. of North America, Sr. Global Notes, 5.80%,
250,000 200,000 1,100,000 1,550,000 04/20/04
- -----------------------------------------------------------------------------------------------------------------------------------
700,000 500,000 3,250,000 4,450,000 Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%, 05/01/20
- -----------------------------------------------------------------------------------------------------------------------------------
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes, 2.60%,
200,000 200,000 1,000,000 1,400,000 11/25/03 (g)
- -----------------------------------------------------------------------------------------------------------------------------------
150,000 600,000 750,000 Sr. Global Notes, 7.13%, 10/15/04
- -----------------------------------------------------------------------------------------------------------------------------------
1,582,000 1,582,000 Sr. Global Notes, 5.75%, 09/25/07
- -----------------------------------------------------------------------------------------------------------------------------------
-- 500,000 600,000 3,000,000 4,100,000 Citigroup Capital II, Jr. Gtd. Sub. Bonds, 7.75%, 12/01/36
- -----------------------------------------------------------------------------------------------------------------------------------
Citigroup Inc.,
600,000 300,000 3,400,000 4,300,000 Unsec. Sub. Notes, 6.63%, 06/15/32
- -----------------------------------------------------------------------------------------------------------------------------------
800,000 200,000 3,835,000 4,835,000 Fidelity Investments, Bonds, 7.57%, 06/15/29 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., Unsec. Floating Rate Notes, 1.60%,
125,000 125,000 03/17/03 (f)
- -----------------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp.-Series A, Medium Term Global
Notes,
200,000 1,000,000 1,200,000 5.00%, 06/15/07
- -----------------------------------------------------------------------------------------------------------------------------------
100,000 100,000 500,000 700,000 6.80%, 11/01/05
- -----------------------------------------------------------------------------------------------------------------------------------
Heller Financial, Inc.,
2,985,000 2,985,000 Sr. Unsec. Global Notes, 6.38%, 03/15/06
- -----------------------------------------------------------------------------------------------------------------------------------
1,500,000 1,500,000 Unsec. Global Notes, 7.38%, 11/01/09
- -----------------------------------------------------------------------------------------------------------------------------------
400,000 280,000 1,600,000 2,280,000 John Hancock Funds, Notes, 6.50%, 03/01/11 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
200,000 100,000 1,700,000 2,000,000 John Hancock Global Funding II, Notes, 5.00%, 07/27/07 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.,
1,100,000 2,200,000 8,700,000 12,000,000 Series E, Medium Term Disc. Notes, 9.94%, 02/10/28 (h)
- -----------------------------------------------------------------------------------------------------------------------------------
700,000 700,000 Sr. Notes, 8.75%, 03/15/05
- -----------------------------------------------------------------------------------------------------------------------------------
150,000 150,000 500,000 800,000 Lehman Brothers Inc., Sr. Sub. Deb., 11.63%, 05/15/05
- -----------------------------------------------------------------------------------------------------------------------------------
300,000 1,538,000 1,838,000 Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06
- -----------------------------------------------------------------------------------------------------------------------------------
NiSource Finance Corp., Sr. Unsec. Gtd. Notes, 5.75%,
9,800,000 9,800,000 04/15/03
- -----------------------------------------------------------------------------------------------------------------------------------
197,570 197,570 1,605,257 2,000,397 Regional Diversified Funding, Sr. Notes, 9.25%, 03/15/30 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings Inc., Unsec. Notes, 7.13%,
500,000 2,325,000 2,825,000 10/01/06
- -----------------------------------------------------------------------------------------------------------------------------------
350,000 1,300,000 1,650,000 Swiss Bank Corp.-NY, Sub. Notes, 7.38%, 06/15/17
- -----------------------------------------------------------------------------------------------------------------------------------
350,000 250,000 1,300,000 1,900,000 USL Capital Corp., Sr. Global Notes, 5.95%, 10/15/03
- -----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec. Notes, 8.25%,
300,000 325,000 900,000 1,525,000 06/15/05
- -----------------------------------------------------------------------------------------------------------------------------------
100,000 400,000 525,000 1,025,000 Wells Fargo Financial, Inc., Global Notes, 6.13%, 02/15/06
- -----------------------------------------------------------------------------------------------------------------------------------
2,000,000 -- -- -- 2,000,000 Texaco Capital Inc., Unsec. Gtd. Notes, 5.50%, 01/15/09
===================================================================================================================================
DIVERSIFIED METALS & MINING- 0.38%
Rio Algom Ltd. (Canada), Unsec. Yankee Deb., 7.05%,
250,000 3,500,000 3,750,000 11/01/05
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES- 11.37%
AES Corp. (The),
2,040,000 -- 350,000 1,898,000 4,288,000 Sec. Notes, 10.00%, 07/15/05 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
472,000 472,000 Sr. Sec. Notes, 10.00%, 12/12/05 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Alliant Energy Resources, Inc., Sr. Unsec. Gtd. Conv.
30,000 30,000 PHONES, 2.50%, 02/15/30
- -----------------------------------------------------------------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada), Sr. Unsec.
390,000 300,000 1,680,000 2,370,000 Gtd. Yankee Notes, 8.50%, 05/01/08
- -----------------------------------------------------------------------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds,
2,252,000 2,252,000 Series B, 9.50%, 05/15/05
- -----------------------------------------------------------------------------------------------------------------------------------
500,000 400,000 1,700,000 2,600,000 6.86%, 10/01/08
- -----------------------------------------------------------------------------------------------------------------------------------
1,925,000 1,925,000 Series D, Sec. Notes, 7.88%, 11/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
CMS Energy Corp.,
4,900,000 4,900,000 Series B, Sr. Unsec. Notes, 6.75%, 01/15/04
- -----------------------------------------------------------------------------------------------------------------------------------
180,000 180,000 Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08
- -----------------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Co., First Mortgage Bonds,
6,100,000 6,100,000 Series 83, 8.00%, 05/15/08
- -----------------------------------------------------------------------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds, 7.38%,
4,060,000 4,060,000 09/15/23
- -----------------------------------------------------------------------------------------------------------------------------------
270,000 200,000 1,100,000 1,570,000 Duke Energy Corp., Bonds, 6.45%, 10/15/32
- -----------------------------------------------------------------------------------------------------------------------------------
5,580,000 5,580,000 Duquesne Light Co., Collateral Trust Bond, 7.55%, 06/15/25
- -----------------------------------------------------------------------------------------------------------------------------------
El Paso Electric Co.,
4,755,000 -- -- -- 4,755,000 Series D, Sec. First Mortgage Bonds, 8.90%, 02/01/06
- -----------------------------------------------------------------------------------------------------------------------------------
1,000,000 3,000,000 4,000,000 Series E, Sr. Sec. First Mortgage Bonds, 9.40%, 05/01/11
- -----------------------------------------------------------------------------------------------------------------------------------
Hydro-Quebec (Canada),
-- 620,000 650,000 2,500,000 3,770,000 Gtd. Euro Notes, 1.94%, 09/29/49
- -----------------------------------------------------------------------------------------------------------------------------------
525,000 385,000 2,000,000 2,910,000 Gtd. Yankee Bonds, 9.40%, 02/01/21 (i)
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
MARKET VALUE
--------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
General Motors Acceptance Corp.
Global Bonds,
6.15%, 04/05/07 $ -- $ -- $ -- $3,050,250 $3,050,250
- -----------------------------------------------------------------------------------------------------------------------------------
6.85%, 06/17/04 392,231 1,840,872 2,233,103
- -----------------------------------------------------------------------------------------------------------------------------------
Global Unsec. Unsub. Notes, 7.00%, 02/01/12 1,938,917 1,938,917
- -----------------------------------------------------------------------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 660,472 406,444 2,235,442 3,302,358
- -----------------------------------------------------------------------------------------------------------------------------------
Unsec. Unsub. Notes, 7.63%, 06/15/04 211,032 184,653 1,028,781 1,424,466
- -----------------------------------------------------------------------------------------------------------------------------------
Household Finance Corp.,
Global Notes,
4.63%, 01/15/08 957,821 957,821
- -----------------------------------------------------------------------------------------------------------------------------------
5.75%, 01/30/07 1,210,058 1,210,058
- -----------------------------------------------------------------------------------------------------------------------------------
6.38%, 11/27/12 1,042,994 1,042,994
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Global Notes, --
6.50%, 01/24/06 268,523 214,818 1,074,090 1,557,431
- -----------------------------------------------------------------------------------------------------------------------------------
8.00%, 05/09/05 438,476 822,143 2,449,985 3,710,604
- -----------------------------------------------------------------------------------------------------------------------------------
MBNA America Bank, N.A., Notes, 6.88%, 04/15/04 -- -- 419,936 -- 419,936
===================================================================================================================================
7,302,162 3,338,808 3,542,736 5,941,217 40,124,923
===================================================================================================================================
DISTILLERS & VINTNERS- 0.40%
Constellation Brands, Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 8.13%, 01/15/12 -- 253,125 172,125 1,012,500 1,437,750
- -----------------------------------------------------------------------------------------------------------------------------------
Diageo PLC, Sr. Unsec. Gtd. Putable Notes, 7.45%, 04/15/05 -- 304,080 364,896 2,128,560 2,797,536
===================================================================================================================================
-- 557,205 537,021 3,141,060 4,235,286
===================================================================================================================================
DIVERSIFIED CHEMICALS- 0.09%
Equistar Chemicals L.P./Equistar Funding Corp., Sr. Unsec
Gtd. Global Notes, 10.13%, 09/01/08 -- 146,400 183,000 622,200 951,600
===================================================================================================================================
DIVERSIFIED FINANCIAL SERVICES- 7.07%
American General Finance Corp., Sr. Notes, 6.75%, 11/15/04 1,470,353 1,470,353
- -----------------------------------------------------------------------------------------------------------------------------------
American General Finance Corp., Medium Term Notes,
5.38%, 10/1/12 811,062 811,062
- -----------------------------------------------------------------------------------------------------------------------------------
ASIF Global Financing XIX, Sec. Notes, 4.90%, 01/17/13 (d) 264,290 184,504 1,595,712 2,044,506
- -----------------------------------------------------------------------------------------------------------------------------------
ASIF Global Financing XX, Sec. Notes, 2.65%, 01/17/06 (d) 374,557 174,793 998,820 1,548,170
- -----------------------------------------------------------------------------------------------------------------------------------
Associates Corp. of North America, Sr. Global Notes, 5.80%,
04/20/04 262,010 209,608 1,152,844 1,624,462
- -----------------------------------------------------------------------------------------------------------------------------------
Auburn Hills Trust, Unsec. Gtd. Deb., 12.38%, 05/01/20 1,063,545 759,675 4,937,888 6,761,108
- -----------------------------------------------------------------------------------------------------------------------------------
CIT Group Inc.,
Sr. Floating Rate Medium Term Global Notes, 2.60%,
11/25/03 (g) 200,126 200,126 1,000,630 1,400,882
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Global Notes, 7.13%, 10/15/04 159,201 636,804 796,005
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Global Notes, 5.75%, 09/25/07 1,639,830 1,639,830
- -----------------------------------------------------------------------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds, 7.75%, 12/01/36 -- 556,255 667,506 3,337,530 4,561,291
- -----------------------------------------------------------------------------------------------------------------------------------
Citigroup Inc.,
Unsec. Sub. Notes, 6.63%, 06/15/32 661,434 330,717 3,748,126 4,740,277
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments, Bonds, 7.57%, 06/15/29 (d) 954,664 238,666 4,576,421 5,769,751
- -----------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., Unsec. Floating Rate Notes, 1.60%,
03/17/03 (f) 124,803 124,803
- -----------------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp.-Series A, Medium Term Global
Notes,
- -----------------------------------------------------------------------------------------------------------------------------------
5.00%, 06/15/07 211,452 1,057,260 1,268,712
- -----------------------------------------------------------------------------------------------------------------------------------
6.80%, 11/01/05 111,012 111,012 555,060 777,084
- -----------------------------------------------------------------------------------------------------------------------------------
Heller Financial, Inc.,
Sr. Unsec. Global Notes, 6.38%, 03/15/06 3,267,500 3,267,500
- -----------------------------------------------------------------------------------------------------------------------------------
Unsec. Global Notes, 7.38%, 11/01/09 1,743,840 1,743,840
- -----------------------------------------------------------------------------------------------------------------------------------
John Hancock Funds, Notes, 6.50%, 03/01/11 (d) 426,912 298,838 1,707,648 2,433,398
- -----------------------------------------------------------------------------------------------------------------------------------
John Hancock Global Funding II, Notes, 5.00%, 07/27/07 (d) 207,608 103,804 1,764,668 2,076,080
- -----------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings Inc.,
Series E, Medium Term Disc. Notes, 9.94%, 02/10/28(h) 156,541 313,082 1,238,097 1,707,720
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Notes, 8.75%, 03/15/05 786,310 786,310
- -----------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%, 05/15/05 177,251 177,251 590,835 945,337
- -----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 324,126 1,661,686 1,985,812
- -----------------------------------------------------------------------------------------------------------------------------------
NiSource Finance Corp., Sr. Unsec. Gtd. Notes, 5.75%,
04/15/03 9,849,490 9,849,490
- -----------------------------------------------------------------------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes, 9.25%, 03/15/30 (d) 228,407 228,407 1,855,805 2,312,619
- -----------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings Inc., Unsec. Notes, 7.13%,
10/01/06 559,655 2,602,396 3,162,051
- -----------------------------------------------------------------------------------------------------------------------------------
Swiss Bank Corp.-NY, Sub. Notes, 7.38%, 06/15/17 418,061 1,552,798 1,970,859
- -----------------------------------------------------------------------------------------------------------------------------------
USL Capital Corp., Sr. Global Notes, 5.95%, 10/15/03 358,526 256,090 1,331,668 1,946,284
- -----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec. Notes, 8.25%,
06/15/05 338,529 366,740 1,015,587 1,720,856
- -----------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Financial, Inc., Global Notes, 6.13%, 02/15/06 108,327 433,308 568,717 1,110,352
- -----------------------------------------------------------------------------------------------------------------------------------
Texaco Capital Inc., Unsec. Gtd. Notes, 5.50%, 01/15/09 2,164,122 -- -- -- 2,164,122
===================================================================================================================================
4,615,014 7,923,166 5,378,253 56,604,493 74,520,926
===================================================================================================================================
DIVERSIFIED METALS & MINING- 0.38%
Rio Algom Ltd. (Canada), Unsec. Yankee Deb., 7.05%,
11/01/05 267,960 3,751,440 4,019,400
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES- 11.37%
AES Corp. (The),
Sec. Notes, 10.00%, 07/15/05 (d) 2,029,800 -- 348,250 1,888,510 4,266,560
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Sec. Notes, 10.00%, 12/12/05 (d) 469,640 469,640
- -----------------------------------------------------------------------------------------------------------------------------------
Alliant Energy Resources, Inc., Sr. Unsec. Gtd. Conv
PHONES, 2.50%, 02/15/30 750,000 750,000
- -----------------------------------------------------------------------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada), Sr. Unsec
Gtd. Yankee Notes, 8.50%, 05/01/08 185,250 142,500 798,000 1,125,750
- -----------------------------------------------------------------------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds,
Series B, 9.50%, 05/15/05 2,271,824 2,271,824
- -----------------------------------------------------------------------------------------------------------------------------------
6.86%, 10/01/08 545,775 436,620 1,855,635 2,838,030
- -----------------------------------------------------------------------------------------------------------------------------------
Series D, Sec. Notes, 7.88%, 11/01/17 2,207,942 2,207,942
- -----------------------------------------------------------------------------------------------------------------------------------
CMS Energy Corp.,
Series B, Sr. Unsec. Notes, 6.75%, 01/15/04 4,606,000 4,606,000
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 154,800 154,800
- -----------------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Co., First Mortgage Bonds,
Series 83, 8.00%, 05/15/08 7,330,760 7,330,760
- -----------------------------------------------------------------------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds, 7.38%,
09/15/23 3,880,897 3,880,897
- -----------------------------------------------------------------------------------------------------------------------------------
Duke Energy Corp., Bonds, 6.45%, 10/15/32 263,685 195,322 1,074,271 1,533,278
- -----------------------------------------------------------------------------------------------------------------------------------
Duquesne Light Co., Collateral Trust Bond, 7.55%, 06/15/25 5,784,010 5,784,010
- -----------------------------------------------------------------------------------------------------------------------------------
El Paso Electric Co.,
Series D, Sec. First Mortgage Bonds, 8.90%, 02/01/06 4,949,132 -- -- -- 4,949,132
- -----------------------------------------------------------------------------------------------------------------------------------
Series E, Sr. Sec. First Mortgage Bonds, 9.40%, 05/01/11 1,043,67 3,131,010 4,174,680
- -----------------------------------------------------------------------------------------------------------------------------------
Hydro-Quebec (Canada),
Gtd. Euro Notes, 1.94%, 09/29/49 -- 549,792 576,395 2,216,903 3,343,090
- -----------------------------------------------------------------------------------------------------------------------------------
Gtd. Yankee Bonds, 9.40%, 02/01/21 (i) 746,214 547,224 2,842,720 4,136,158
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- ----------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- -----------------------------------------------------------------------------------------------------------------------------------
$ 463,957 $1,856,765 $2,320,722 Kincaid Generation LLC, Sr. Sec. Bonds, 7.33%, 06/15/20 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global Notes, 13.50%,
-- 280,000 365,000 1,130,000 1,775,000 07/15/08
- -----------------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes,
4,232,000 4,232,000 9.75%, 11/01/05
- -----------------------------------------------------------------------------------------------------------------------------------
4,300,000 4,300,000 7.75%, 05/15/06 (i)
- -----------------------------------------------------------------------------------------------------------------------------------
1,750,000 1,150,000 6,700,000 9,600,000 Series H, Sr. Unsec. Notes, 8.50%, 07/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
Pacific Gas & Electric Co.-Series 92D, First Mortgage Bonds,
2,223,000 2,223,000 8.25%, 11/01/22
- -----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Power Co., First Mortgage Bonds, 8.50%,
2,000,000 2,000,000 07/15/22
- -----------------------------------------------------------------------------------------------------------------------------------
2,200,000 2,200,000 Potomac Edison Co., First Mortgage Bonds, 8.00%, 12/01/22
- -----------------------------------------------------------------------------------------------------------------------------------
Public Service Company of New Mexico, Sr. Unsec. Notes,
11,375,000 120,000 300,000 1,200,000 12,995,000 Series A, 7.10%, 08/01/05
- -----------------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 Series B, 7.50%, 08/01/18
- -----------------------------------------------------------------------------------------------------------------------------------
RGS (I&M) Funding Corp.-Series F, Sec. Lease Obligation
4,962,416 4,962,416 Bonds, 9.82%, 12/07/22
- -----------------------------------------------------------------------------------------------------------------------------------
South Carolina Electric & Gas Co., First Mortgage Bonds,
1,550,000 1,550,000 9.00%, 07/15/06
- -----------------------------------------------------------------------------------------------------------------------------------
Texas-New Mexico Power Co., Sr. Unsec. Notes, 6.25%,
-- 620,000 2,000,000 4,800,000 7,420,000 01/15/09
- -----------------------------------------------------------------------------------------------------------------------------------
Toledo Edison Co.-Series A, First Mortgage, Medium Term
1,975,000 1,975,000 Bonds, 9.22%, 12/15/21
- -----------------------------------------------------------------------------------------------------------------------------------
TXU U.S. Holdings Co., First Mortgage Collateral Trust,
5,000,000 5,000,000 8.75%, 11/01/23
- -----------------------------------------------------------------------------------------------------------------------------------
348,000 348,000 7.63%, 07/01/25
- -----------------------------------------------------------------------------------------------------------------------------------
Wisconsin Public Service Corp., Sr. Sec. Notes, 4.88%,
1,500,000 1,500,000 12/01/12
====================================================================================================================================
====================================================================================================================================
ELECTRONIC COMPONENTS & EQUIPMENT - 0.11%
ASM Lithography Holding N.V. (Netherlands), Conv. Yankee
-- -- 1,250,000 -- 1,250,000 Bonds, 4.25%, 11/30/04
====================================================================================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS- 0.01%
85,000 85,000 Solectron Corp., Sr. Unsec. Notes, 9.63%, 02/15/09
===================================================================================================================================
ENVIRONMENTAL SERVICES-0.34%
Allied Waste North America Inc.-Sr. Sec. Gtd. Notes, 9.25%,
575,000 575,000 09/01/12 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
350,000 2,570,000 2,920,000 Browning-Ferris Industries, Inc., Deb., 9.25%, 05/01/21
- -----------------------------------------------------------------------------------------------------------------------------------
360,000 360,000 IESI Corp., Sr. Sub. Notes, 10/25%, 06/15/12
===================================================================================================================================
===================================================================================================================================
FERTILIZERS & AGRICULTURAL CHEMICAL- 0.15%
IMC Global Inc.-Series B, Sr. Unsec. Gtd. Notes, 11.25%,
1,450,000 1,450,000 06/01/11
===================================================================================================================================
FOOD DISTRIBUTORS- 0.17%
530,000 Fleming Cos. Inc., Sr. Unsec. Gtd. Notes, 9.25%, 06/15/10 (b)
- -----------------------------------------------------------------------------------------------------------------------------------
260,000 180,000 1,045,000 1,485,000 Roundy's, Inc.-Series B, Sr. Sub. Notes, 8.88%, 06/15/12 (d)
===================================================================================================================================
===================================================================================================================================
FOREST PRODUCTS- 0.24%
1,625,000 1,625,000 Georgia-Pacific Corp., Sr. Notes, 9.38%, 02/01/13 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
155,000 110,000 635,000 900,000 Louisiana-Pacific Corp., Sr. Unsec. Notes, 8.50%, 08/15/05
===================================================================================================================================
===================================================================================================================================
GAS UTILITIES- 0.76%
Consolidated Natural Gas Co.-Series B, Sr. Unsec. Unsub.
1,980,000 1,980,000 Notes, 5.38%, 11/01/06
- -----------------------------------------------------------------------------------------------------------------------------------
-- 700,000 750,000 2,725,000 4,175,000 Kinder Morgan, Inc., Sr. Notes, 6.80%, 03/01/08
- -----------------------------------------------------------------------------------------------------------------------------------
650,000 1,000,000 1,650,000 Tennessee Gas Pipeline Co., Unsec. Deb., 7.63%, 04/01/37
===================================================================================================================================
===================================================================================================================================
GENERAL MERCHANDISE STORES-0.15%
250,000 200,000 1,000,000 1,450,000 Wal-Mart Stores, Inc., Unsec. Deb., 8.50%, 09/15/24
===================================================================================================================================
HEALTH CARE EQUIPMENT- 0.01%
Radiologix, Inc.-Series B, Sr. Unsec. Gtd. Global Notes,
85,000 10.50%, 12/15/08
===================================================================================================================================
HEALTH CARE FACILITIES- 0.60%
Hanger Orthopedic Group, Inc., Sr. Unsec. Gtd. Global Notes,
-- 450,000 400,000 1,820,000 2,670,000 10.38%, 02/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
Select Medical Corp., Sr. Unsec. Sub. Global Notes, 9.50%,
-- -- 140,000 -- 140,000 06/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
815,000 815,000 Tenet Healthcare Corp., Sr. Unsec. Notes, 6.50%, 06/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
United Surgical Partners International, Inc., Sr. Unsec. Gtd.
2,450,000 2,450,000 Sub. Notes, 10.00%, 12/15/11
===================================================================================================================================
===================================================================================================================================
HEALTH CARE SUPPLIES- 0.09%
Advanced Medical Optics, Inc., Sr. Sub Notes, 9.25%,
950,000 950,000 07/15/10
===================================================================================================================================
HOMEBUILDING- 0.49%
Beazer Homes USA, Inc., Sr. Unsec. Gtd. Global Notes
-- -- 115,000 -- 115,000 8.38%, 04/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
K Hovnanian Enterprises, Inc., Sr. Unsec. Gtd. Notes, 10.50%,
500,000 400,000 1,750,000 2,650,000 10/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
485,000 485,000 Ryland Group, Sr. Unsec. Global Notes, 9.75%, 09/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub. Global Notes,
285,000 350,000 1,150,000 1,785,000 9.13%, 05/01/12
===================================================================================================================================
===================================================================================================================================
HOTELS, RESORTS & CRUISE LINES- 0.03%
John Q. Hammons Hotels, Inc., Sr. First Mortgage Global
-- -- 120,000 -- 120,000 Notes, 8.88%, 05/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr. Unsec. Gtd. Sub.
150,000 150,000 Global Notes, 8.88%, 08/15/11
===================================================================================================================================
===================================================================================================================================
INDUSTRIAL GASES- 0.12%
1,225,000 1,225,000 Praxair, Inc., Unsec. Notes, 4.75%, 07/15/07
===================================================================================================================================
===================================================================================================================================
<Caption>
MARKET VALUE
----------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- -----------------------------------------------------------------------------------------------------------------------------------
Kincaid Generation LLC, Sr. Sec. Bonds, 7.33%, 06/15/20 (d) $ -- $ 438,801 $1,756,091 $ 2,194,892
- -----------------------------------------------------------------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global Notes, 13.50%,
07/15/08 -- 77,000 100,375 310,750 488,125
- -----------------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes,
9.75%, 11/01/05 4,922,586 4,922,586
- -----------------------------------------------------------------------------------------------------------------------------------
7.75%, 05/15/06 (i) 4,883,209 4,883,209
- -----------------------------------------------------------------------------------------------------------------------------------
Series H, Sr. Unsec. Notes, 8.50%, 07/01/10 1,760,255 1,156,739 6,739,262 9,656,256
- -----------------------------------------------------------------------------------------------------------------------------------
Pacific Gas & Electric Co.-Series 92D, First Mortgage Bonds,
8.25%, 11/01/22 2,145,195 2,145,195
- -----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Power Co., First Mortgage Bonds, 8.50%,
07/15/22 2,094,680 2,094,680
- -----------------------------------------------------------------------------------------------------------------------------------
Potomac Edison Co., First Mortgage Bonds, 8.00%, 12/01/22 2,181,837 2,181,837
- -----------------------------------------------------------------------------------------------------------------------------------
Public Service Company of New Mexico, Sr. Unsec. Notes,
Series A, 7.10%, 08/01/05 11,689,269 123,263 308,157 1,232,628 13,353,317
- -----------------------------------------------------------------------------------------------------------------------------------
Series B, 7.50%, 08/01/18 946,379 946,379
- -----------------------------------------------------------------------------------------------------------------------------------
RGS (I&M) Funding Corp.-Series F, Sec. Lease Obligation
Bonds, 9.82%, 12/07/22 5,128,260 5,128,260
- -----------------------------------------------------------------------------------------------------------------------------------
South Carolina Electric & Gas Co., First Mortgage Bonds,
9.00%, 07/15/06 1,700,769 1,700,769
- -----------------------------------------------------------------------------------------------------------------------------------
Texas-New Mexico Power Co., Sr. Unsec. Notes, 6.25%,
01/15/09 -- 594,022 1,916,200 4,598,880 7,109,102
- -----------------------------------------------------------------------------------------------------------------------------------
Toledo Edison Co.-Series A, First Mortgage Collateral Trust,
Bonds, 9.22%, 12/15/21 2,072,340 2,072,340
- -----------------------------------------------------------------------------------------------------------------------------------
TXU U.S. Holdings Co., First Mortgage Collateral Trust,
8.75%, 11/01/23 5,236,485 5,236,485
- -----------------------------------------------------------------------------------------------------------------------------------
7.63%, 07/01/25 354,035 354,035
- -----------------------------------------------------------------------------------------------------------------------------------
Wisconsin Public Service Corp., Sr. Sec. Notes, 4.88%,
12/01/12 1,519,215 1,519,215
===================================================================================================================================
65,453,171 6,797,367 5,882,582 41,676,113 119,809,233
===================================================================================================================================
ELECTRONIC COMPONENTS & EQUIPMENT - 0.11%
ASM Lithography Holding N.V. (Netherlands), Conv. Yankee
Bonds, 4.25%, 11/30/04 -- -- 1,140,625 -- 1,140,625
===================================================================================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS- 0.01%
Solectron Corp., Sr. Unsec. Notes, 9.63%, 02/15/09 86,700 86,700
===================================================================================================================================
ENVIRONMENTAL SERVICES-0.34%
Allied Waste North America Inc.-Sr. Sec. Gtd. Notes, 9.25%,
09/01/12 (d) 587,937 587,937
- -----------------------------------------------------------------------------------------------------------------------------------
Browning-Ferris Industries, Inc., Deb., 9.25%, 05/01/21 323,750 2,377,250 2,701,000
- -----------------------------------------------------------------------------------------------------------------------------------
IESI Corp., Sr. Sub. Notes, 10/25%, 06/15/12 352,800 352,800
===================================================================================================================================
940,737 323,750 -- 2,377,250 3,641,737
===================================================================================================================================
FERTILIZERS & AGRICULTURAL CHEMICAL- 0.15%
IMC Global Inc.-Series B, Sr. Unsec. Gtd. Notes, 11.25%,
06/01/11 1,551,500 1,551,500
===================================================================================================================================
FOOD DISTRIBUTORS- 0.17%
Fleming Cos. Inc., Sr. Unsec. Gtd. Notes, 9.25%, 06/15/10 (b) 365,700 365,700
- -----------------------------------------------------------------------------------------------------------------------------------
Roundy's, Inc.-Series B, Sr. Sub. Notes, 8.88%, 06/15/12 (d) 254,808 176,405 1,024,131 1,455,344
===================================================================================================================================
365,700 254,808 176,405 1,024,131 1,821,044
===================================================================================================================================
FOREST PRODUCTS- 0.24%
Georgia-Pacific Corp., Sr. Notes, 9.38%, 02/01/13 (d) 1,616,875 1,616,875
- -----------------------------------------------------------------------------------------------------------------------------------
Louisiana-Pacific Corp., Sr. Unsec. Notes, 8.50%, 08/15/05 161,200 114,400 660,400 936,000
===================================================================================================================================
1,616,875 161,200 114,400 660,400 2,552,875
===================================================================================================================================
GAS UTILITIES- 0.76%
Consolidated Natural Gas Co.-Series B, Sr. Unsec. Unsub.
Notes, 5.38%, 11/01/06 2,101,754 2,101,754
- -----------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Notes, 6.80%, 03/01/08 -- 758,100 812,250 2,951,175 4,521,525
- -----------------------------------------------------------------------------------------------------------------------------------
Tennessee Gas Pipeline Co., Unsec. Deb., 7.63%, 04/01/37 549,250 845,000 1,394,250
===================================================================================================================================
2,101,754 1,307,350 812,250 3,796,175 8,017,529
===================================================================================================================================
GENERAL MERCHANDISE STORES-0.15%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%, 09/15/24 282,178 225,742 1,128,710 1,636,630
===================================================================================================================================
HEALTH CARE EQUIPMENT- 0.01%
Radiologix, Inc.-Series B, Sr. Unsec. Gtd. Global Notes,
10.50%, 12/15/08 64,175 64,175
===================================================================================================================================
HEALTH CARE FACILITIES- 0.60%
Hanger Orthopedic Group, Inc., Sr. Unsec. Gtd. Global Notes,
10.38%, 02/15/09 -- 477,000 424,000 1,929,200 2,830,200
- -----------------------------------------------------------------------------------------------------------------------------------
Select Medical Corp., Sr. Unsec. Sub. Global Notes, 9.50%,
06/15/09 -- -- 147,700 -- 147,700
- -----------------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., Sr. Unsec. Notes, 6.50%, 06/01/12 776,287 776,287
- -----------------------------------------------------------------------------------------------------------------------------------
United Surgical Partners International, Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.00%, 12/15/11 2,548,000 2,548,000
===================================================================================================================================
3,324,287 477,000 571,700 1,929,200 6,302,187
===================================================================================================================================
HEALTH CARE SUPPLIES- 0.09%
Advanced Medical Optics, Inc., Sr. Sub Notes, 9.25%,
07/15/10 973,750 973,750
===================================================================================================================================
HOMEBUILDING- 0.49%
Beazer Homes USA, Inc., Sr. Unsec. Gtd. Global Notes
8.38%, 04/15/12 -- -- 119,888 -- 119,888
- -----------------------------------------------------------------------------------------------------------------------------------
K Hovnanian Enterprises, Inc., Sr. Unsec. Gtd. Notes, 10.50%,
10/01/07 547,500 438,000 1,916,250 2,901,750
- -----------------------------------------------------------------------------------------------------------------------------------
Ryland Group, Sr. Unsec. Global Notes, 9.75%, 09/01/10 535,925 535,925
- -----------------------------------------------------------------------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub. Global Notes,
9.13%, 05/01/12 257,925 316,750 1,040,750 1,615,425
===================================================================================================================================
535,925 805,425 874,638 2,957,000 5,172,988
===================================================================================================================================
HOTELS, RESORTS & CRUISE LINES- 0.03%
John Q. Hammons Hotels, Inc., Sr. First Mortgage Global
Notes, 8.88%, 05/15/12 -- -- 122,400 -- 122,400
- -----------------------------------------------------------------------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr. Unsec. Gtd. Sub.
Global Notes, 8.88%, 08/15/11 155,250 155,250
===================================================================================================================================
-- -- 277,650 -- 277,650
===================================================================================================================================
INDUSTRIAL GASES- 0.12%
Praxair, Inc., Unsec. Notes, 4.75%, 07/15/07 1,275,764 1,275,764
===================================================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- --------------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- ----------- ---------- ---------- ----------- -----------
INDUSTRIAL MACHINERY- 0.16%
$ 200,000 $ 250,000 $ 1,175,000 $ 1,625,000 Pall Corp., Notes, 6.00%, 08/01/12 (d)
====================================================================================================================================
INTEGRATED OIL & GAS- 2.14%
BP Canada Finance Co. (Canada), Unsec. Gtd.
1,000,000 750,000 1,750,000 Unsub. Yankee Bonds, 3.38%, 10/31/07
- -----------------------------------------------------------------------------------------------------------------------------------
Conoco Inc., Sr. Unsec. Global Notes,
1,025,000 1,025,000 5.90%, 04/15/04
- -----------------------------------------------------------------------------------------------------------------------------------
El Paso Energy Partners, L.P., Series B,
Sr. Unsec. Gtd. Sub.
110,000 110,000 Global Notes, 8.50%, 06/01/11
- -----------------------------------------------------------------------------------------------------------------------------------
Husky Oil Ltd. (Canada),
600,000 3,000,000 3,600,000 Sr. Unsec. Yankee Notes, 7.13%, 11/15/06
- -----------------------------------------------------------------------------------------------------------------------------------
250,000 625,000 2,645,000 3,520,000 Yankee Bonds, 8.90%, 08/15/28
- -----------------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp.,
950,000 950,000 4,375,000 6,275,000 Sr. Putable Deb., 9.25%, 08/01/19
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes,
250,000 400,000 650,000 6.50%, 04/01/05
- -----------------------------------------------------------------------------------------------------------------------------------
750,000 1,800,000 2,550,000 7.38%, 11/15/08
===================================================================================================================================
INTEGRATED TELECOMMUNICATION SERVICES- 3.39%
AT&T Canada Inc. (Canada),
12,010,000 12,010,000 Sr. Yankee Disc. Notes, 9.95%,06/15/08 (j)
- -----------------------------------------------------------------------------------------------------------------------------------
COLT Telecom Group PLC (United Kingdom), Sr.
2,070,000 2,070,000 Unsec. Yankee Notes, 12.00%, 12/15/06 (j)
- -----------------------------------------------------------------------------------------------------------------------------------
France Telecommunications Corp. (France), Notes,
1,500,000 1,500,000 9.25%, 03/01/11
- -----------------------------------------------------------------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
-- 200,000 140,000 700,000 1,040,000 Unsec. Deb., 7.00%, 02/01/06
- -----------------------------------------------------------------------------------------------------------------------------------
250,000 250,000 NTELOS Inc., Sr. Unsec. Notes, 13.00%, 08/15/10
- -----------------------------------------------------------------------------------------------------------------------------------
7,125,000 7,125,000 Qwest Corp., Notes, 5.65%, 11/01/04
- -----------------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp.
4,675,000 4,675,000 Gtd. Global Bonds, 7.63%, 01/30/11
- -----------------------------------------------------------------------------------------------------------------------------------
300,000 600,000 1,065,000 1,965,000 Gtd. Global Notes, 5.88%, 05/01/04
- -----------------------------------------------------------------------------------------------------------------------------------
-- Sr. Unsec. Gtd. Global Notes,
400,000 1,000,000 2,500,000 3,900,000 5.70%, 11/15/03
- -----------------------------------------------------------------------------------------------------------------------------------
300,000 255,000 1,300,000 1,855,000 6.00%, 01/15/07
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Unsub. Gtd. Global Notes,
400,000 440,000 2,500,000 3,340,000 6.13%, 11/15/08
- -----------------------------------------------------------------------------------------------------------------------------------
200,000 2,500,000 2,700,000 Sprint Corp., Deb., 9.00%, 10/15/19
- -----------------------------------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
Verizon Global Funding Corp., Sr. Unsec. Notes,
1,640,000 -- -- -- 1,640,000 6.88%, 06/15/12
- -----------------------------------------------------------------------------------------------------------------------------------
1,410,000 1,410,000 Verizon Maryland Inc., Notes, 6.13%, 03/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
350,000 600,000 1,000,000 1,950,000 Notes, 5.65%, 11/15/11
===================================================================================================================================
===================================================================================================================================
LEISURE FACILITIES- 0.06%
Hilton Hotels Corp., Sr. Unsec. Notes,
-- 105,000 95,000 430,000 630,000 7.63%, 12/01/12
===================================================================================================================================
LIFE & HEALTH INSURANCE- 0.45%
Americo Life, Inc., Sr. Sub. Notes,
1,000,000 1,000,000 9.25%, 06/01/05
- -----------------------------------------------------------------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb.,
100,000 375,000 835,000 1,310,00 0 9.13%, 10/01/24
- -----------------------------------------------------------------------------------------------------------------------------------
Sun Canada Financial Co., Gtd. Sub.
700,000 700,000 Bonds, 6.63%, 12/15/07 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
1,325,000 1,325,000 Torchmark Corp., Notes, 7.88%, 05/15/23
===================================================================================================================================
===================================================================================================================================
METAL & GLASS CONTAINERS- 0.10%
985,000 985,000 Jarden Corp., Sr. Sub. Notes, 9.75%, 05/01/12
===================================================================================================================================
MOVIES & ENTERTAINMENT- 0.18%
AOL Time Warner Inc.,
585,000 585,000 Sr. Gtd. Unsub. Global Notes, 6.13%, 04/15/06
- -----------------------------------------------------------------------------------------------------------------------------------
400,000 400,000 Sr. Unsec. Gtd. Notes, 6.88%, 05/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
400,000 400,000 Sr. Unsec. Gtd. Notes, 6.75%, 04/15/11
- -----------------------------------------------------------------------------------------------------------------------------------
Walt Disney Co. (The), Medium Term Notes,
400,000 400,000 5.25%, 11/10/03
===================================================================================================================================
===================================================================================================================================
MULTI-UTILITIES & UNREGULATED POWER- 0.65%
1,595,000 1,595,000 Aquila, Inc., Notes, 14.38%, 07/01/12 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Aquila, Inc., Sr. Unsec. Notes,
355,000 355,000 8.70%, 02/01/11
- -----------------------------------------------------------------------------------------------------------------------------------
545,000 545,000 6.88%, 10/01/04
- -----------------------------------------------------------------------------------------------------------------------------------
Avista Corp., First Mortgage Bonds,
3,000,000 3,000,000 7.75%, 01/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Westar Energy, Inc., Sr. Unsec. Notes,
2,194,000 2,194,000 7.13%, 08/01/09
====================================================================================================================================
====================================================================================================================================
OFFICE SERVICES & SUPPLIES- 0.24%
Mail-Well Corp., Sr. Unsec. Gtd. Notes,
2,740,000 2,740,000 9.63%, 03/15/12
====================================================================================================================================
OIL & GAS DRILLING- 0.65%
Transocean Inc. (Cayman Islands), Unsec. Notes,
-- 1,270,000 525,000 4,300,000 6,095,000 6.95%, 04/15/08
====================================================================================================================================
OIL & GAS EQUIPMENT & SERVICES- 0.50%
National-Oilwell, Inc.-Series B, Sr. Unsec.
-- 1,000,000 -- 4,000,000 5,000,000 Notes, 6.50%, 03/15/11
====================================================================================================================================
OIL & GAS EXPLORATION & PRODUCTION- 4.98%
Amerada Hess Corp., Unsec. Notes,
100,000 200,000 1,050,000 1,350,000 5.30%, 08/15/04
- -----------------------------------------------------------------------------------------------------------------------------------
250,000 400,000 1,000,000 1,650,000 7.30%, 08/15/31
- -----------------------------------------------------------------------------------------------------------------------------------
Anadarko Petroleum Corp., Unsec. Putable Deb.,
1,200,000 1,000,000 1,200,000 3,400,000 7.73%, 09/15/26
- -----------------------------------------------------------------------------------------------------------------------------------
Burlington Resources Finance Co. (Canada), Sr.
300,000 700,000 1,400,000 2,400,000 Unsec. Gtd. Yankee Notes, 7.40%, 12/01/31
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Canada), Unsec.
-- 275,000 -- -- 275,000 Yankee Notes, 6.70%, 07/15/11
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Oil Sands Ltd. (Canada), Sr. Yankee
625,000 225,000 3,200,000 4,050,000 Notes, 7.90%, 09/01/21 (d)
- -----------------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd. Notes,
310,000 240,000 1,250,000 1,800,000 8.38%, 11/01/08
- -----------------------------------------------------------------------------------------------------------------------------------
Devon Energy Corp., Sr. Unsec. Deb.,
150,000 400,000 795,000 1,345,000 7.95%, 04/15/32
- -----------------------------------------------------------------------------------------------------------------------------------
Devon Financing Corp. ULC, Unsec. Gtd. Unsub.
500,000 300,000 2,155,000 2,955,000 Global Deb., 7.88%, 09/30/31
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
MARKET VALUE
-----------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
------- ----------- --------- ----------- ----------
INDUSTRIAL MACHINERY- 0.16%
Pall Corp., Notes, 6.00%, 08/01/12 (d) $ 210,312 $ 262,890 $ 1,235,583 $ 1,708,785
====================================================================================================================================
INTEGRATED OIL & GAS- 2.14%
BP Canada Finance Co. (Canada), Unsec. Gtd. Unsub. Yankee
Bonds, 3.38%, 10/31/07 1,001,050 750,787 1,751,837
- -----------------------------------------------------------------------------------------------------------------------------------
Conoco Inc., Sr. Unsec. Global Notes, 5.90%, 04/15/04 1,074,672 1,074,672
- -----------------------------------------------------------------------------------------------------------------------------------
El Paso Energy Partners, L.P., Series B, Sr. Unsec. Gtd. Sub.
Global Notes, 8.50%, 06/01/11 107,800 107,800
- -----------------------------------------------------------------------------------------------------------------------------------
Husky Oil Ltd. (Canada),
Sr. Unsec. Yankee Notes, 7.13%, 11/15/06 660,600 3,303,000 3,963,600
- -----------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds, 8.90%, 08/15/28 274,727 686,818 2,906,614 3,868,159
- -----------------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp.,
Sr. Putable Deb., 9.25%, 08/01/19 1,240,767 1,240,767 5,714,056 8,195,590
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes,
6.50%, 04/01/05 269,015 430,424 699,439
- -----------------------------------------------------------------------------------------------------------------------------------
7.38%, 11/15/08 864,225 2,074,140 2,938,365
====================================================================================================================================
-- 4,041,369 3,055,187 15,502,90 22,599,462
====================================================================================================================================
INTEGRATED TELECOMMUNICATION SERVICES- 3.39%
AT&T Canada Inc. (Canada),
Sr. Yankee Disc. Notes, 9.95%,06/15/08 (j) 2,041,700 2,041,700
- -----------------------------------------------------------------------------------------------------------------------------------
COLT Telecom Group PLC (United Kingdom), Sr. Unsec.
Yankee Notes, 12.00%, 12/15/06 (j) 1,449,000 1,449,000
- -----------------------------------------------------------------------------------------------------------------------------------
France Telecommunications Corp. (France), Notes, 9.25%,
03/01/11 1,720,468 1,720,468
- -----------------------------------------------------------------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A, Unsec. Deb.,
7.00%, 02/01/06 -- 217,204 152,043 760,214 1,129,461
- -----------------------------------------------------------------------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%, 08/15/10 71,250 71,250
- -----------------------------------------------------------------------------------------------------------------------------------
Qwest Corp., Notes, 5.65%, 11/01/04 6,697,500 6,697,500
- -----------------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp.
Gtd. Global Bonds, 7.63%, 01/30/11 4,324,375 4,324,375
- -----------------------------------------------------------------------------------------------------------------------------------
Gtd. Global Notes, 5.88%, 05/01/04 294,375 588,750 1,045,031 1,928,156
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, -
5.70%, 11/15/03 398,500 996,250 2,490,625 3,885,375
- -----------------------------------------------------------------------------------------------------------------------------------
6.00%, 01/15/07 273,375 232,369 1,184,625 1,690,369
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Unsub. Gtd. Global Notes, 6.13%, 11/15/08 348,500 383,350 2,178,125 2,909,975
- -----------------------------------------------------------------------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 186,750 2,334,375 2,521,125
- -----------------------------------------------------------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
Verizon Global Funding Corp., Sr. Unsec. Notes,
6.88%, 06/15/12 1,821,130 -- -- -- 1,821,130
- -----------------------------------------------------------------------------------------------------------------------------------
Verizon Maryland Inc., Notes, 6.13%, 03/01/12 1,510,900 1,510,900
- -----------------------------------------------------------------------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global Notes, 5.65%,
11/15/11 365,753 627,006 1,045,010 2,037,769
====================================================================================================================================
19,565,073 2,084,457 3,051,018 11,038,005 35,738,553
====================================================================================================================================
LEISURE FACILITIES- 0.06%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%, 12/01/12 -- 103,688 93,813 424,625 622,126
====================================================================================================================================
LIFE & HEALTH INSURANCE- 0.45%
Americo Life, Inc., Sr. Sub. Notes, 9.25%, 06/01/05 955,000 955,000
- -----------------------------------------------------------------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%, 10/01/24 114,556 429,585 956,543 1,500,684
- -----------------------------------------------------------------------------------------------------------------------------------
Sun Canada Financial Co., Gtd. Sub. Bonds, 6.63%, 12/15/07 (d) 756,539 756,539
- -----------------------------------------------------------------------------------------------------------------------------------
Torchmark Corp., Notes, 7.88%, 05/15/23 1,480,476 1,480,476
====================================================================================================================================
-- 114,556 429,585 4,148,558 4,692,699
====================================================================================================================================
METAL & GLASS CONTAINERS- 0.10%
Jarden Corp., Sr. Sub. Notes, 9.75%, 05/01/12 1,021,938 1,021,938
====================================================================================================================================
MOVIES & ENTERTAINMENT- 0.18%
AOL Time Warner Inc., --
Sr. Gtd. Unsub. Global Notes, 6.13%, 04/15/06 607,388 607,388
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 6.88%, 05/01/12 416,497 416,497
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 6.75%, 04/15/11 411,902 411,902
- -----------------------------------------------------------------------------------------------------------------------------------
Walt Disney Co. (The), Medium Term Notes, 5.25%, 11/10/03 409,600 409,600
===================================================================================================================================
828,399 -- -- 1,016,988 1,845,387
===================================================================================================================================
MULTI-UTILITIES & UNREGULATED POWER- 0.65%
Aquila, Inc., Notes, 14.38%, 07/01/12 (d) 1,228,150 1,228,150
- -----------------------------------------------------------------------------------------------------------------------------------
Aquila, Inc., Sr. Unsec. Notes,
8.70%, 02/01/11 242,061 242,061
- -----------------------------------------------------------------------------------------------------------------------------------
6.88%, 10/01/04 414,197 414,197
- -----------------------------------------------------------------------------------------------------------------------------------
Avista Corp., First Mortgage Bonds, 7.75%, 01/01/07 3,130,815 3,130,815
- -----------------------------------------------------------------------------------------------------------------------------------
Westar Energy, Inc., Sr. Unsec. Notes, 7.13%, 08/01/09 1,821,020 1,821,020
===================================================================================================================================
6,836,243 -- -- -- 6,836,243
===================================================================================================================================
OFFICE SERVICES & SUPPLIES- 0.24%
Mail-Well Corp., Sr. Unsec. Gtd. Notes, 9.63%, 03/15/12 2,479,700 2,479,700
- -----------------------------------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING- 0.65%
Transocean Inc. (Cayman Islands), Unsec. Notes, 6.95%,
04/15/08 -- 1,421,041 587,438 4,811,399 6,819,878
- -----------------------------------------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES- 0.50%
National-Oilwell, Inc.-Series B, Sr. Unsec. Notes, 6.50%,
03/15/11 -- 1,055,390 -- 4,221,560 5,276,950
===================================================================================================================================
OIL & GAS EXPLORATION & PRODUCTION- 4.98%
Amerada Hess Corp., Unsec. Notes,
5.30%, 08/15/04 104,322 208,644 1,095,381 1,408,347
- -----------------------------------------------------------------------------------------------------------------------------------
7.30%, 08/15/31 263,980 422,368 1,055,920 1,742,268
- -----------------------------------------------------------------------------------------------------------------------------------
Anadarko Petroleum Corp., Unsec. Putable Deb., 7.73%,
09/15/26 1,438,932 1,199,110 1,438,932 4,076,974
- -----------------------------------------------------------------------------------------------------------------------------------
Burlington Resources Finance Co. (Canada), Sr. Unsec. Gtd.
Yankee Notes, 7.40%, 12/01/31 351,429 820,001 1,640,002 2,811,432
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Canada), Unsec. Yankee
Notes, 6.70%, 07/15/11 -- 305,641 -- -- 305,641
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Oil Sands Ltd. (Canada), Sr. Yankee Notes, 7.90%,
09/01/21 (d) 699,206 251,714 3,579,936 4,530,856
- -----------------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd. Notes, 8.38%,
11/01/08 326,275 252,600 1,315,625 1,894,500
- -----------------------------------------------------------------------------------------------------------------------------------
Devon Energy Corp., Sr. Unsec. Deb., 7.95%, 04/15/32 179,508 478,688 951,392 1,609,588
- -----------------------------------------------------------------------------------------------------------------------------------
Devon Financing Corp. ULC, Unsec. Gtd. Unsub. Global Deb.,
7.88%, 09/30/31 593,625 356,175 2,558,524 3,508,324
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- -----------------------------------------------------------------
INVESCO AIM AIM AIM AIM
SELECT GLOBAL STRATEGIC INCOME INCOME
INCOME INCOME INCOME FUND FUND
FUND FUND FUND PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
Kerr-McGee Corp., Jr. Conv. Sub. Unsec. Deb., 5.25%,
$ -- $ -- $ 1,000,000 $ -- $ 1,000,000 02/15/10
- ------------------------------------------------------------------------------------------------------------------------------------
750,000 750,000 Kestrel Solutions, Conv. Sub. Notes, 5.25%, 07/15/05 (b)
- ------------------------------------------------------------------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec. Notes, 6.88%,
550,000 550,000 3,500,000 4,600,000 12/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec. Unsub. Notes, 7.63%,
2,200,000 1,500,000 5,500,000 9,200,000 03/01/11
- ------------------------------------------------------------------------------------------------------------------------------------
Noble Energy, Inc.,
700,000 710,000 3,000,000 4,410,000 Sr. Unsec. Deb., 7.25%, 08/01/97
- ------------------------------------------------------------------------------------------------------------------------------------
500,000 800,000 2,800,000 4,100,000 Sr. Unsec. Notes, 8.00%, 04/01/27
- ------------------------------------------------------------------------------------------------------------------------------------
Pogo Producing Co.-Series B, Sr. Unsec. Sub. Notes, 10.38%,
395,000 395,000 02/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
1,665,000 1,665,000 Parker & Parsley Petroleum Co., Sr. Notes, 8.25%, 08/15/07
- ------------------------------------------------------------------------------------------------------------------------------------
70,000 70,000 Swift Energy Co., Sr. Unsec. Sub. Notes, 9.38%, 05/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
1,800,000 1,800,000 Vintage Petroleum, Inc., Sr. Unsec. Notes, 8.25%, 05/01/12
- ------------------------------------------------------------------------------------------------------------------------------------
Union Pacific Resources Group Inc., Unsec. Notes, 6.75%,
300,000 1,050,000 1,350,000 05/15/08
====================================================================================================================================
OIL & GAS REFINING, MARKETING & TRANSPORTATION- 1.27%
-- -- 390,000 -- 390,000 Frontier Oil Corp., Sr. Unsec. Sub. Notes, 11.75%, 11/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
1,000,000 1,000,000 Marathon Oil Corp., Unsec. Notes, 5.38%, 06/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos (Mexico),
480,000 600,000 2,500,000 3,580,000 Sr. Unsec. Gtd. Yankee Bonds, 9.38%, 12/02/08
- ------------------------------------------------------------------------------------------------------------------------------------
Series P, Sr. Unsec. Putable Unsub. Yankee Bonds, 9.50%,
900,000 500,000 3,100,000 4,500,000 03/15/06
- ------------------------------------------------------------------------------------------------------------------------------------
Plains All American Pipeline, Sr. Unsec. Gtd. Notes, 7.75%,
300,000 300,000 10/15/12
====================================================================================================================================
400,000 275,000 1,560,000 2,235,000 Premco Refining Group Inc. (The), Sr. Notes, 9.25%,
02/01/10 (d)
====================================================================================================================================
PACKAGED FOODS & MEATS- 0.10%
160,000 300,000 640,000 1,100,000 Dole Food Co., Inc., Sr. Unsec. Global Notes, 7.25%, 05/01/09
====================================================================================================================================
PAPER PACKAGING- 0.40%
4,400,000 -- -- -- 4,400,000 Chesapeake Corp., Deb., 7.20%, 03/15/05
====================================================================================================================================
PAPER PRODUCTS- 0.23%
1,500,000 1,500,000 Abitibi-Consolidated Inc., Unsec. Notes, 6.95%, 04/01/08
- ------------------------------------------------------------------------------------------------------------------------------------
Appleton Papers Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes,
790,000 790,000 12.50%, 12/15/08
====================================================================================================================================
====================================================================================================================================
PHARMACEUTICALS- 0.47%
aaiPharma Inc., Sr. Sub. Unsec. Gtd. Global Notes, 11.00%,
-- -- 250,000 -- 250,000 04/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
575,000 575,000 AmerisourceBergen Corp., Sr. Gtd. Notes, 7.25%, 11/15/12 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee Notes, 7.88%,
200,000 200,000 04/01/10
- ------------------------------------------------------------------------------------------------------------------------------------
275,000 400,000 2,200,000 2,875,000 Johnson & Johnson, Unsec. Deb., 8.72%, 11/01/24
- ------------------------------------------------------------------------------------------------------------------------------------
650,000 650,000 Roche Holding A.G., Conv. Putable LYONS, 0.34%, 01/19/04 (d)
====================================================================================================================================
====================================================================================================================================
PROPERTY & CASUALTY INSURANCE- 0.21%
355,000 1,680,000 2,035,000 Allstate Financial Global Funding, Notes, 6.50%,06/14/11 (d)
====================================================================================================================================
PUBLISHING- 1.12%
625,000 625,000 Nebraska Book Co., Sr. Sub. Notes, 8.75%, 02/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
News America Holdings
600,000 1,500,000 5,000,000 7,100,000 Sr. Unsec. Gtd. Deb., 8.00%, 10/17/16
- ------------------------------------------------------------------------------------------------------------------------------------
250,000 200,000 1,100,000 1,550,000 News America Inc., Putable Deb., 6.75%, 01/11/10
- ------------------------------------------------------------------------------------------------------------------------------------
200,000 150,000 1,000,000 1,350,000 Tribune Co., Putable Notes, 6.61%, 09/15/04
====================================================================================================================================
====================================================================================================================================
RAILROADS- 1.25%
Burlington Northern Santa Fe Corp., Unsec. Notes, 6.13%,
1,205,000 1,205,000 03/15/09
- ------------------------------------------------------------------------------------------------------------------------------------
350,000 250,000 7,250,000 7,850,000 CSX Corp., Sr. Unsec. Putable Deb., 7.25%, 05/01/05
- ------------------------------------------------------------------------------------------------------------------------------------
Railamerica Transportation Corp, Sr. Unsec. Gtd. Sub. Notes,
335,000 225,000 1,300,000 1,860,000 12.88%, 08/15/10
- ------------------------------------------------------------------------------------------------------------------------------------
1,205,000 1,205,000 Union Pacific Corp., Unsec. Notes, 6.65%, 01/15/11
====================================================================================================================================
====================================================================================================================================
REAL ESTATE - 1.75%
EOP Operating L.P., Sr. Unsec. Notes,
-- -- -- 1,805,000 1,805,000 6.50%, 06/15/04
- ------------------------------------------------------------------------------------------------------------------------------------
100,000 600,000 700,000 7.25%, 02/15/18
- ------------------------------------------------------------------------------------------------------------------------------------
150,000 600,000 750,000 Unsec. Gtd. Notes, 6.75%, 02/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
200,000 150,000 800,000 1,150,000 Unsec. Notes, 6.50%, 01/15/04
- ------------------------------------------------------------------------------------------------------------------------------------
HealthCare REIT, Inc.,
-- -- -- 3,500,000 3,500,000 Sr. Unsec. Notes, 7.50%, 02/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
300,000 500,000 800,000 Sr. Unsec. Notes, 7.50%, 08/15/07
- ------------------------------------------------------------------------------------------------------------------------------------
Host Marriott LP
225,000 270,000 920,000 1,415,000 Series E, Sr. Sec. Gtd. Notes, 8.38%, 02/15/06
- ------------------------------------------------------------------------------------------------------------------------------------
375,000 450,000 1,500,000 2,325,000 Series I, Unsec. Gtd. Global Notes, 9.50%, 01/15/07
- ------------------------------------------------------------------------------------------------------------------------------------
190,000 210,000 755,000 1,155,000 iStar Financial Inc., Sr. Unsec. Notes, 8.75%, 08/15/08
- ------------------------------------------------------------------------------------------------------------------------------------
250,000 2,000,000 2,250,000 Spieker Properties, Inc., Unsec. Unsub. Deb., 7.35%, 12/01/17
- ------------------------------------------------------------------------------------------------------------------------------------
1,825,000 1,825,000 Ventas Realty LP, Sr. Unsec. Gtd. Notes, 8.75%, 05/01/09
====================================================================================================================================
====================================================================================================================================
SEMICONDUCTORS- 0.00%
TranSwitch Corp., Conv. Unsec. Unsub. Notes, 4.50%,
-- -- 37,000 -- 37,000 09/12/05
====================================================================================================================================
SOFT DRINKS- 0.15%
1,570,000 -- -- -- 1,570,000 Coca-Cola Enterprises, Unsec. Unsub. Notes, 4.38%, 09/15/09
====================================================================================================================================
</Table>
<Table>
<Caption>
MARKET VALUE
---------------------------------------------------------------
INVESCO AIM AIM AIM AIM
SELECT GLOBAL STRATEGIC INCOME INCOME
INCOME INCOME INCOME FUND FUND
FUND FUND FUND PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
Kerr-McGee Corp., Jr. Conv. Sub. Unsec. Deb., 5.25%,
02/15/10 $ -- $ -- $ 1,075,000 $ -- $ 1,075,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kestrel Solutions, Conv. Sub. Notes, 5.25%, 07/15/05 (b) 39,750 39,750
- ------------------------------------------------------------------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec. Notes, 6.88%,
12/01/07 616,292 616,292 3,921,855 5,154,439
- ------------------------------------------------------------------------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec. Unsub. Notes, 7.63%,
03/01/11 2,365,000 1,612,500 5,912,500 9,890,000
- ------------------------------------------------------------------------------------------------------------------------------------
Noble Energy, Inc.,
Sr. Unsec. Deb., 7.25%, 08/01/97 641,032 650,190 2,747,280 4,038,502
- ------------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 04/01/27 566,035 905,656 3,169,796 4,641,487
- ------------------------------------------------------------------------------------------------------------------------------------
Pogo Producing Co.-Series B, Sr. Unsec. Sub. Notes, 10.38%,
02/15/09 428,575 428,575
- ------------------------------------------------------------------------------------------------------------------------------------
Parker & Parsley Petroleum Co., Sr. Notes, 8.25%, 08/15/07 1,799,549 1,799,549
- ------------------------------------------------------------------------------------------------------------------------------------
Swift Energy Co., Sr. Unsec. Sub. Notes, 9.38%, 05/01/12 69,650 69,650
- ------------------------------------------------------------------------------------------------------------------------------------
Vintage Petroleum, Inc., Sr. Unsec. Notes, 8.25%, 05/01/12 1,899,000 1,899,000
- ------------------------------------------------------------------------------------------------------------------------------------
Union Pacific Resources Group Inc., Unsec. Notes, 6.75%,
05/15/08 341,592 1,195,572 1,537,164
====================================================================================================================================
3,698,549 9,221,444 8,958,338 30,582,715 52,461,046
====================================================================================================================================
OIL & GAS REFINING, MARKETING & TRANSPORTATION- 1.27%
Frontier Oil Corp., Sr. Unsec. Sub. Notes, 11.75%, 11/15/09 -- -- 413,400 -- 413,400
- ------------------------------------------------------------------------------------------------------------------------------------
Marathon Oil Corp., Unsec. Notes, 5.38%, 06/01/07 1,049,568 1,049,568
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos (Mexico),
Sr. Unsec. Gtd. Yankee Bonds, 9.38%, 12/02/08 549,000 686,250 2,859,375 4,094,625
- ------------------------------------------------------------------------------------------------------------------------------------
Series P, Sr. Unsec. Putable Unsub. Yankee Bonds, 9.50%,
03/15/06 1,042,110 578,950 3,589,490 5,210,550
- ------------------------------------------------------------------------------------------------------------------------------------
Plains All American Pipeline, Sr. Unsec. Gtd. Notes, 7.75%,
10/15/12 315,000 315,000
- ------------------------------------------------------------------------------------------------------------------------------------
Premco Refining Group Inc. (The), Sr. Notes, 9.25%,
02/01/10(d) 403,000 277,063 1,571,700 2,251,763
====================================================================================================================================
1,364,568 1,994,110 1,955,663 8,020,565 13,334,906
====================================================================================================================================
PACKAGED FOODS & MEATS- 0.10%
Dole Food Co., Inc., Sr. Unsec. Global Notes, 7.25%, 05/01/09 155,600 291,750 622,400 1,069,750
====================================================================================================================================
PAPER PACKAGING- 0.40%
Chesapeake Corp., Deb., 7.20%, 03/15/05 4,185,500 -- -- -- 4,185,500
====================================================================================================================================
PAPER PRODUCTS- 0.23%
Abitibi-Consolidated Inc., Unsec. Notes, 6.95%, 04/01/08 1,553,512 1,553,512
- ------------------------------------------------------------------------------------------------------------------------------------
Appleton Papers Inc.-Series B, Sr. Unsec. Gtd. Sub. Notes,
12.50%, 12/15/08 872,950 872,950
====================================================================================================================================
2,426,462 -- -- -- 2,426,462
====================================================================================================================================
PHARMACEUTICALS- 0.47%
aaiPharma Inc., Sr. Sub. Unsec. Gtd. Global Notes, 11.00%,
04/01/10 -- -- 260,000 -- 260,000
- ------------------------------------------------------------------------------------------------------------------------------------
AmerisourceBergen Corp., Sr. Gtd. Notes, 7.25%, 11/15/12 (d) 589,375 589,375
- ------------------------------------------------------------------------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee Notes, 7.88%,
04/01/10 206,000 206,000
- ------------------------------------------------------------------------------------------------------------------------------------
Johnson & Johnson, Unsec. Deb., 8.72%, 11/01/24 322,569 469,192 2,580,556 3,372,317
- ------------------------------------------------------------------------------------------------------------------------------------
Roche Holding A.G., Conv. Putable LYONS, 0.34%, 01/19/04(d) 474,500 474,500
====================================================================================================================================
589,375 322,569 1,409,692 2,580,556 4,902,192
====================================================================================================================================
PROPERTY & CASUALTY INSURANCE- 0.21%
Allstate Financial Global Funding, Notes, 6.50%, 06/14/11(d) 392,807 1,858,920 2,251,727
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING- 1.12%
Nebraska Book Co., Sr. Sub. Notes, 8.75%, 02/15/08 623,438 623,438
- ------------------------------------------------------------------------------------------------------------------------------------
News America Holdings
Sr. Unsec. Gtd. Deb., 8.00%, 10/17/16 684,384 1,710,960 5,703,200 8,098,544
- ------------------------------------------------------------------------------------------------------------------------------------
News America Inc., Putable Deb., 6.75%, 01/11/10 258,208 206,566 1,136,113 1,600,887
- ------------------------------------------------------------------------------------------------------------------------------------
Tribune Co., Putable Notes, 6.61%, 09/15/04 213,920 160,440 1,069,600 1,443,960
====================================================================================================================================
623,438 1,156,512 2,077,966 7,908,913 11,766,829
====================================================================================================================================
RAILROADS- 1.25%
Burlington Northern Santa Fe Corp., Unsec. Notes, 6.13%,
03/15/09 1,330,089 1,330,089
- ------------------------------------------------------------------------------------------------------------------------------------
CSX Corp., Sr. Unsec. Putable Deb., 7.25%, 05/01/05 385,882 275,630 7,993,270 8,654,782
- ------------------------------------------------------------------------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec. Gtd. Sub. Notes,
12.88%, 08/15/10 341,700 229,500 1,326,000 1,897,200
- ------------------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., Unsec. Notes, 6.65%, 01/15/11 1,346,018 1,346,018
====================================================================================================================================
2,676,107 727,582 505,130 9,319,270 13,228,089
====================================================================================================================================
REAL ESTATE - 1.75%
EOP Operating L.P., Sr. Unsec. Notes,
6.50%, 06/15/04 -- -- -- 1,880,442 1,880,442
- ------------------------------------------------------------------------------------------------------------------------------------
7.25%, 02/15/18 108,944 653,664 762,608
- ------------------------------------------------------------------------------------------------------------------------------------
Unsec. Gtd. Notes, 6.75%, 02/15/12 160,537 642,150 802,687
- ------------------------------------------------------------------------------------------------------------------------------------
Unsec. Notes, 6.50%, 01/15/04 206,804 155,103 827,216 1,189,123
- ------------------------------------------------------------------------------------------------------------------------------------
HealthCare REIT, Inc.,
Sr. Unsec. Notes, 7.50%, 02/15/12 -- -- -- 3,649,800 3,649,800
- ------------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 7.50%, 08/15/07 312,840 521,400 834,240
- ------------------------------------------------------------------------------------------------------------------------------------
Host Marriott LP
Series E, Sr. Sec. Gtd. Notes, 8.38%, 02/15/06 221,625 265,950 906,200 1,393,775
- ------------------------------------------------------------------------------------------------------------------------------------
Series I, Unsec. Gtd. Global Notes, 9.50%, 01/15/07 380,625 456,750 1,522,500 2,359,875
- ------------------------------------------------------------------------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes, 8.75%, 08/15/08 200,450 221,550 796,525 1,218,525
- ------------------------------------------------------------------------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub. Deb., 7.35%, 12/01/17 274,535 2,196,280 2,470,815
- ------------------------------------------------------------------------------------------------------------------------------------
Ventas Realty LP, Sr. Unsec. Gtd. Notes, 8.75%, 05/01/09 1,925,375 1,925,375
====================================================================================================================================
1,925,375 1,866,360 1,620,753 13,074,777 18,487,265
====================================================================================================================================
SEMICONDUCTORS- 0.00%
TranSwitch Corp., Conv. Unsec. Unsub. Notes, 4.50%,
09/12/05 -- -- 21,553 -- 21,553
====================================================================================================================================
SOFT DRINKS- 0.15%
Coca-Cola Enterprises, Unsec. Unsub. Notes, 4.38%, 09/15/09 1,595,434 -- -- -- 1,595,434
====================================================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- ----------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- -----------------------------------------------------------------------------------------------------------------------------------
SOVEREIGN DEBT- 0.59%
Export Development Canada (Canada), Yankee Bonds, 4.00%,
$ -- $ 200,000 $ 185,000 $1,100,000 $1,485,000 08/01/07
- -----------------------------------------------------------------------------------------------------------------------------------
Region of Lombardy (Italy), Unsec. Global Bonds, 5.80%,
400,000 270,000 1,000,000 1,670,000 10/25/32
- -----------------------------------------------------------------------------------------------------------------------------------
United Mexican States (Mexico)-Series A, Medium Term Globa
Notes,
420,000 420,000 9.88%, 02/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
400,000 550,000 1,600,000 2,550,000 6.38%, 01/16/13
===================================================================================================================================
===================================================================================================================================
SPECIALTY CHEMICALS- 0.00%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%,
50,000 50,000 12/15/11
===================================================================================================================================
SPECIALTY STORES- 0.31%
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes, 12.00%,
240,000 160,000 990,000 1,390,000 06/15/06
- -----------------------------------------------------------------------------------------------------------------------------------
United Rentals North America Inc., Sr. Unsec. Gtd. Notes,
310,000 225,000 1,240,000 1,775,000 10.75%, 04/15/08
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT- 0.12%
Comverse Technology, Inc., Sr. Unsec. Conv. Sub. Notes, 1.50%
1,500,000 12/01/05 (d)
===================================================================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 1.09%
AT&T Wireless Services Inc.
1,330,000 1,330,000 Sr. Unsec. Notes, 8.13%, 05/01/12
- -----------------------------------------------------------------------------------------------------------------------------------
1,500,000 1,500,000 Sr. Unsec. Unsub. Global Notes, 6.88%, 04/18/05
- -----------------------------------------------------------------------------------------------------------------------------------
385,000 500,000 1,500,000 2,385,000 Sr. Unsec. Unsub. Global Notes, 8.75%, 03/01/31
- -----------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc.,
1,000,000 1,000,000 Sr. Conv. Notes, 5.25%, 1/15/10
- -----------------------------------------------------------------------------------------------------------------------------------
1,205,000 1,205,000 Sr. Unsec. Notes, 9.38%, 11/15/09
- -----------------------------------------------------------------------------------------------------------------------------------
600,000 600,000 Sr. Unsec. Notes, 9.50%, 02/01/11
- -----------------------------------------------------------------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global Notes, 10.25%,
440,000 440,000 02/01/09
- -----------------------------------------------------------------------------------------------------------------------------------
VoiceStream Wireless Corp., Jr. Sr. Unsec. Notes, 10.38%,
3,000,000 3,000,000 11/15/09
===================================================================================================================================
===================================================================================================================================
Total U.S. Dollar Denominated Bonds & Notes (Cost
$722,582,581)
===================================================================================================================================
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES (K)- 9.11%
CANADA- 1.30%
Bell Mobility Cellular Inc. (Wireless Telecommunication
-- 750,000 -- 2,250,000 3,000,000 Services), Unsec. Deb., 6.55%, 06/02/08 CAD
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Government (Sovereign Debt), Bonds,
300,000 7.00%, 12/01/06 CAD
- -----------------------------------------------------------------------------------------------------------------------------------
900,000 7.25%, 06/01/07 CAD
- -----------------------------------------------------------------------------------------------------------------------------------
9,520,000 6.00%, 06/01/08 CAD
- -----------------------------------------------------------------------------------------------------------------------------------
300,000 5.75%, 06/01/29 CAD
- -----------------------------------------------------------------------------------------------------------------------------------
500,000 9.00%, 03/01/11 CAD
- -----------------------------------------------------------------------------------------------------------------------------------
Rogers Cablesystems Ltd. (Broadcasting & Cable TV), Sr. Sec.
300,000 3,300,000 3,600,000 Second Priority Deb., 9.65%, 01/15/14 CAD
- -----------------------------------------------------------------------------------------------------------------------------------
CANADA-(CONTINUED)
Westcoast Energy Inc. (Gas Utilities)-Series V, Unsec. Deb.,
-- 500,000 -- 1,000,000 1,500,000 6.45%, 12/18/06 CAD
===================================================================================================================================
===================================================================================================================================
GERMANY- 4.36%
Bundesrepublik Deutschland (Sovereign Debt), Series 2002, Euro
Bonds,
6,250,000 2,800,000 9,700,000 18,750,000 5.00%, 07/04/12 EUR
- -----------------------------------------------------------------------------------------------------------------------------------
Eurohypo AG (Banks)-Series 2212, Sec. Euro Bonds, 4.50%,
2,000,000 8,000,000 10,000,000 01/21/13 EUR
- -----------------------------------------------------------------------------------------------------------------------------------
Kreditanstalt fuer Wiederaufbau (Banks)
1,400,000 3,600,000 5,000,000 Sr. Unsec. Gtd. Unsub. Global Notes, 3.50%, 11/15/05 EUR
- -----------------------------------------------------------------------------------------------------------------------------------
2,500,000 1,000,000 3,250,000 6,750,000 Sr. Unsec. Unsub. Global Notes, 5.25%, 07/04/12 EUR
===================================================================================================================================
===================================================================================================================================
GREECE- 0.28%
-- 2,400,000 -- -- 2,400,000 Hellenic Republic (Sovereign Debt), Bonds, 6.00%, 05/19/10 EUR
===================================================================================================================================
LUXEMBOURG- 0.68%
International Bank for Reconstruction & Development (Banks)
7,100,000 10,000,000 17,100,000 Sr. Unsec. Global Notes, 5.61%, 08/20/07 NZD(f)
===================================================================================================================================
NETHERLANDS- 0.31%
Olivetti International Finance N.V. (Integrated
Telecommunication Services)-Series E, Gtd. Medium Term Euro
290,000 2,050,000 2,340,000 Notes, 6.58%, 07/30/09 EUR
===================================================================================================================================
VODAFONE FINANCE B.V. (WIRELESS TELECOMMUNICATIONS
690,000 690,000 Services), Unsec. Unsub. Gtd. Euro Bonds, 4.75%, 05/27/09 EUR
===================================================================================================================================
===================================================================================================================================
UNITED STATES- 0.41%
Federal National Mortgage Association (Sovereign Debt)-
3,785,000 3,785,000 Series E, Sr. Unsub. Medium Term Notes, 6.38%, 08/15/07 AUD
- -----------------------------------------------------------------------------------------------------------------------------------
KFW International Finance (Sovereign Debt), Unsec. Gtd.
3,100,000 3,100,000 Unsub. Medium Term Euro Notes, 7.25%, 07/16/07 AUD
===================================================================================================================================
===================================================================================================================================
<Caption>
MARKET VALUE
----------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- -----------------------------------------------------------------------------------------------------------------------------------
SOVEREIGN DEBT- 0.59%
Export Development Canada (Canada), Yankee Bonds, 4.00%,
08/01/07 $ -- $ 207,066 $ 191,536 $ 1,138,863 $1,537,465
- -----------------------------------------------------------------------------------------------------------------------------------
Region of Lombardy (Italy), Unsec. Global Bonds, 5.80%,
10/25/32 413,648 279,212 1,034,120 1,726,980
- -----------------------------------------------------------------------------------------------------------------------------------
United Mexican States (Mexico)-Series A, Medium Term Globa
Notes,
9.88%, 02/01/10 507,990 507,990
- -----------------------------------------------------------------------------------------------------------------------------------
6.38%, 01/16/13 391,000 537,625 1,564,000 2,492,625
===================================================================================================================================
1,011,714 1,516,363 3,736,983 6,265,060
===================================================================================================================================
SPECIALTY CHEMICALS- 0.00%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%,
12/15/11 33,750 33,750
===================================================================================================================================
SPECIALTY STORES- 0.31%
CSK Auto, Inc., Sr. Unsec. Gtd. Global Notes, 12.00%,
06/15/06 255,600 170,400 1,054,350 1,480,350
===================================================================================================================================
United Rentals North America Inc., Sr. Unsec. Gtd. Notes,
10.75%, 04/15/08 308,450 223,875 1,233,800 1,766,125
===================================================================================================================================
-- 564,050 394,275 2,288,150 3,246,475
===================================================================================================================================
TELECOMMUNICATIONS EQUIPMENT- 0.12%
Comverse Technology, Inc., Sr. Unsec. Conv. Sub. Notes,
1.50% 12/01/05 (d) 1,306,875 1,306,875
===================================================================================================================================
WIRELESS TELECOMMUNICATION SERVICES- 1.09%
AT&T Wireless Services Inc.
Sr. Unsec. Notes, 8.13%, 05/01/12 1,383,200 1,383,200
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 6.88%, 04/18/05 1,567,500 1,567,500
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%, 03/01/31 397,994 516,875 1,550,625 2,465,494
- -----------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc.,
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Conv. Notes, 5.25%, 1/15/10 786,250 786,250
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 9.38%, 11/15/09 1,159,812 1,159,812
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Notes, 9.50%, 02/01/11 579,000 579,000
- -----------------------------------------------------------------------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global Notes, 10.25%,
02/01/09 275,000 275,000
- -----------------------------------------------------------------------------------------------------------------------------------
VoiceStream Wireless Corp., Jr. Sr. Unsec. Notes, 10.38%,
11/15/09 3,262,500 3,262,500
===================================================================================================================================
7,373,012 397,994 2,157,125 1,550,625 11,478,756
===================================================================================================================================
Total U.S. Dollar Denominated Bonds & Notes (Cost
$722,582,581) 175,749,621 75,820,259 71,315,491 398,998,299 21,883,670
===================================================================================================================================
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES (K)- 9.11%
CANADA- 1.30%
Bell Mobility Cellular Inc. (Wireless Telecommunication
Services), Unsec. Deb., 6.55%, 06/02/08 CAD -- 518,606 -- 1,555,817 2,074,423
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Government (Sovereign Debt), Bonds,
7.00%, 12/01/06 CAD 217,634 217,634
- -----------------------------------------------------------------------------------------------------------------------------------
7.25%, 06/01/07 CAD 662,816 662,816
- -----------------------------------------------------------------------------------------------------------------------------------
6.00%, 06/01/08 CAD 6,723,449 6,723,449
- -----------------------------------------------------------------------------------------------------------------------------------
5.75%, 06/01/29 CAD 205,088 205,088
- -----------------------------------------------------------------------------------------------------------------------------------
9.00%, 03/01/11 CAD 418,819 418,819
- -----------------------------------------------------------------------------------------------------------------------------------
Rogers Cablesystems Ltd. (Broadcasting & Cable TV), Sr. Sec.
Second Priority Deb., 9.65%, 01/15/14 CAD 195,721 2,152,929 2,348,650
- -----------------------------------------------------------------------------------------------------------------------------------
CANADA-(CONTINUED)
Westcoast Energy Inc. (Gas Utilities)-Series V, Unsec. Deb.,
6.45%, 12/18/06 CAD 344,741 689,483 1,034,224
===================================================================================================================================
-- 9,286,874 -- 4,398,229 13,685,103
===================================================================================================================================
GERMANY- 4.36%
Bundesrepublik Deutschland (Sovereign Debt), Series 2002, Euro
Bonds,
5.00%, 07/04/12 EUR 7,221,920 3,235,420 11,208,420 21,665,760
- -----------------------------------------------------------------------------------------------------------------------------------
Eurohypo AG (Banks)-Series 2212, Sec. Euro Bonds, 4.50%,
01/21/13 EUR 2,182,898 8,731,591 10,914,489
- -----------------------------------------------------------------------------------------------------------------------------------
Kreditanstalt fuer Wiederaufbau (Banks)
Sr. Unsec. Gtd. Unsub. Global Notes, 3.50%, 11/15/05 EUR 1,532,851 3,941,618 5,474,469
- -----------------------------------------------------------------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 5.25%, 07/04/12 EUR 2,920,249 1,168,099 3,796,323 7,884,671
===================================================================================================================================
-- 13,857,918 4,403,519 27,677,952 45,939,389
===================================================================================================================================
GREECE- 0.28%
Hellenic Republic (Sovereign Debt), Bonds, 6.00%, 05/19/10 EUR 2,911,341 2,911,341
===================================================================================================================================
LUXEMBOURG- 0.68%
International Bank for Reconstruction & Development (Banks)
Sr. Unsec. Global Notes, 5.61%, 08/20/07 NZD(f) 2,979,677 4,196,728 7,176,405
===================================================================================================================================
NETHERLANDS- 0.31%
Olivetti International Finance N.V. (Integrated
Telecommunication Services)-Series E, Gtd. Medium Term Euro
Notes, 6.58%, 07/30/09 EUR 315,669 2,231,450 2,547,119
===================================================================================================================================
Vodafone Finance B.V. (Wireless Telecommunications
Services), Unsec. Unsub. Gtd. Euro Bonds, 4.75%, 05/27/09 EUR 762,054 762,054
===================================================================================================================================
-- 1,077,723 -- 2,231,450 3,309,173
===================================================================================================================================
UNITED STATES- 0.41%
Federal National Mortgage Association (Sovereign Debt)-Series
E, Sr. Unsub. Medium Term Notes, 6.38%, 08/15/07 AUD 2,347,376 2,347,376
- -----------------------------------------------------------------------------------------------------------------------------------
KFW International Finance (Sovereign Debt), Unsec. Gtd.
Unsub. Medium Term Euro Notes, 7.25%, 07/16/07 AUD 1,977,848 1,977,848
===================================================================================================================================
-- 4,325,224 -- -- 4,325,224
===================================================================================================================================
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- ----------------------------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- ----------------------------------------------------------------------------------
UNITED KINGDOM- 1.77%
British Sky Broadcasting Group PLC
(Broadcasting & Cable TV), Sr. Unsec. Gtd.
-- 450,000 -- 1,750,000 2,200,000 Unsub. Euro Bonds, 7.75%, 07/09/09 GBP
- -----------------------------------------------------------------------------------------------------------------------------------
Sutton Bridge Financing Ltd. (Electric
424,301 1,885,780 2,310,081 Utilities), Gtd. Euro Bonds, 8.63%, 06/30/22 GBP
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom (Treasury of) (Sovereign Debt),
2,600,000 650,000 2,475,000 5,725,000 Bonds, 7.25% 12/07/07 GBP
===================================================================================================================================
===================================================================================================================================
<Caption>
SHARES
================================================================================
DOMESTIC STOCKS & OTHER EQUITY
INTERESTS- 0.93%
BROADCASTING & CABLE TV- 0.14%
14,600 14,600 CSC Holdings Inc.-Series H, Conv. Pfd
- -----------------------------------------------------------------------------------------------------------------------------------
Knology Inc.
700 4,100 4,800 Wts., expiring 10/22/07 (c)(d)(l)
- -----------------------------------------------------------------------------------------------------------------------------------
17,253 63,537 80,790 Series D, Conv. Pfd. (d)(l)
- -----------------------------------------------------------------------------------------------------------------------------------
ONO Finance PLC (United Kingdom)-Wts.,
300 300 expiring 01/05/09
===================================================================================================================================
===================================================================================================================================
DIVERSIFIED COMMERCIAL SERVICES- 0.11%
105,409 105,409 Cendant Corp. (m)
===================================================================================================================================
ELECTRIC UTILITIES- 0.04%
17,000 17,000 CenterPoint Energy, Inc., Conv. ZEN
===================================================================================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS- 0.01%
4,334 4,334 Monsanto Co.
===================================================================================================================================
HOME FURNISHINGS- 0.00%
O'Sullivan Industries, Inc.-Series B-Pfd
960 2,885 3,845 Wts., expiring 11/15/09(d)(l)
- -----------------------------------------------------------------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Wts., expiring
960 2,885 3,845 11/15/09(d)(l)
===================================================================================================================================
===================================================================================================================================
INTEGRATED TELECOMMUNICATIONS SERVICES- 0.00%
8,052 8,052 McLeodUSA Inc.-Series A, Pfd
- -----------------------------------------------------------------------------------------------------------------------------------
McLeodUSA Inc.-Series A, Wts., expiring
17,844 17,844 04/16/07(l)
- -----------------------------------------------------------------------------------------------------------------------------------
4,863 4,863 XO Communications, Inc
- -----------------------------------------------------------------------------------------------------------------------------------
4,915,000 4,915,000 XO Communications, Inc.-Right
===================================================================================================================================
===================================================================================================================================
MULTI-UTILITIES & UNREGULATED POWER- 0.05%
28,300 28,300 Mirant Trust I-Series A, Conv. Pfd
===================================================================================================================================
PHARMACEUTICALS- 0.10%
25,407 25,407 Pharmacia Corp.
===================================================================================================================================
RAILROADS- 0.00%
375 325 1,300 2,000 Railamerica Inc.-Wts., expiring 08/15/10(d)(l)
===================================================================================================================================
REAL ESTATE- 0.39%
750 3,150 3,900 First Republic Capital Corp.-Series A, Pfd.(d)
===================================================================================================================================
SYSTEMS SOFTWARE- 0.09%
20,291 20,291 Microsoft Corp.
===================================================================================================================================
WIRELESS TELECOMMUNICATIONS SERVICES- 0.00%
400 400 IWO Holdings Inc.-Wts., expiring 01/15/11(d)(l)
- -----------------------------------------------------------------------------------------------------------------------------------
3,750 535 425 1,775 6,485 NTELOS Inc.-Wts., expiring 08/15/10(d)(l)
===================================================================================================================================
Total Domestic Stocks & Other Equity
Interests (Cost $14,716,042)
===================================================================================================================================
<Caption>
PRINCIPAL
===================================================================================
U.S. GOVERNMENT AGENCY SECURITIES-
10.50%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)- 3.94%
Pass Through Ctfs.,
$ -- $ 280,299 $ -- $ -- $ 280,299 8.50%, 03/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
94,540 25,035 321,666 441,241 7.00%, 06/01/15 to 06/01/32
- -----------------------------------------------------------------------------------------------------------------------------------
532,897 1,813,956 3,330,564 5,677,417 6.50%, 04/01/16 to 08/01/32
- -----------------------------------------------------------------------------------------------------------------------------------
15,839,167 15,839,167 5.50%, 12/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
13,054,776 386,894 778,087 949,125 15,168,882 6.00%, 02/01/17 to
- -----------------------------------------------------------------------------------------------------------------------------------
77,674 77,674 7.50%, 06/01/30
- -----------------------------------------------------------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
350,000 950,000 1,150,000 2,450,000 6.00%, 02/01/33 (n)
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
===================================================================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)- 4.11%
Pass Through Ctfs.,
-- 933,837 1,381,494 2,680,121 4,995,452 7.50%, 11/01/15 to 05/01/32
- -----------------------------------------------------------------------------------------------------------------------------------
963,729 1,188,851 2,525,475 4,678,055 7.00%, 02/01/16 to 09/01/32
- -----------------------------------------------------------------------------------------------------------------------------------
1,412,976 1,175,001 2,573,596 5,161,573 6.50%, 09/01/16 to 11/01/31
- -----------------------------------------------------------------------------------------------------------------------------------
9,256,885 9,256,885 5.00%, 01/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
417,019 417,019 6.00%, 07/01/17
- -----------------------------------------------------------------------------------------------------------------------------------
400,229 400,229 8.50%, 10/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
436,847 801,096 2,521,570 3,759,513 8.00%, 10/01/30 to 04/01/32
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
MARKET VALUE
-------------------------------------------------------------------------
AIM
INVESCO AIM AIM INCOME
SELECT GLOBAL STRATEGIC AIM FUND
INCOME INCOME INCOME INCOME PRO FORMA
FUND FUND FUND FUND COMBINING
- ---------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM- 1.77%
British Sky Broadcasting Group PLC
(Broadcasting & Cable TV), Sr. Unsec. Gtd.
Unsub. Euro Bonds, 7.75%, 07/09/09 GBP $ -- $ 765,356 $ -- $ 2,976,385 $ 3,741,741
- ---------------------------------------------------------------------------------------------------------------------------------
Sutton Bridge Financing Ltd. (Electric
Utilities), Gtd. Euro Bonds, 8.63%, 06/30/22 GBP 770,230 3,423,243 4,193,473
- ---------------------------------------------------------------------------------------------------------------------------------
United Kingdom (Treasury of) (Sovereign Debt),
Bonds, 7.25% 12/07/07 GBP 4,881,600 1,220,400 4,646,908 10,748,908
=================================================================================================================================
-- 6,417,186 1,220,400 11,046,536 18,684,122
=================================================================================================================================
Total Non-U.S. Dollar Denominated Bonds
& Notes (Cost $ 87,765,039) -- 40,855,943 5,623,919 49,550,895 96,030,757
=================================================================================================================================
DOMESTIC STOCKS & OTHER EQUITY
INTERESTS- 0.93%
BROADCASTING & CABLE TV- 0.14%
CSC Holdings Inc.-Series H, Conv. Pfd 1,423,500.00 -- -- -- 1,423,500.00
- ---------------------------------------------------------------------------------------------------------------------------------
Knology Inc. --
Wts., expiring 10/22/07 (c)(d)(l) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Series D, Conv. Pfd. (d)(l) 12,940 47,653 60,593
- ---------------------------------------------------------------------------------------------------------------------------------
ONO Finance PLC (United Kingdom)-Wts.,
expiring 01/05/09 -- --
=================================================================================================================================
1,423,500 12,940 -- 47,653 1,484,093
=================================================================================================================================
DIVERSIFIED COMMERCIAL SERVICES- 0.11%
Cendant Corp. (m) 1,167,931 1,167,931
=================================================================================================================================
ELECTRIC UTILITIES- 0.04%
CenterPoint Energy, Inc., Conv. ZEN 376,720 376,720
=================================================================================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS- 0.01%
Monsanto Co. 76,495 76,495
=================================================================================================================================
HOME FURNISHINGS- 0.00%
O'Sullivan Industries, Inc.-Series B-Pfd
Wts., expiring 11/15/09(d)(l) 9 29 38
- ---------------------------------------------------------------------------------------------------------------------------------
O'Sullivan Industries, Inc.-Wts., expiring
11/15/09(d)(l) 9 29 38
=================================================================================================================================
-- -- 18 58 76
=================================================================================================================================
INTEGRATED TELECOMMUNICATIONS SERVICES- 0.00%
McLeodUSA Inc.-Series A, Pfd 26,411 26,411
- ---------------------------------------------------------------------------------------------------------------------------------
McLeodUSA Inc.-Series A, Wts., expiring
04/16/07(l) 3,926 3,926
- ---------------------------------------------------------------------------------------------------------------------------------
XO Communications, Inc 17,750 17,750
- ---------------------------------------------------------------------------------------------------------------------------------
XO Communications, Inc.-Right 5 5
=================================================================================================================================
48,092 -- -- -- 48,092
=================================================================================================================================
MULTI-UTILITIES & UNREGULATED POWER- 0.05%
Mirant Trust I-Series A, Conv. Pfd 476,855 476,855
=================================================================================================================================
PHARMACEUTICALS- 0.10%
Pharmacia Corp. 1,061,250 1,061,250
=================================================================================================================================
RAILROADS- 0.00%
Railamerica Inc.-Wts., expiring 08/15/10(d)(l) -- 469 406 1,625 2,500
=================================================================================================================================
REAL ESTATE- 0.39%
First Republic Capital Corp.-Series A, Pfd.(d) 787,500 3,307,500 4,095,000
=================================================================================================================================
SYSTEMS SOFTWARE- 0.09%
Microsoft Corp. 963,011 963,011
=================================================================================================================================
WIRELESS TELECOMMUNICATIONS SERVICES- 0.00%
IWO Holdings Inc.-Wts., expiring 01/15/11(d)(l) 100 100
- ---------------------------------------------------------------------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10(d)(l) 3,750 5 4 18 3,777
=================================================================================================================================
3,750 5 104 18 3,877
=================================================================================================================================
Total Domestic Stocks & Other Equity
Interests (Cost $14,716,042) 1,475,342 800,914 1,991,848 5,487,796 9,755,900
=================================================================================================================================
U.S. GOVERNMENT AGENCY SECURITIES-
10.50%
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)- 3.94%
Pass Through Ctfs.,
8.50%, 03/01/10 -- 302,794 -- -- 302,794
- ---------------------------------------------------------------------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32 100,357 26,392 340,945 467,694
- ---------------------------------------------------------------------------------------------------------------------------------
6.50%, 04/01/16 to 08/01/32 556,474 1,901,368 3,475,938 5,933,780
- ---------------------------------------------------------------------------------------------------------------------------------
5.50%, 12/01/16 16,401,085 16,401,085
- ---------------------------------------------------------------------------------------------------------------------------------
6.00%, 02/01/17 to 13,640,644 404,378 813,249 992,016 15,850,287
- ---------------------------------------------------------------------------------------------------------------------------------
7.50%, 06/01/30 82,868 82,868
- ---------------------------------------------------------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 02/01/33 (n) 362,295 983,372 1,190,398 2,536,065
=================================================================================================================================
30,041,729 1,726,298 3,724,381 6,082,165 41,574,573
=================================================================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)- 4.11%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 -- 994,524 1,471,463 2,854,103 5,320,090
- ---------------------------------------------------------------------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32 1,017,800 1,254,783 2,665,100 4,937,683
- ---------------------------------------------------------------------------------------------------------------------------------
6.50%, 09/01/16 to 11/01/31 1,477,122 1,226,837 2,697,056 5,401,015
- ---------------------------------------------------------------------------------------------------------------------------------
5.00%, 01/01/17 9,464,596 9,464,596
- ---------------------------------------------------------------------------------------------------------------------------------
6.00%, 07/01/17 436,460 436,460
- ---------------------------------------------------------------------------------------------------------------------------------
8.50%, 10/01/28 436,886 436,886
- ---------------------------------------------------------------------------------------------------------------------------------
8.00%, 10/01/30 to 04/01/32 471,764 865,128 2,723,258 4,060,150
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL AMOUNT
- ------------------------------------------------------------
INVESCO AIM AIM AIM AIM
SELECT GLOBAL STRATEGIC INCOME INCOME
INCOME INCOME INCOME FUND FUND
FUND FUND FUND PRO FORMA
COMBINING
- ------------------------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
$ -- $ 230,000 $ 154,000 $ 1,693,000 $ 2,077,000 6.00%, 02/01/33(n)
- ------------------------------------------------------------------------------------------------
Unsec. Notes,
2,500,000 2,500,000 6.20%, 06/13/17
- ------------------------------------------------------------------------------------------------
Unsec. Sub. Notes,
-- -- -- 1,500,000 1,500,000 4.75%, 01/02/07
- ------------------------------------------------------------------------------------------------
3,625,000 3,625,000 6.25%, 02/01/11
- ------------------------------------------------------------------------------------------------
200,000 100,000 2,500,000 2,800,000 5.25%, 08/01/12
================================================================================================
================================================================================================
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(GNMA)- 2.44%
Pass Through Ctfs.,
19,774,811 -- -- -- 19,774,811 5.00%, 11/15/17
- ------------------------------------------------------------------------------------------------
126,233 294,732 1,053,151 1,474,116 7.50%, 06/15/23 to 01/15/32
- ------------------------------------------------------------------------------------------------
435,664 435,664 8.50%, 11/15/24
- ------------------------------------------------------------------------------------------------
364,050 364,050 8.00%, 09/20/26
- ------------------------------------------------------------------------------------------------
96,822 438,378 1,202,396 1,737,596 6.50%, 03/15/31 to 07/15/32
- ------------------------------------------------------------------------------------------------
369,415 369,415 7.00%, 04/15/31 to 08/15/31
- ------------------------------------------------------------------------------------------------
40,726 96,351 552,811 689,888 6.00%, 12/15/31 to 11/15/32
================================================================================================
================================================================================================
Total U.S. Government
Agency Securities
(Cost $110,200,311)
================================================================================================
U.S. TREASURY SECURITIES- 5.33%
U.S. TREASURY NOTES- 4.53%
2,475,000 2,145,000 4,620,000 3.25%, 12/31/03 to 08/15/07
- ------------------------------------------------------------------------------------------------
4,150,000 4,150,000 2.88%, 06/30/04
- ------------------------------------------------------------------------------------------------
705,000 1,425,000 2,130,000 4.63%, 05/15/06
- ------------------------------------------------------------------------------------------------
300,000 300,000 3.50%, 11/15/06
- ------------------------------------------------------------------------------------------------
750,000 750,000 6.13%, 08/15/07
- ------------------------------------------------------------------------------------------------
1,000,000 1,000,000 4.75%, 11/15/08
- ------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES- (CONTINUED)
5,000,000 -- -- -- 5,000,000 5.75%, 08/15/10
- ------------------------------------------------------------------------------------------------
28,500,000 28,500,000 4.00%, 11/15/12
- ------------------------------------------------------------------------------------------------
================================================================================================
================================================================================================
U.S. TREASURY BONDS- 0.80%
-- 200,000 500,000 2,900,000 3,600,000 7.25%, 05/15/16
- ------------------------------------------------------------------------------------------------
1,750,000 1,750,000 7.50%, 11/15/16
- ------------------------------------------------------------------------------------------------
1,400,000 1,400,000 6.25%, 08/15/23
================================================================================================
Total U.S. Treasury
Securities
(Cost $55,411,421)
================================================================================================
ASSET-BACKED SECURITIES-
3.02%
AIRLINES- 1.49%
438,618 2,924,118 3,362,736 Air 2 US-Series C, Equipment(d)
Trust Ctfs., 10.13%, 10/01/20
- ------------------------------------------------------------------------------------------------
Continental Airlines, Inc.
Series 2000-1, Class A-1, Sr.
Pass Through Ctfs., 8.05%,
276,567 276,567 1,613,306 2,166,440 11/01/20
- ------------------------------------------------------------------------------------------------
Series 2000-2, Class A-1, Sr.
Sec. Pass Through Ctfs.,
299,314 437,459 1,257,120 1,993,893 7.71%, 04/02/21
- ------------------------------------------------------------------------------------------------
509,316 424,430 2,886,122 3,819,868 Series 974A, Pass Through
Ctfs., 6.90%, 01/02/18
Delta Air Lines, Inc.-Series
2002-1, Class C, Pass Thru Ctfs,
967,998 967,998 7.78%, 07/02/13
- ------------------------------------------------------------------------------------------------
Delta Air Lines, Inc.-Series
93A2, Equipment Trust Ctfs.,
5,000,000 5,000,000 10.50%, 04/30/16
- ------------------------------------------------------------------------------------------------
United Air Lines, Inc.-Series
2000-1, Class A-2, Pass Through
800,000 4,100,000 4,900,000 Ctfs., 7.73%, 07/01/10
================================================================================================
================================================================================================
DIVERSIFIED FINANCIAL SERVICES-
1.31%
Citicorp Lease
Series 1999-1, Class A-1, Pass
Through Ctfs., 7.22%,
-- 147,502 295,004 2,470,661 2,913,167 06/15/05(d)
- ------------------------------------------------------------------------------------------------
1,100,000 500,000 3,600,000 5,200,000 Series 1999-1, Class A-2, Passd)
Through Ctfs., 8.04%, 12/15/19
- ------------------------------------------------------------------------------------------------
National Rural Utilities
Cooperative Finance Corp., Sr.
Sec.
1,800,000 1,800,000 Global Notes, 6.00%, 05/15/06
- ------------------------------------------------------------------------------------------------
Premium Asset Trust-Series
2001-6, Sec. Notes, 5.25%,
500,000 2,100,000 2,600,000 7/19/04(d)
================================================================================================
================================================================================================
ELECTRIC UTILITIES- 0.22%
Beaver Valley II Funding Corp.,
Sec. Lease Obligation Bonds,
200,000 400,000 1,500,000 2,100,000 9.00%, 06/01/17
- ------------------------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $36,543,739)
- ------------------------------------------------------------------------------------------------
COMMERCIAL PAPER- 1.33% New
Center Asset Trust Series
I, 1.31%, 02/03/03 (Cost
14,000,000 $14,000,000)
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS- 0.05%(o)
State Street Bank & Trust
489,000 489,000 1.80%, 02/03/03(Cost $489.000)(p)
- ------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS- 1.36%
-- 3,063,282 1,711,600 2,405,660 7,180,542 STIC Liquid Assets Portfolio(q)
- ------------------------------------------------------------------------------------------------
3,063,282 1,711,600 2,405,330 7,180,212 STIC Prime Portfolio(q)
- ------------------------------------------------------------------------------------------------
Total Money Market Funds(Cost
$14,361,084)
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - (COST
$1,056,069,217) - 100.10%
================================================================================================
OTHER ASSETS LESS LIABILITIES--
0.10%
================================================================================================
NET ASSETS- 100.00%
================================================================================================
</Table>
<Table>
<Caption>
MARKET VALUE
-----------------------------------------------------------------------------------
INVESCO AIM AIM AIM AIM
SELECT GLOBAL STRATEGIC INCOME INCOME
INCOME INCOME INCOME FUND FUND
FUND FUND FUND PRO FORMA
COMBINING
- ---------------------------------------------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
6.00%, 02/01/33(n) $ -- $ 238,103 $ 159,425 $ 1,752,644 $ 2,150,172
- ---------------------------------------------------------------------------------------------------------------------
Unsec. Notes,
6.20%, 06/13/17 2,660,625 2,660,625
- ---------------------------------------------------------------------------------------------------------------------
Unsec. Sub. Notes,
4.75%, 01/02/07 -- -- -- 1,580,670 1,580,670
- ---------------------------------------------------------------------------------------------------------------------
6.25%, 02/01/11 4,011,135 4,011,135
- ---------------------------------------------------------------------------------------------------------------------
5.25%, 08/01/12 206,466 103,233 2,580,825 2,890,524
=====================================================================================================================
9,464,596 4,405,779 5,517,755 23,961,876 43,350,006
=====================================================================================================================
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(GNMA)- 2.44%
Pass Through Ctfs.,
5.00%, 11/15/17 20,352,195 -- -- -- 20,352,195
- ---------------------------------------------------------------------------------------------------------------------
7.50%, 06/15/23 to 01/15/32 136,187 317,973 1,134,675 1,588,835
- ---------------------------------------------------------------------------------------------------------------------
8.50%, 11/15/24 479,121 479,121
- ---------------------------------------------------------------------------------------------------------------------
8.00%, 09/20/26 396,403 396,403
- ---------------------------------------------------------------------------------------------------------------------
6.50%, 03/15/31 to 07/15/32 101,747 460,678 1,263,561 1,825,986
- ---------------------------------------------------------------------------------------------------------------------
7.00%, 04/15/31 to 08/15/31 392,415 392,415
- ---------------------------------------------------------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32 42,437 100,399 576,048 718,884
=====================================================================================================================
20,352,195 676,774 879,050 3,845,820 25,753,839
=====================================================================================================================
Total U.S. Government
Agency Securities
(Cost $110,200,311) 59,858,520 6,808,851 10,121,186 33,889,861 110,678,418
=====================================================================================================================
U.S. TREASURY SECURITIES- 5.33%
U.S. TREASURY NOTES- 4.53%
3.25%, 12/31/03 to 08/15/07 2,516,746 2,182,826 4,699,572
- ---------------------------------------------------------------------------------------------------------------------
2.88%, 06/30/04 4,232,336 4,232,336
- ---------------------------------------------------------------------------------------------------------------------
4.63%, 05/15/06 755,118 1,526,303 2,281,421
- ---------------------------------------------------------------------------------------------------------------------
3.50%, 11/15/06 309,798 309,798
- ---------------------------------------------------------------------------------------------------------------------
6.13%, 08/15/07 853,710 853,710
- ---------------------------------------------------------------------------------------------------------------------
4.75%, 11/15/08 1,078,280 1,078,280
- ---------------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES- (CONTINUED)
5.75%, 08/15/10 5,681,445 -- -- -- 5,681,445
- ---------------------------------------------------------------------------------------------------------------------
4.00%, 11/15/12 28,548,992 28,548,992
- ---------------------------------------------------------------------------------------------------------------------
=====================================================================================================================
34,230,437 3,271,864 1,078,280 9,104,973 47,685,554
=====================================================================================================================
U.S. TREASURY BONDS- 0.80%
7.25%, 05/15/16 -- 253,750 634,375 3,679,375 4,567,500
- ---------------------------------------------------------------------------------------------------------------------
7.50%, 11/15/16 2,268,157 2,268,157
- ---------------------------------------------------------------------------------------------------------------------
6.25%, 08/15/23 -- 253,750 1,629,908 1,629,908
- ---------------------------------------------------------------------------------------------------------------------
-- 253,750 634,375 7,577,440 8,465,565
- ---------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
Securities 34,230,437 3,525,614 1,712,655 16,682,413 56,151,119
(Cost $55,411,421)
====================================================================================================================
ASSET-BACKED SECURITIES-
3.02%
AIRLINES- 1.49%
Air 2 US-Series C, Equipment(d) 67,986 453,238 521,224
- ---------------------------------------------------------------------------------------------------------------------
Trust Ctfs., 10.13%, 10/01/20
Continental Airlines, Inc.
Series 2000-1, Class A-1, Sr.
Pass Through Ctfs., 8.05%,
11/01/20 244,070 244,070 1,423,742 1,911,882
- ---------------------------------------------------------------------------------------------------------------------
Series 2000-2, Class A-1, Sr.
Sec. Pass Through Ctfs.,
7.71%, 04/02/21 268,635 392,620 1,128,266 1,789,521
- ---------------------------------------------------------------------------------------------------------------------
Series 974A, Pass Through 453,739 378,116 2,571,188 3,403,043
- ---------------------------------------------------------------------------------------------------------------------
Ctfs., 6.90%, 01/02/18
Delta Air Lines, Inc.-Series
2002-1, Class C, Pass Thru Ctfs,
7.78%, 07/02/13 792,008 792,008
- ---------------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc.-Series
93A2, Equipment Trust Ctfs.,
10.50%, 04/30/16 3,268,750 3,268,750
- ---------------------------------------------------------------------------------------------------------------------
United Air Lines, Inc.-Series
2000-1, Class A-2, Pass Through
Ctfs., 7.73%, 07/01/10 650,000 3,331,250 3,981,250
=====================================================================================================================
792,008 1,684,430 1,014,806 12,176,434 15,667,678
=====================================================================================================================
DIVERSIFIED FINANCIAL SERVICES-
1.31%
Citicorp Lease
Series 1999-1, Class A-1, Pass
Through Ctfs., 7.22%,
06/15/05(d) -- 161,420 322,841 2,703,792 3,188,053
- ---------------------------------------------------------------------------------------------------------------------
Series 1999-1, Class A-2, Passd) 1,271,446 577,930 4,161,096 6,010,472
Through Ctfs., 8.04%, 12/15/19
- ---------------------------------------------------------------------------------------------------------------------
National Rural Utilities
Cooperative Finance Corp., Sr.
Sec.
Global Notes, 6.00%, 05/15/06 1,950,084 1,950,084
- ---------------------------------------------------------------------------------------------------------------------
Premium Asset Trust-Series
2001-6, Sec. Notes, 5.25%,
7/19/04(d) 520,266 2,185,115 2,705,381
=====================================================================================================================
-- 1,953,132 900,771 11,000,087 13,853,990
=====================================================================================================================
ELECTRIC UTILITIES- 0.22%
Beaver Valley II Funding Corp.,
Sec. Lease Obligation Bonds,
9.00%, 06/01/17 220,078 440,156 1,650,585 2,310,819
- ---------------------------------------------------------------------------------------------------------------------
Total Asset-Backed Securities 792,008 3,857,640 2,355,733 24,827,106 31,832,487
(Cost $36,543,739)
- ---------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER- 1.33% New
Center Asset Trust Series
I, 1.31%, 02/03/03 (Cost
$14,000,000) 14,000,000 -- -- -- 14,000,000
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS- 0.05%(o)
State Street Bank & Trust
1.80%, 02/03/03(Cost $489.000)(p) 489,000 -- -- -- 489,000
- ---------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS- 1.36%
STIC Liquid Assets Portfolio(q) -- 3,063,282 1,711,600 2,405,660 7,180,542
- ---------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio(q) -- 3,063,282 1,711,600 2,405,660 7,180,542
- ---------------------------------------------------------------------------------------------------------------------
Total Money Market Funds(Cost -- 6,126,564 3,423,200 4,811,320 14,361,084
$14,361,084)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - (COST 286,594,928 137,795,785 96,544,032 534,247,690 1,055,182,435
$1,056,069,217) - 100.10%
=====================================================================================================================
OTHER ASSETS LESS LIABILITIES-- (654,405) 412,170 (749,839) (111,949) (1,104,023)
0.10%
=====================================================================================================================
NET ASSETS- 100.00% $285,940,523 $138,207,955 $ 95,794,193 $ 534,135,741 $ 1,054,078,412
=====================================================================================================================
</Table>
Investment Abbreviations:
ADR American Depositary Receipt
AUD Australian Dollar
CAD Canadian Dollar
Conv. Convertible
Ctfs. Certificates
Deb. Debentures
Disc. Discounted
EUR Euro
GBP British Pound Sterling
Gtd. Guaranteed
Jr. Junior
LYONS Liquid Yield Option Notes
NZD New Zealand Dollar
Pfd. Preferred
PHONES Participation Hybrid Option Notes
RAPS Redeemable and Putable Securities
REIT Real Estate Investment Trust
Sec. Secured
Sr. Senior
Sub. Subordinated
TBA To Be Announced
Unsec. Unsecured
Unsub. Unsubordinated
Wts. Warrants
ZENS Zero Exchange Sub. Notes
Notes to Pro Forma Combining Schedule of Investments:
(a) Discounted bond at issue. The interest rate represents the coupon rate
at which the bond will accrue at a specified future date.
(b) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(c) Security fair valued in accordance with the procedures established by
the AIM Global Income Fund Board of Trustees, AIM Select Income Fund
Board of Trustees, and the AIM Income Fund Board of Trustees.
(d) Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction); the security may be resold only pursuant to
an exemption from registration under the 1933 Act, typically to
qualified institutional buyers. The Fund has no rights to demand
registration of these securities. The market value of these securities
for INVESCO Select Income Fund at January 31, 2003 was $7,638,387,
which represented 2.67% of INVESCO Select Income Fund's net assets. The
market value of these securities for AIM Global Income Fund at January
31, 2003 was $8,533,480, which represented 6.17% of AIM Global Income
Fund's net assets. The market value of these securities for AIM
Strategic Income Fund at January 31, 2003 was $5,604,809, which
represented 5.85% of AIM Strategic Income Fund's net assets. The
aggregate market value of all unregistered securities at 01/31/03 was
$65,539,999, which represented 6.22% of the pro forma combining net
assets of AIM Income Fund.
(e) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 01/31/03.
(f) Interest rates are redetermined quarterly. Rates shown are rates in
effect on 01/31/03.
(g) Interest rates are redetermined monthly. Rates shown are rates in
effect on 01/31/03.
(h) Zero coupon bond issued at discount. The interest rate shown represents
the yield to maturity at issue.
(i) Principal and interest payments are secured by bond insurance provided
by one of the following: Ambac Assurance Corp., Financial Guaranty
Insurance, Financial Security Assurance, or MBIA Insurance Co.
(j) Discounted bond at issue. The interest rate the coupon rate at which
the bond will accrue at a specified future date.
(k) Foreign denominated security. Par value is denominated in currency
indicated.
(l) Non income producing security acquired as part of a unit with or in
exchange for other securities.
(m) Non-income producing security.
(n) Security purchased on a forward commitment basis. These securities are
subject to dollar roll transactions.
(o) Repurchase agreements held by the INVESCO Select Income Fund are fully
collateralized by securities issued by the U.S. Government, its
agencies or instrumentalities and such collateral is in the possession
of the INVESCO Select Income Fund's custodian. The collateral is
evaluated daily to ensure its market value exceeds the current market
value of the repurchase agreements including accrued interest. In the
event of default on the obligation to repurchase, the INVESCO Select
Income Fund has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
(p) Repurchase agreement entered into 01/31/03 with a maturing value of
$489,050 and collateralized by U.S. Government obligations.
(q) STIC Liquid Assets Portfolio and STIC Prime Portfolio are affiliated
with AIM Global Income Fund, AIM Strategic Income Fund, and AIM Income
Fund by having the same investment advisor.
* As of 1/31/03, all of the securities held by the AIM Global Income
Fund, AIM Strategic Income Fund and INVESCO Select Income Fund would
comply with the compliance guidelines and/or investment restrictions of
the AIM Income Fund.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF INVESCO SELECT INCOME FUND, AIM GLOBAL INCOME FUND,
AIM STRATEGIC INCOME FUND INTO AIM INCOME FUND
JANUARY 31, 2003
(UNAUDITED)
<Table>
<Caption>
INVESCO AIM AIM
SELECT GLOBAL STRATEGIC
INCOME INCOME INCOME
FUND FUND FUND
--------------------------------------------------------
ASSETS:
Investments, at market value $ 286,105,928 $ 137,795,783 $ 96,544,034
(cost $293,263,431 - INVESCO Select
Income Fund)
(cost $132,620,663 - AIM Global
Income Fund)
(cost $100,150,634 - AIM Strategic
Income Fund)
(cost $529,420,684 - AIM Income Fund)
(cost $1,055,101,216 - Pro Forma
Combining)
- -----------------------------------------------------------------------------------------------------------------
Foreign currencies, at value -- 168,080 132,063
(cost $0 - INVESCO Select Income
Fund)
(cost $160,690 - AIM Global
Income Fund)
(cost $125,331 - AIM Strategic
Income Fund)
(cost $156,081 - AIM Income Fund)
(cost $442,102 - Pro Forma
Combining)
- -----------------------------------------------------------------------------------------------------------------
Repurchase agreements 489,000 -- --
- -----------------------------------------------------------------------------------------------------------------
Receivables for:
Investments sold -- 355,300 94,458
- -----------------------------------------------------------------------------------------------------------------
Fund shares sold 1,199,203 421,377 245,078
- -----------------------------------------------------------------------------------------------------------------
Dividends and interest 3,900,871 2,379,453 1,704,637
- -----------------------------------------------------------------------------------------------------------------
Amount due from advisor 227,250 227,250
- -----------------------------------------------------------------------------------------------------------------
Investment for deferred
compensation 11,985 40,067 5,215
- -----------------------------------------------------------------------------------------------------------------
Other assets 88,826 874 (429)
=================================================================================================================
Total assets 291,795,813 141,160,934 98,725,056
=================================================================================================================
LIABILITIES:
Payables for:
Investments purchased -- 1,911,190 2,669,495
- -----------------------------------------------------------------------------------------------------------------
Fund shares reacquired 5,589,174 202,698 120,701
- -----------------------------------------------------------------------------------------------------------------
Custodian 5,594 -- --
- -----------------------------------------------------------------------------------------------------------------
Distributions to shareholders 98,115 -- --
- -----------------------------------------------------------------------------------------------------------------
Dividends -- 554,411 (334)
- -----------------------------------------------------------------------------------------------------------------
Deferred compensation plan 11,985 40,067 5,215
- -----------------------------------------------------------------------------------------------------------------
Accrued distribution fees 65,203 -- --
- -----------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees -- -- --
- -----------------------------------------------------------------------------------------------------------------
Accrued director's/trustees' fees 1,603 -- --
- -----------------------------------------------------------------------------------------------------------------
Accrued merger expenses -- -- --
- -----------------------------------------------------------------------------------------------------------------
Accrued operating expenses 83,616 244,613 135,786
=================================================================================================================
Total liabilities 5,855,290 2,952,979 2,930,863
=================================================================================================================
Net assets applicable to
shares outstanding $ 285,940,523 $ 138,207,955 $ 95,794,193
=================================================================================================================
NET ASSETS:
Class A $ 2,664,505 $ 107,236,715 $ 71,329,162
=================================================================================================================
Class B $ 316,366 $ 27,540,142 $ 21,837,686
=================================================================================================================
Class C $ 2,135,467 $ 3,431,098 $ 2,627,345
=================================================================================================================
Class K $ 4,635,813 $ -- $ --
=================================================================================================================
Class R $ -- $ -- $ --
=================================================================================================================
Investor Class $ 276,188,372 $ -- $ --
=================================================================================================================
CAPITAL STOCK OUTSTANDING, $0.01 PAR
VALUE PER SHARE (INVESCO SELECT
INCOME FUND):
CAPITAL STOCK OUTSTANDING, $0.001 PAR
VALUE PER SHARE (AIM GLOBAL INCOME
FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE
PER SHARE (AIM STRATEGIC INCOME
FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE
PER SHARE (AIM INCOME FUND):
Class A 509,899 12,475,495 9,230,566
=================================================================================================================
Class B 60,625 3,204,065 2,817,771
=================================================================================================================
Class C 409,035 399,403 339,363
=================================================================================================================
Class K 888,474 -- --
=================================================================================================================
Class R -- -- --
=================================================================================================================
Investor Class 52,904,252 -- --
=================================================================================================================
Class A:
Net asset value per share $ 5.23 $ 8.60 $ 7.73
- -----------------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $5.23 / 95.25% - INVESCO
Select Income Fund) $ 5.49
(Net asset value of $8.60 / 95.25% - AIM
Global Income Fund) $ 9.02
(Net asset value of $7.73 / 95.25% - AIM
Strategic Income Fund) $ 8.11
(Net asset value of $6.44 / 95.25% - AIM
Income Fund)
=================================================================================================================
Class B:
Net asset value and offering price per share $ 5.22 $ 8.60 $ 7.75
=================================================================================================================
Class C:
Net asset value and offering price per share $ 5.22 $ 8.59 $ 7.74
=================================================================================================================
Class K:
Net asset value and offering price per share $ 5.22 N/A N/A
=================================================================================================================
Class R:
Net asset value and offering price per share N/A N/A N/A
=================================================================================================================
Investor Class:
Net asset value and offering price per share $ 5.22 N/A N/A
=================================================================================================================
<Caption>
AIM
AIM INCOME FUND
INCOME PRO FORMA
FUND ADJUSTMENTS COMBINING
--------------------------------------------------------
ASSETS:
Investments, at market value $ 534,247,690 $ -- $1,054,693,435
(cost $293,263,431 - INVESCO Select
Income Fund)
(cost $132,620,663 - AIM Global
Income Fund)
(cost $100,150,634 - AIM Strategic
Income Fund)
(cost $529,420,684 - AIM Income Fund)
(cost $1,055,101,216 - Pro Forma
Combining)
- ------------------------------------------------------------------------------------------------------------------
Foreign currencies, at value 157,638 -- 457,781
(cost $0 - INVESCO Select Income
Fund)
(cost $160,690 - AIM Global
Income Fund)
(cost $125,331 - AIM Strategic
Income Fund)
(cost $156,081 - AIM Income Fund)
(cost $442,102 - Pro Forma
Combining)
- ------------------------------------------------------------------------------------------------------------------
Repurchase agreements -- -- 489,000
- ------------------------------------------------------------------------------------------------------------------
Receivables for:
Investments sold 2,372,601 -- 2,822,359
- ------------------------------------------------------------------------------------------------------------------
Fund shares sold 1,380,166 -- 3,245,824
- ------------------------------------------------------------------------------------------------------------------
Dividends and interest 9,207,407 -- 17,192,368
- ------------------------------------------------------------------------------------------------------------------
Amount due from advisor
- ------------------------------------------------------------------------------------------------------------------
Investment for deferred
compensation 54,895 -- 112,162
- ------------------------------------------------------------------------------------------------------------------
Other assets 40,434 -- 129,705
==================================================================================================================
Total assets 547,460,831 227,250 1,079,369,884
==================================================================================================================
LIABILITIES:
Payables for:
Investments purchased 9,939,803 -- 14,520,488
- ------------------------------------------------------------------------------------------------------------------
Fund shares reacquired 2,194,400 -- 8,106,973
- ------------------------------------------------------------------------------------------------------------------
Custodian -- -- 5,594
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders -- -- 98,115
- ------------------------------------------------------------------------------------------------------------------
Dividends 574,900 -- 1,128,977
- ------------------------------------------------------------------------------------------------------------------
Deferred compensation plan 54,895 -- 112,162
- ------------------------------------------------------------------------------------------------------------------
Accrued distribution fees 285,315 -- 350,518
- ------------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees 168,681 -- 168,681
- ------------------------------------------------------------------------------------------------------------------
Accrued director's/trustees' fees 1,055 -- 2,658
- ------------------------------------------------------------------------------------------------------------------
Accrued merger expenses -- 227,250 227,250
- ------------------------------------------------------------------------------------------------------------------
Accrued operating expenses 106,041 -- 570,056
==================================================================================================================
Total liabilities 13,325,090 227,250 25,291,472
==================================================================================================================
Net assets applicable to
shares outstanding $ 534,135,741 $ -- $1,054,078,412
==================================================================================================================
NET ASSETS:
Class A $ 283,759,064 $ 4,635,813 $ 469,625,259
==================================================================================================================
Class B $ 212,723,398 $ 262,417,592
==================================================================================================================
Class C $ 36,565,670 $ 44,759,580
==================================================================================================================
Class K $ -- $ (4,635,813) $ --
==================================================================================================================
Class R $ 1,087,609 -- $ 1,087,609
==================================================================================================================
Investor Class $ -- -- $ 276,188,372
==================================================================================================================
CAPITAL STOCK OUTSTANDING, $0.01 PAR
VALUE PER SHARE (INVESCO SELECT
INCOME FUND):
CAPITAL STOCK OUTSTANDING, $0.001 PAR
VALUE PER SHARE (AIM GLOBAL INCOME
FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE
PER SHARE (AIM STRATEGIC INCOME
FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE
PER SHARE (AIM INCOME FUND):
Class A 44,044,808 28,873,624 72,918,432
==================================================================================================================
Class B 32,972,431 7,706,844 40,679,275
==================================================================================================================
Class C 5,681,106 1,272,159 6,953,265
==================================================================================================================
Class K -- -- --
==================================================================================================================
Class R 168,753 -- 168,753
==================================================================================================================
Investor Class -- 42,882,018 42,882,018
==================================================================================================================
Class A:
Net asset value per share $ 6.44 $ -- $ 6.44
- ------------------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $5.23 / 95.25% - INVESCO
Select Income Fund)
(Net asset value of $8.60 / 95.25% - AIM
Global Income Fund)
(Net asset value of $7.73 / 95.25% - AIM
Strategic Income Fund)
(Net asset value of $6.44 / 95.25% - AIM
Income Fund) $ 6.76 $ 6.76
==================================================================================================================
Class B:
Net asset value and offering price per share $ 6.45 $ -- $ 6.45
==================================================================================================================
Class C:
Net asset value and offering price per share $ 6.44 $ -- $ 6.44
==================================================================================================================
Class K:
Net asset value and offering price per share $ -- $ -- N/A
==================================================================================================================
Class R:
Net asset value and offering price per share $ 6.44 $ -- $ 6.44
==================================================================================================================
Investor Class:
Net asset value and offering price per share $ -- $ -- $ 6.44
==================================================================================================================
</Table>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF INVESCO SELECT INCOME FUND, AIM GLOBAL INCOME FUND,
AIM STRATEGIC INCOME FUND INTO AIM INCOME FUND
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Agreement and Plan") between AIM Income Fund, AIM Global Income Fund, AIM
Strategic Income Fund and INVESCO Select Income Fund and the consummation of the
transactions contemplated therein to be accounted for as a tax-free
reorganization of investment companies. The Agreement and Plan would be
accomplished by an exchange of shares of AIM Income Fund for the net assets of
INVESCO Select Income Fund, the net assets of AIM Global Income Fund and the net
assets of AIM Strategic Income Fund and the distribution of AIM Income Fund
shares to INVESCO Select Income Fund, to AIM Global Income Fund and to AIM
Strategic Income Fund shareholders. If the Agreement and Plan were to have taken
place at January 31, 2003, INVESCO Select Income Fund - Class A shareholders
would have received 414,094 shares of AIM Income Fund - Class A shares, INVESCO
Select Income Fund - Class B shareholders would have received 49,064 shares of
AIM Income Fund - Class B shares and INVESCO Select Income Fund - Class C
shareholders would have received 331,547 shares of AIM Income Fund - Class C
shares, INVESCO Select Income Fund - Class K shareholders would have received
720,161 shares of AIM Income Fund - Class A shares, and INVESCO Select Income
Fund - Investor Class shareholders would have received 42,882,018 shares of AIM
Income Fund - Investor Class. If the Agreement and Plan were to have taken place
at January 31, 2003, AIM Global Income Fund - Class A shareholders would have
received 16,659,823 shares of AIM Income Fund - Class A shares, AIM Global
Income Fund - Class B shareholders would have received 4,272,087 shares of AIM
Income Fund - Class B shares, AIM Global Income Fund - Class C shareholders
would have received 532,744 shares of AIM Income Fund - Class C shares. If the
Agreement and Plan were to have taken place at January 31, 2003, AIM Strategic
Income Fund - Class A shareholders would have received 11,079,546 shares of AIM
Income Fund - Class A shares, AIM Strategic Income Fund - Class B shareholders
would have received 3,385,693 shares of AIM Income Fund - Class B shares, AIM
Strategic Income Fund - Class C shareholders would have received 407,868 shares
of AIM Income Fund - Class C shares.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the investment advisory agreement of AIM Income Fund, the
advisory fees based on pro forma combined assets for the year ended January 31,
2003 were $4,344,024. The advisory fees were adjusted to reflect the advisory
fee rates in effect for AIM Income Fund. Correspondingly the advisory fee
waivers have been adjusted to reflect the termination of the expense limitations
for INVESCO Select Income Fund, AIM Global Income Fund and AIM Strategic Income
Fund.
(b) Pursuant to the administrative services agreement for AIM Income Fund, fees
paid on pro forma combined assets for the year ended January 31, 2003 were
$243,205. The administrative services fees were adjusted to reflect the fees in
effect under the administrative services agreement for the AIM Income Fund.
(c) Pursuant to the terms of a master distribution agreement for Class A shares
of the AIM Income Fund, the Fund pays AIM Distributors, Inc. a fee calculated at
0.25% of the average daily net assets of Class A shares. The Class A
distribution fees on the pro forma combined assets for the year ended January
31, 2003 were $1,186,695 after the reorganization of Class K shares or INVESCO
Select Income Fund into Class A shares of AIM Income Fund. The distribution fees
were adjusted to reflect the lower distribution rates that will be paid by
INVESCO Select Income Fund, AIM Global Income Fund and AIM Strategic Income Fund
in accordance with AIM Income Fund's Class A distribution agreement.
(d) Interest expense has been adjusted to reflect the investment policies of AIM
Income Fund.
(e) Reports to shareholders were reduced by $115,809 to eliminate the effects of
duplicative fixed costs of production of reports to shareholders.
(f) Professional fees were reduced by $91,631 to eliminate the effects of
duplicative fixed costs of professional services fees.
(g) Transfer agent fees were reduced by $1,316,658 to reflect the fees on the
pro forma combined number of open accounts under the transfer and agency
agreement for AIM Income Fund.
NOTE 3 - MERGER COSTS
Merger costs related to the Agreement and Plan are estimated at approximately
$227,250 and because these are non recurring costs they have not been included
in the unaudited pro forma statement of operations. These costs represent the
estimated expense of INVESCO Select Income Fund carrying out its obligation
under the Agreement and Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger. INVESCO Funds Group, Inc. has agreed to pay 100% of these costs.
APPENDIX VII
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF INVESCO U.S. GOVERNMENT SECURITIES FUND INTO AIM INTERMEDIATE GOVERNMENT FUND
JANUARY 31, 2003
(UNAUDITED)
PRINCIPAL AMOUNT
- -----------------------------------------
INVESCO AIM AIM
U.S. INTERMEDIATE INTERMEDIATE
GOVERNMENT GOVERNMENT GOVERNMENT
SECURITIES FUND FUND
FUND PRO FORMA
COMBINING
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-
81.72%
FEDERAL FARM CREDIT BANK- 2.79%
Bonds,
- $7,410,000 $ 7,410,000 3.88%, 12/15/04
- -----------------------------------------------------------------------------------------
- 7,670,000 7,670,000 4.38%, 04/15/05
- -----------------------------------------------------------------------------------------
- 19,000,000 19,000,000 6.00%, 06/11/08 to 03/07/11
- -----------------------------------------------------------------------------------------
Medium Term Notes,
- 10,000,000 10,000,000 5.75%, 12/07/28
- -----------------------------------------------------------------------------------------
=========================================================================================
FEDERAL HOME LOAN BANK-3.91%
Unsec. Bonds,
- 2,800,000 $ 2,800,000 7.36%, 07/01/04
- -----------------------------------------------------------------------------------------
- 2,000,000 2,000,000 6.50%, 11/15/05
- -----------------------------------------------------------------------------------------
- 5,500,000 5,500,000 7.25%, 02/15/07
- -----------------------------------------------------------------------------------------
- 16,000,000 16,000,000 4.88%, 05/15/07
- -----------------------------------------------------------------------------------------
- 1,000,000 1,000,000 5.48%, 01/08/09
- -----------------------------------------------------------------------------------------
- 33,210,000 33,210,000 5.75%, 05/15/12
=========================================================================================
=========================================================================================
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-
28.06%
Pass Through Certificates,
- 1,065,813 1,065,813 9.00%, 12/01/05 to 04/01/25
- -----------------------------------------------------------------------------------------
- 3,982,891 3,982,891 8.00%, 07/01/06 to 10/01/23
- -----------------------------------------------------------------------------------------
- 7,973,090 7,973,090 8.50%, 07/01/07 to 10/01/29
- -----------------------------------------------------------------------------------------
- 74,747,180 74,747,180 7.00%, 11/01/10 to 05/01/32
- -----------------------------------------------------------------------------------------
- 122,387,162 122,387,162 6.50%, 02/01/11 to 09/01/32
- -----------------------------------------------------------------------------------------
- 2,744,416 2,744,416 10.00%, 11/01/11 to 04/01/20
- -----------------------------------------------------------------------------------------
- 4,125 4,125 12.00%, 02/01/13
- -----------------------------------------------------------------------------------------
19,675,250 - 19,675,250 5.50%, 07/01/16 to 12/01/16
- -----------------------------------------------------------------------------------------
28,791,488 - 28,791,488 5.00%, 11/01/16 to 12/01/17
- -----------------------------------------------------------------------------------------
- 479,747 479,747 10.50%, 08/01/19 to 01/01/21
- -----------------------------------------------------------------------------------------
- 2,405,259 2,405,259 9.50%, 11/01/20 to 04/01/25
- -----------------------------------------------------------------------------------------
- 1,544,325 1,544,325 7.50%, 09/01/30
- -----------------------------------------------------------------------------------------
Pass Through Certificates TBA,
- 24,000,000 24,000,000 6.00%, 02/01/33 (a)
- -----------------------------------------------------------------------------------------
Series 1, Unsec. Medium Term Notes,
- 10,000,000 10,000,000 3.75%, 12/26/07
- -----------------------------------------------------------------------------------------
Unsec. Medium Term Notes,
- 30,000,000 30,000,000 4.50%, 02/27/06
- -----------------------------------------------------------------------------------------
- 36,300,000 36,300,000 6.00%, 05/25/12 to 06/27/17
- -----------------------------------------------------------------------------------------
Unsec. Notes,
- 30,000,000 30,000,000 4.88%, 03/15/07
- -----------------------------------------------------------------------------------------
- 27,000,000 27,000,000 5.13%, 10/15/08 to 07/15/12
- -----------------------------------------------------------------------------------------
- 31,200,000 31,200,000 5.00%, 07/30/09
=========================================================================================
=========================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-
34.73%
Pass Through Certificates,
- 26,109,943 26,109,943 8.50%, 01/01/07 to 04/01/30
- -----------------------------------------------------------------------------------------
- 29,427,595 29,427,595 7.50%, 06/01/10 to 05/01/32
- -----------------------------------------------------------------------------------------
- 32,429,194 32,429,194 7.00%, 05/01/11 to 05/01/32
- -----------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
INVESCO AIM AIM
U.S. INTERMEDIATE INTERMEDIATE
GOVERNMENT GOVERNMENT GOVERNMENT
SECURITIES FUND FUND
FUND PRO FORMA
COMBINING
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-
81.72%
FEDERAL FARM CREDIT BANK- 2.79%
Bonds,
3.88%, 12/15/04 - $7,689,728 7,689,728
- -------------------------------------------------------------------------------------
4.38%, 04/15/05 - 8,068,303 8,068,303
- -------------------------------------------------------------------------------------
6.00%, 06/11/08 to 03/07/11 - 21,314,290 21,314,290
- -------------------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28 10,368,100 10,368,100
- -------------------------------------------------------------------------------------
- 47,440,421 47,440,421
=====================================================================================
FEDERAL HOME LOAN BANK-3.91%
Unsec. Bonds,
7.36%, 07/01/04 - 3,024,756 3,024,756
- -------------------------------------------------------------------------------------
6.50%, 11/15/05 - 2,224,320 2,224,320
- -------------------------------------------------------------------------------------
7.25%, 02/15/07 - 6,390,065 6,390,065
- -------------------------------------------------------------------------------------
4.88%, 05/15/07 17,121,600 17,121,600
- -------------------------------------------------------------------------------------
5.48%, 01/08/09 - 1,095,370 1,095,370
- -------------------------------------------------------------------------------------
5.75%, 05/15/12 - 36,525,022 36,525,022
=====================================================================================
- 66,381,133 66,381,133
=====================================================================================
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-
28.06%
Pass Through Certificates,
9.00%, 12/01/05 to 04/01/25 - 1,166,028 1,166,028
- -------------------------------------------------------------------------------------
8.00%, 07/01/06 to 10/01/23 - 4,348,024 4,348,024
- -------------------------------------------------------------------------------------
8.50%, 07/01/07 to 10/01/29 - 8,624,346 8,624,346
- -------------------------------------------------------------------------------------
7.00%, 11/01/10 to 05/01/32 - 78,872,099 78,872,099
- -------------------------------------------------------------------------------------
6.50%, 02/01/11 to 09/01/32 - 127,872,947 127,872,947
- -------------------------------------------------------------------------------------
10.00%, 11/01/11 to 04/01/20 - 3,139,147 3,139,147
- -------------------------------------------------------------------------------------
12.00%, 02/01/13 - 4,784 4,784
- -------------------------------------------------------------------------------------
5.50%, 07/01/16 to 12/01/16 20,373,258 - 20,373,258
- -------------------------------------------------------------------------------------
5.00%, 11/01/16 to 12/01/17 29,490,624 - 29,490,624
- -------------------------------------------------------------------------------------
10.50%, 08/01/19 to 01/01/21 - 548,273 548,273
- -------------------------------------------------------------------------------------
9.50%, 11/01/20 to 04/01/25 - 2,678,826 2,678,826
- -------------------------------------------------------------------------------------
7.50%, 09/01/30 - 1,647,609 1,647,609
- -------------------------------------------------------------------------------------
Pass Through Certificates TBA,
6.00%, 02/01/33 (a) - 24,843,080 24,843,080
- -------------------------------------------------------------------------------------
Series 1, Unsec. Medium Term Notes,
3.75%, 12/26/07 - 10,015,300 10,015,300
- -------------------------------------------------------------------------------------
Unsec. Medium Term Notes,
4.50%, 02/27/06 - 30,063,600 30,063,600
- -------------------------------------------------------------------------------------
6.00%, 05/25/12 to 06/27/17 - 37,851,990 37,851,990
- -------------------------------------------------------------------------------------
Unsec. Notes,
4.88%, 03/15/07 - 32,182,800 32,182,800
- -------------------------------------------------------------------------------------
5.13%, 10/15/08 to 07/15/12 - 28,864,770 28,864,770
- -------------------------------------------------------------------------------------
5.00%, 07/30/09 - 31,962,216 31,962,216
=====================================================================================
49,863,882 424,685,839 474,549,721
=====================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-
34.73%
Pass Through Certificates,
8.50%, 01/01/07 to 04/01/30 - 28,518,998 28,518,998
- -------------------------------------------------------------------------------------
7.50%, 06/01/10 to 05/01/32 - 31,381,587 31,381,587
- -------------------------------------------------------------------------------------
7.00%, 05/01/11 to 05/01/32 - 34,484,708 34,484,708
- -------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------
INVESCO AIM AIM
U.S. INTERMEDIATE INTERMEDIATE
GOVERNMENT GOVERNMENT GOVERNMENT
SECURITIES FUND FUND
FUND PRO FORMA
COMBINING
- -----------------------------------------------------------------------------------------
- 110,428,658 110,428,658 8.00%, 02/01/12 to 06/01/32
- -----------------------------------------------------------------------------------------
- 122,728,360 122,728,360 6.50%, 05/01/13 to 08/01/32
- -----------------------------------------------------------------------------------------
- 21,502,620 21,502,620 6.00%, 10/01/13 to 04/01/24
- -----------------------------------------------------------------------------------------
- 496,238 496,238 9.50%, 07/01/16 to 08/01/22
- -----------------------------------------------------------------------------------------
- 2,987,411 2,987,411 10.00%, 12/20/19 to 12/20/21
- -----------------------------------------------------------------------------------------
- 915,460 915,460 10.30%, 04/20/25
- -----------------------------------------------------------------------------------------
Pass Through Certificates, TBA,
- 113,500,000 113,500,000 6.00%, 02/01/33 (a)
- -----------------------------------------------------------------------------------------
Series B, Unsec. Medium Term Notes,
- 24,765,000 24,765,000 6.88%, 09/10/12 to 09/24/12
- -----------------------------------------------------------------------------------------
- 10,550,000 10,550,000 6.47%, 09/25/12
- -----------------------------------------------------------------------------------------
Unsec. Notes,
- 36,000,000 36,000,000 3.25%, 08/26/05
- -----------------------------------------------------------------------------------------
- 23,000,000 23,000,000 4.25%, 07/15/07
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)- 7.80%
Pass Through Certificates,
- 220,419 220,419 6.00%, 10/15/08 to 11/15/08
- -----------------------------------------------------------------------------------------
- 416,786 416,786 9.00%, 10/15/08 to 04/15/21
- -----------------------------------------------------------------------------------------
- 8,774,236 8,774,236 7.00%, 10/15/08 to 06/15/32
- -----------------------------------------------------------------------------------------
- 34,172,180 34,172,180 6.50%, 10/15/08 to 09/15/32
- -----------------------------------------------------------------------------------------
- 1,616,761 1,616,761 9.50%, 06/15/09 to 03/15/23
- -----------------------------------------------------------------------------------------
- 3,493,560 3,493,560 10.00%, 11/15/09 to 07/15/24
- -----------------------------------------------------------------------------------------
- 31,848 31,848 11.00%, 12/15/09 to 12/15/15
- -----------------------------------------------------------------------------------------
- 43,564 43,564 12.50%, 11/15/10
- -----------------------------------------------------------------------------------------
- 150,356 150,356 13.00%, 01/15/11 to 05/15/15
- -----------------------------------------------------------------------------------------
- 138,229 138,229 13.50%, 04/15/11 to 04/15/15
- -----------------------------------------------------------------------------------------
- 143,896 143,896 12.00%, 02/15/13 to 07/15/15
- -----------------------------------------------------------------------------------------
- 22,325 22,325 10.50%, 02/15/16
- -----------------------------------------------------------------------------------------
8,404,295 - 8,404,295 5.00%, 11/15/17
- -----------------------------------------------------------------------------------------
- 8,552,410 8,552,410 8.00%, 01/15/22 to 06/15/27
- -----------------------------------------------------------------------------------------
- 2,090,922 2,090,922 7.50%, 03/15/26 to 08/15/28
- -----------------------------------------------------------------------------------------
14,006,339 - 14,006,339 6.00%, 01/15/29 to 02/15/29
- -----------------------------------------------------------------------------------------
Pass Through Certificates, TBA,
- 15,300,000 15,300,000 6.50%, 01/01/33
- -----------------------------------------------------------------------------------------
- 27,500,000 27,500,000 6.00%, 02/01/33 (a)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY- 1.53%
Series G, Sec. Gtd. Notes,
- 7,700,000 7,700,000 6.67%, 09/15/09
- -----------------------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
- 7,000,000 7,000,000 7.65%, 05/15/06
- -----------------------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
- 8,000,000 8,000,000 7.95%, 11/01/06
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY- 2.87%
Putable Bonds,
- 10,000,000 10,000,000 4.88%, 12/15/06
- -----------------------------------------------------------------------------------------
Series A, Bonds,
- 28,517,000 28,517,000 5.63%, 01/18/11
- -----------------------------------------------------------------------------------------
Series G, Bonds,
- 6,600,000 6,600,000 5.38%, 11/13/08
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $1,350,201,559)
- -----------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
INVESCO AIM AIM
U.S. INTERMEDIATE INTERMEDIATE
GOVERNMENT GOVERNMENT GOVERNMENT
SECURITIES FUND FUND
FUND PRO FORMA
COMBINING
- --------------------------------------------------------------------------------------
8.00%, 02/01/12 to 06/01/32 - 119,286,913 119,286,913
- --------------------------------------------------------------------------------------
6.50%, 05/01/13 to 08/01/32 - 128,793,509 128,793,509
- --------------------------------------------------------------------------------------
6.00%, 10/01/13 to 04/01/24 - 22,505,090 22,505,090
- --------------------------------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 - 553,982 553,982
- --------------------------------------------------------------------------------------
10.00%, 12/20/19 to 12/20/21 - 3,418,718 3,418,718
- --------------------------------------------------------------------------------------
10.30%, 04/20/25 - 1,042,436 1,042,436
- --------------------------------------------------------------------------------------
Pass Through Certificates, TBA,
6.00%, 02/01/33 (a) - 117,498,595 117,498,595
- --------------------------------------------------------------------------------------
Series B, Unsec. Medium Term Notes,
6.88%, 09/10/12 to 09/24/12 - 27,611,310 27,611,310
- --------------------------------------------------------------------------------------
6.47%, 09/25/12 - 12,181,769 12,181,769
- --------------------------------------------------------------------------------------
Unsec. Notes,
3.25%, 08/26/05 - 36,047,520 36,047,520
- --------------------------------------------------------------------------------------
4.25%, 07/15/07 - 24,049,030 24,049,030
- --------------------------------------------------------------------------------------
- 587,374,165 587,374,165
- --------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)- 7.80%
Pass Through Certificates,
6.00%, 10/15/08 to 11/15/08 - 235,123 235,123
- --------------------------------------------------------------------------------------
9.00%, 10/15/08 to 04/15/21 - 463,026 463,026
- --------------------------------------------------------------------------------------
7.00%, 10/15/08 to 06/15/32 - 9,334,921 9,334,921
- --------------------------------------------------------------------------------------
6.50%, 10/15/08 to 09/15/32 - 35,914,982 35,914,982
- --------------------------------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 - 1,820,501 1,820,501
- --------------------------------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 - 4,007,476 4,007,476
- --------------------------------------------------------------------------------------
11.00%, 12/15/09 to 12/15/15 - 36,572 36,572
- --------------------------------------------------------------------------------------
12.50%, 11/15/10 - 51,107 51,107
- --------------------------------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 - 180,794 180,794
- --------------------------------------------------------------------------------------
13.50%, 04/15/11 to 04/15/15 - 166,402 166,402
- --------------------------------------------------------------------------------------
12.00%, 02/15/13 to 07/15/15 - 170,156 170,156
- --------------------------------------------------------------------------------------
10.50%, 02/15/16 - 25,888 25,888
- --------------------------------------------------------------------------------------
5.00%, 11/15/17 8,649,683 - 8,649,683
- --------------------------------------------------------------------------------------
8.00%, 01/15/22 to 06/15/27 - 9,336,371 9,336,371
- --------------------------------------------------------------------------------------
7.50%, 03/15/26 to 08/15/28 - 2,241,059 2,241,059
- --------------------------------------------------------------------------------------
6.00%, 01/15/29 to 02/15/29 14,600,520 - 14,600,520
- --------------------------------------------------------------------------------------
Pass Through Certificates, TBA,
6.50%, 01/01/33 - 16,050,656 16,050,656
- --------------------------------------------------------------------------------------
6.00%, 02/01/33 (a) - 28,621,280 28,621,280
- --------------------------------------------------------------------------------------
23,250,203 108,656,314 131,906,517
- --------------------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY- 1.53%
Series G, Sec. Gtd. Notes,
6.67%, 09/15/09 - 8,946,322 8,946,322
- --------------------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06 - 8,097,180 8,097,180
- --------------------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
7.95%, 11/01/06 - 8,779,520 8,779,520
- --------------------------------------------------------------------------------------
- 25,823,022 25,823,022
- --------------------------------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY- 2.87%
Putable Bonds,
4.88%, 12/15/06 - 10,669,100 10,669,100
- --------------------------------------------------------------------------------------
Series A, Bonds,
5.63%, 01/18/11 - 30,763,569 30,763,569
- --------------------------------------------------------------------------------------
Series G, Bonds,
5.38%, 11/13/08 - 7,189,710 7,189,710
- --------------------------------------------------------------------------------------
- 48,622,379 48,622,379
- --------------------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $1,350,201,559) 73,114,085 1,308,983,273 1,382,097,358
- --------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
- -----------------------------------------
INVESCO AIM AIM
U.S. INTERMEDIATE INTERMEDIATE
GOVERNMENT GOVERNMENT GOVERNMENT
SECURITIES FUND FUND
FUND PRO FORMA
COMBINING
- ---------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES- 24.89%
U.S. TREASURY NOTES- 20.16%
17,500,000 - 17,500,000 3.88%, 07/31/03
- ---------------------------------------------------------------------------------------
27,500,000 - 27,500,000 3.00%, 11/30/03 to 01/31/04
- ---------------------------------------------------------------------------------------
- 21,500,000 21,500,000 6.75%, 05/15/05
- ---------------------------------------------------------------------------------------
- 29,800,000 29,800,000 4.63%, 05/15/06
- ---------------------------------------------------------------------------------------
- 66,000,000 66,000,000 4.38%, 05/15/07
- ---------------------------------------------------------------------------------------
- 40,700,000 40,700,000 3.25%, 08/15/07
- ---------------------------------------------------------------------------------------
- 25,800,000 25,800,000 4.88%, 02/15/12
- ---------------------------------------------------------------------------------------
40,000,000 60,000,000 100,000,000 4.00%, 11/15/12
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
U.S. TREASURY BONDS- 4.09%
- 14,950,000 14,950,000 7.50%, 11/15/16 to 11/15/24
- ---------------------------------------------------------------------------------------
- 18,890,000 18,890,000 6.25%, 05/15/30
- ---------------------------------------------------------------------------------------
- 25,000,000 25,000,000 5.38%, 02/15/31
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
U.S. TREASURY STRIPS-0.64% (B)
- 8,000,000 8,000,000 5.38%, 05/15/06
- ---------------------------------------------------------------------------------------
- 7,750,000 7,750,000 6.79%, 11/15/18
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- Total U.S. Treasury Securities
(Cost $411,785,936)
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS- 1.30%
21,913,000 - State Street Bank & Trust 1.22%, 02/03/03
21,913,000 (Cost $21,913,000) (c)
- ---------------------------------------------------------------------------------------
SHARES
MONEY MARKET FUNDS- 1.77%
- 29,950,295 STIT Government & Agency Portfolio
29,950,295 (Cost $29,950,295) (d)
- ---------------------------------------------------------------------------------------
TOTAL INVESTMENTS - (COST $1,813,850,790) -
109.67%
- ---------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-- 9.67%
- ---------------------------------------------------------------------------------------
NET ASSETS- 100.00%
- ---------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------------
INVESCO AIM AIM
U.S. INTERMEDIATE INTERMEDIATE
GOVERNMENT GOVERNMENT GOVERNMENT
SECURITIES FUND FUND
FUND PRO FORMA
COMBINING
- ----------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES- 24.89%
U.S. TREASURY NOTES- 20.16%
3.88%, 07/31/03 17,729,687 - 17,729,687
- ----------------------------------------------------------------------------------------
3.00%, 11/30/03 to 01/31/04 27,931,253 - 27,931,253
- ----------------------------------------------------------------------------------------
6.75%, 05/15/05 - 23,838,125 23,838,125
- ----------------------------------------------------------------------------------------
4.63%, 05/15/06 - 31,918,482 31,918,482
- ----------------------------------------------------------------------------------------
4.38%, 05/15/07 - 70,227,960 70,227,960
- ----------------------------------------------------------------------------------------
3.25%, 08/15/07 - 41,342,246 41,342,246
- ----------------------------------------------------------------------------------------
4.88%, 02/15/12 - 27,710,748 27,710,748
- ----------------------------------------------------------------------------------------
4.00%, 11/15/12 40,068,760 60,121,800 100,190,560
- ----------------------------------------------------------------------------------------
85,729,700 255,159,361 340,889,061
- ----------------------------------------------------------------------------------------
U.S. TREASURY BONDS- 4.09%
7.50%, 11/15/16 to 11/15/24 - 19,763,428 19,763,428
- ----------------------------------------------------------------------------------------
6.25%, 05/15/30 - 22,431,875 22,431,875
- ----------------------------------------------------------------------------------------
5.38%, 02/15/31 - 27,004,000 27,004,000
- ----------------------------------------------------------------------------------------
- 69,199,303 69,199,303
- ----------------------------------------------------------------------------------------
U.S. TREASURY STRIPS-0.64% (B)
5.38%, 05/15/06 - 7,388,720 7,388,720
- ----------------------------------------------------------------------------------------
6.79%, 11/15/18 - 3,436,660 3,436,660
- ----------------------------------------------------------------------------------------
- 10,825,380 10,825,380
- ----------------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $411,785,936) 85,729,700 335,184,044 420,913,744
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS- 1.30%
State Street Bank & Trust 1.22%, 02/03/03
(Cost $21,913,000) (c) 21,913,000 - 21,913,000
- ----------------------------------------------------------------------------------------
MONEY MARKET FUNDS- 1.77%
STIT Government & Agency Portfolio
(Cost $29,950,295) (d) - 29,950,295 29,950,295
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS - (COST $1,813,850,790) -
109.67% 180,756,785 1,674,117,612 1,854,874,397
- ----------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-- 9.67% (2,964,056) (160,619,639) (163,583,695)
- ----------------------------------------------------------------------------------------
NET ASSETS- 100.00% $177,792,729 $1,513,497,973 $1,691,290,702
- ----------------------------------------------------------------------------------------
Investment Abbreviations:
Gtd. Guaranteed
Sec. Secured
STRIPS Separately Traded Registered Interest and Principal Security
TBA To Be Announced
Unsec. Unsecured
Notes to Pro Forma Combining Schedule of Investments:
(a) Security purchased on forward commitment basis. These securities are
subject to dollar roll transactions.
(b) STRIPS are 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 AIM Intermediate Government Fund.
(c) Repurchase agreement entered into 01/31/03 with a maturing value of
$21,915,228 and collateralized by U.S. Government Obligations.
(d) STIT Government & Agency Portfolio and AIM Intermediate Government
Securities Fund are affiliated by having the same investment
advisor.
* As of 1/31/03, all of the securities held by the INVESCO U.S.
Government Securities Fund would comply with the compliance
guidelines and/or investment restrictions of the AIM Intermediate
Government Fund.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF INVESCO U.S. GOVERNMENT SECURITIES FUND INTO AIM INTERMEDIATE GOVERNMENT FUND
JANUARY 31, 2003
(UNAUDITED)
INVESCO AIM AIM
U.S. INTERMEDIATE INTERMEDIATE
GOVERNMENT GOVERNMENT GOVERNMENT
SECURITIES FUND SECURITIES
FUND PRO FORMA
ADJUSTMENTS COMBINING
- ---------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value 180,756,785 1,674,117,612 - 1,854,874,397
- ---------------------------------------------------------------------------------------------------------------
(cost $177,757,154 -
INVESCO U.S. Government Securities Fund)
(cost $1,636,093,636 -
AIM Intermediate Government Fund)
(cost $ 1,813,850,790 -
Pro Forma combining)
Receivables for:
Fund shares sold 1,139,715 12,901,072 - 14,040,787
- ---------------------------------------------------------------------------------------------------------------
Dividends and interest 768,344 13,590,536 - 14,358,880
- ---------------------------------------------------------------------------------------------------------------
Principal paydowns - 145,897 145,897
- ---------------------------------------------------------------------------------------------------------------
Investment for deferred compensation plan - 44,761 - 44,761
- ---------------------------------------------------------------------------------------------------------------
Amount due from advisor - - 125,750 125,750
- ---------------------------------------------------------------------------------------------------------------
Other assets 46,015 671,505 - 717,520
- ---------------------------------------------------------------------------------------------------------------
Total assets 182,710,859 1,701,471,383 125,750 1,884,307,992
===============================================================================================================
LIABILITIES:
Payables for:
Investments purchased - 170,254,427 - 170,254,427
- ---------------------------------------------------------------------------------------------------------------
Fund shares reacquired 4,817,279 15,553,814 - 20,371,093
- ---------------------------------------------------------------------------------------------------------------
Dividends 23,136 697,640 - 720,776
- ---------------------------------------------------------------------------------------------------------------
Deferred compensation plan - 44,761 - 44,761
- ---------------------------------------------------------------------------------------------------------------
Custodian 1,807 - - 1,807
- ---------------------------------------------------------------------------------------------------------------
Accrued interest expense - 1,966 - 1,966
- ---------------------------------------------------------------------------------------------------------------
Accrued distribution fees 44,008 967,424 - 1,011,432
- ---------------------------------------------------------------------------------------------------------------
Accrued directors'/trustees' fees 1,288 1,384 - 2,672
- ---------------------------------------------------------------------------------------------------------------
Accrued merger expenses - - 125,750 125,750
- ---------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees - 343,709 - 343,709
- ---------------------------------------------------------------------------------------------------------------
Accrued operating expenses 30,612 108,285 - 138,897
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 4,918,130 187,973,410 125,750 193,017,290
===============================================================================================================
Net assets applicable to shares outstanding $177,792,729 $1,513,497,973 $ - $1,691,290,702
===============================================================================================================
NET ASSETS:
Class A $ 5,885,524 $ 635,390,383 $641,275,907
===============================================================================================================
Class B $ 1,521,856 $ 721,806,373 $723,328,229
===============================================================================================================
Class C $ 6,767,194 $ 155,195,034 $161,962,228
===============================================================================================================
Class R $ - $ 1,106,183 $ 1,106,183
===============================================================================================================
Investor Class $163,618,155 $ - $163,618,155
===============================================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE (INVESCO U.S. GOVERNMENT SECURITIES FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE (AIM INTERMEDIATE GOVERNMENT FUND):
Class A 636,003 67,180,777 621,885 67,802,662
===============================================================================================================
Class B 200,947 76,086,385 160,292 76,246,677
===============================================================================================================
Class C 894,952 16,419,131 715,962 17,135,093
===============================================================================================================
Class R - 116,935 - 116,935
===============================================================================================================
Investor Class 21,625,532 - 17,299,591 17,299,591
===============================================================================================================
Class A:
Net asset value per share $ 9.25 $ 9.46 $ - $ 9.46
- ---------------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $9.25 / 95.25% -
INVESCO U.S. Government Securities Fund) $ 9.71
(Net asset value of $9.46 / 95.25% -
AIM Intermediate Government Securities
Fund) $ 9.93 $ 9.93
===============================================================================================================
Class B:
Net asset value and offering price per share $ 7.57 $ 9.49 $ - $ 9.49
===============================================================================================================
Class C:
Net asset value and offering price per share $ 7.56 $ 9.45 $ - $ 9.45
===============================================================================================================
Class R:
Net asset value and offering price per share $ - $ 9.46 $ - $ 9.46
===============================================================================================================
Investor Class:
Net asset value and offering price per share $ 7.57 - $ 9.46
- ---------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF INVESCO U.S. GOVERNMENT SECURITIES FUND INTO AIM INTERMEDIATE GOVERNMENT FUND
FOR THE YEAR ENDED JANUARY 31, 2003
(UNAUDITED)
INVESCO AIM
U.S. AIM INTERMEDIATE
GOVERNMENT INTERMEDIATE GOVERNMENT
SECURITIES GOVERNMENT PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
- ------------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest $ 6,926,172 $ 54,416,162 $ - $ 61,342,334
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds - 2,538,262 - 2,538,262
- ------------------------------------------------------------------------------------------------------------------------------
Total investment income 6,926,172 56,954,424 - 63,880,596
==============================================================================================================================
EXPENSES:
Advisory fees 864,740 4,362,453 (395,457) 4,831,736
- ------------------------------------------------------------------------------------------------------------------------------
Administrative services fees 80,838 230,827 (42,213) 269,452
- ------------------------------------------------------------------------------------------------------------------------------
Custodian fees 23,819 128,847 - 152,666
- ------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 9,729 1,183,880 (2,757) 1,190,852
- ------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 9,507 5,468,566 - 5,478,073
- ------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 48,596 1,169,153 - 1,217,749
- ------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class R - 803 - 803
- ------------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Investor Class 371,655 - - 371,655
- ------------------------------------------------------------------------------------------------------------------------------
Interest - 149,884 - 149,884
- ------------------------------------------------------------------------------------------------------------------------------
Reports to shareholders 129,391 113,063 (108,009) 134,445
- ------------------------------------------------------------------------------------------------------------------------------
Professional fees 30,399 41,485 (18,369) 53,515
- ------------------------------------------------------------------------------------------------------------------------------
Registration & filing fees 35,921 191,398 - 227,319
- ------------------------------------------------------------------------------------------------------------------------------
Transfer agent fees 701,634 2,064,859 (313,350) 2,453,143
- ------------------------------------------------------------------------------------------------------------------------------
Directors'/trustees' fees 23,989 14,756 - 38,745
- ------------------------------------------------------------------------------------------------------------------------------
Other 9,191 115,977 - 125,168
- ------------------------------------------------------------------------------------------------------------------------------
Total expenses 2,339,409 15,235,951 (880,155) 16,695,205
- ------------------------------------------------------------------------------------------------------------------------------
Less: Fees waived (716,173) (32,230) 716,173 (32,230)
- ------------------------------------------------------------------------------------------------------------------------------
Expenses paid indirectly (158) (15,863) - (16,021)
- ------------------------------------------------------------------------------------------------------------------------------
Net expenses 1,623,078 15,187,858 (163,982) 16,646,954
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 5,303,094 41,766,566 163,982 47,233,642
==============================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES
Net realized gain (loss) from investment securities 3,684,254 14,039,823 - 17,724,077
- ------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment
securities 3,019,035 31,094,752 - 34,113,787
- ------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investment securities 6,703,289 45,134,575 - 51,837,864
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 12,006,383 $ 86,901,141 $ 163,982 $ 99,071,506
==============================================================================================================================
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF INVESCO U.S. GOVERNMENT SECURITIES INTO AIM INTERMEDIATE GOVERNMENT FUND
January 31, 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Agreement and Plan") between AIM Intermediate Government Fund and INVESCO
U.S. Government Securities Fund and the consummation of the transactions
contemplated therein to be accounted for as a tax-free reorganization of
investment companies. The Agreement and Plan would be accomplished by an
exchange of shares of AIM Intermediate Government Fund for the net assets of
INVESCO U.S. Government Securities Fund and the distribution of AIM Intermediate
Government Fund shares to INVESCO U.S. Government Securities shareholders. If
the Agreement and Plan were to have taken place at January 31, 2003, INVESCO
U.S. Government Securities Fund Class A, Class B and Class C shareholders would
have received 621,885, 160,292 and 715,962 shares of AIM Intermediate Government
Fund - Class A, Class B and Class C shares, respectively. INVESCO U.S.
Government Securities Fund - Investor Class shareholders would have received
17,299,591 shares of AIM Intermediate Government Fund - Investor Class shares.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the investment advisory agreement of AIM Intermediate
Government Fund, the advisory fees based on pro forma combined assets for the
year ended January 31, 2003 were $4,831,736. The advisory fees were adjusted to
reflect the advisory fee rates in effect for AIM Intermediate Government Fund.
Correspondingly, the advisory fee waivers have been adjusted to reflect the
termination of the INVESCO U.S. Government Securities Fund expense limitation.
(b) Pursuant to the master administrative services agreement for AIM
Intermediate Government Fund, fees calculated on pro forma combined assets for
the year ended January 31, 2003 were $269,452. The administrative services fees
were adjusted to reflect the fees in effect under the administrative services
agreement for the AIM Intermediate Government Fund.
(c) Pursuant to the terms of the master distribution agreement for Class A
shares of the AIM Intermediate Government Fund, the Fund pays AIM Distributors,
Inc. a fee calculated at 0.25% of the average daily net assets of Class A
shares. The Class A distribution fees on the pro forma combined assets for the
year ended January 31, 2003 were $1,190,852. The distribution fees were adjusted
to reflect the distribution rate paid in accordance with AIM Intermediate
Government Fund's Class A distribution agreement.
(d) Reports to shareholders expenses were reduced by $108,009 to eliminate the
effects of duplicative fixed costs of production of reports to shareholders.
(e) Professional fees were reduced by $18,369 to eliminate the effects of
duplicative fixed costs of professional services fees.
(f) Transfer agent fees were reduced by $313,350 to reflect the fees on the pro
forma combined number of open accounts under the transfer agency and service
agreement for AIM Intermediate Government Fund.
NOTE 3 - MERGER COSTS
Merger costs related to the Agreement and Plan are estimated at approximately
$125,750 and because these are non recurring costs they have not been included
in the unaudited pro forma statement of operations. These costs represent the
estimated expense of INVESCO U.S. Government Securities Fund carrying out their
obligations under the Agreement and Plan and consist of management's estimate of
legal fees, accounting fees, printing costs and mailing charges related to the
proposed merger. INVESCO Funds Group, Inc. has agreed to pay 100% of these
costs.
APPENDIX VIII
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF INVESCO CASH RESERVES FUND INTO AIM MONEY MARKET FUND
JANUARY 31, 2003
(UNAUDITED)
PAR (000)
- ----------------------------------
INVESCO AIM AIM
CASH MONEY MONEY MARKET
RESERVES MARKET FUND
FUND FUND PRO FORMA
COMBINING
- ----------------------------------
COMMERCIAL PAPER - 26.66% (a)
ASSET-BACKED SECURITIES-COMMERCIAL LOANS/LEASES - 4.59%
Atlantis One Funding Corp. (Rabobank-ABS Program Sponsor) (b)
$ 15,000 $ 20,000 $ 35,000 1.59%, 03/17/03
- ---------------------------------------------------------------------------------------------------------------------------------
30,000 70,000 100,000 1.30%, 03/25/03
=================================================================================================================================
=================================================================================================================================
ASSET-BACKED SECURITIES-CONSUMER RECEIVABLES - 1.43%
Thunder Bay Funding Inc. (Royal Bank of Canada-ABS Program Sponsor)
- 42,141 42,141 1.28%, 04/21/03 (b)
=================================================================================================================================
ASSET-BACKED SECURITIES-FULLY BACKED - 1.95%
Aquinas Funding LLC (Rabobank-ABS Program Sponsor)
20,000 - 20,000 1.36%, 03/27/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Enterprise Funding Corp. (Bank of America N.A.-ABS Program Sponsor)
37,210 - 37,210 1.67%, 02/04/03 (b)
=================================================================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE - 5.06%
Edison Asset Securitization, LLC (GE Capital Corp.-ABS Program Sponsor)
- 32,000 32,000 1.67%, 02/03/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Falcon Asset Securitization Corp. (Bank One N.A.-ABS Program Sponsor)
- 38,000 38,000 1.27%, 02/24/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Receivables Funding Corp. (Bank One N.A.-ABS Program Sponsor)
- 19,170 19,170 1.33%, 03/12/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Quincy Capital Corp. (Bank of America N.A.-ABS Program Sponsor)
24,639 - 24,639 1.28%, 04/15/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Windmill Funding Corp. (ABN AMRO Bank N.V.-ABS Program Sponsor)
10,000 25,000 35,000 1.70%, 03/28/03 (b)
=================================================================================================================================
=================================================================================================================================
ASSET-BACKED SECURITIES-TRADE RECEIVABLES - 8.48%
Bills Securitization Ltd. (Germany) (Deutsche Bank A.G.-ABS Program Sponsor)
- 50,000 50,000 1.28%, 06/23/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Blue Ridge Asset Funding Corp. (Wachovia Bank N.A.-ABS Program Sponsor)
- 62,309 62,309 1.30%, 02/19/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Eureka Securitization, Inc. (Citibank N.A.-ABS Program Sponsor)
- 29,500 29,500 1.28%, 03/06/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
47,700 - 47,700 1.28%, 03/26/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
FCAR Owner Trust-Series II (Ford Motor Credit Co.-ABS Program Sponsor)
15,000 - 15,000 1.71%, 03/06/03
- ---------------------------------------------------------------------------------------------------------------------------------
- 25,000 25,000 1.52%, 04/25/03
- ---------------------------------------------------------------------------------------------------------------------------------
New Center Asset Trust (General Motors Acceptance Corp.-ABS Program Sponsor)
- 20,000 20,000 1.59%, 04/03/03 (b)
=================================================================================================================================
=================================================================================================================================
BANKS - 1.36%
Stadshypotek Delaware, Inc. (Svenska Handelsbanken A.B.-ABS Program Sponsor)
40,000 - 40,000 1.37%, 02/13/03 (b)
=================================================================================================================================
DIVERSIFIED FINANCIAL SERVICES - 3.79%
Fortis Funding LLC
25,000 - 25,000 1.59%, 03/27/03 (b)
- ---------------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp.
- 40,000 40,000 1.58%, 04/03/03
- ---------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, Floating Rate,
- 14,200 14,200 1.39%, 02/21/03 (c)
- ---------------------------------------------------------------------------------------------------------------------------------
National Australia Funding (Delaware) Inc.
7,000 25,000 32,000 2.09%, 02/07/03
=================================================================================================================================
=================================================================================================================================
Total Commercial Paper (Cost $782,475,140)
=================================================================================================================================
MARKET VALUE
----------------------------------------------
INVESCO AIM AIM
CASH MONEY MONEY MARKET
RESERVES MARKET FUND
FUND FUND PRO FORMA
COMBINING
----------------------------------------------
COMMERCIAL PAPER - 26.66% (a)
ASSET-BACKED SECURITIES-COMMERCIAL LOANS/LEASES - 4.59%
Atlantis One Funding Corp. (Rabobank-ABS Program Sponsor) (b)
1.59%, 03/17/03 $ 14,972,021 $ 19,961,133 $ 34,933,154
- ---------------------------------------------------------------------------------------------------------------------------------
1.30%, 03/25/03 29,945,771 69,868,555 99,814,326
=================================================================================================================================
44,917,792 89,829,688 134,747,480
=================================================================================================================================
ASSET-BACKED SECURITIES-CONSUMER RECEIVABLES - 1.43%
Thunder Bay Funding Inc. (Royal Bank of Canada-ABS Program Sponsor)
1.28%, 04/21/03 (b) - 42,022,631 42,022,631
=================================================================================================================================
ASSET-BACKED SECURITIES-FULLY BACKED - 1.95%
Aquinas Funding LLC (Rabobank-ABS Program Sponsor)
1.36%, 03/27/03 (b) 19,960,622 - 19,960,622
- ---------------------------------------------------------------------------------------------------------------------------------
Enterprise Funding Corp. (Bank of America N.A.-ABS Program Sponsor)
1.67%, 02/04/03 (b) 37,208,264 - 37,208,264
=================================================================================================================================
57,168,886 - 57,168,886
=================================================================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE - 5.06%
Edison Asset Securitization, LLC (GE Capital Corp.-ABS Program Sponsor)
1.67%, 02/03/03 (b) - 31,997,031 31,997,031
- ---------------------------------------------------------------------------------------------------------------------------------
Falcon Asset Securitization Corp. (Bank One N.A.-ABS Program Sponsor)
1.27%, 02/24/03 (b) - 37,969,167 37,969,167
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Receivables Funding Corp. (Bank One N.A.-ABS Program Sponsor)
1.33%, 03/12/03 (b) - 19,142,379 19,142,379
- ---------------------------------------------------------------------------------------------------------------------------------
Quincy Capital Corp. (Bank of America N.A.-ABS Program Sponsor)
1.28%, 04/15/03 (b) 24,576,756 - 24,576,756
- ---------------------------------------------------------------------------------------------------------------------------------
Windmill Funding Corp. (ABN AMRO Bank N.V.-ABS Program Sponsor)
1.70%, 03/28/03 (b) 9,974,856 24,935,069 34,909,925
=================================================================================================================================
34,551,612 114,043,646 148,595,258
=================================================================================================================================
ASSET-BACKED SECURITIES-TRADE RECEIVABLES - 8.48%
Bills Securitization Ltd. (Germany) (Deutsche Bank A.G.-
ABS Program Sponsor)
1.28%, 06/23/03 (b) - 49,747,556 49,747,556
- ---------------------------------------------------------------------------------------------------------------------------------
Blue Ridge Asset Funding Corp. (Wachovia Bank N.A.-ABS Program Sponsor)
1.30%, 02/19/03 (b) - 62,268,499 62,268,499
- ---------------------------------------------------------------------------------------------------------------------------------
Eureka Securitization, Inc. (Citibank N.A.-ABS Program Sponsor)
1.28%, 03/06/03 (b) - 29,465,387 29,465,387
- ---------------------------------------------------------------------------------------------------------------------------------
1.28%, 03/26/03 (b) 47,613,467 - 47,613,467
- ---------------------------------------------------------------------------------------------------------------------------------
FCAR Owner Trust-Series II (Ford Motor Credit Co.-ABS Program Sponsor)
1.71%, 03/06/03 14,977,774 - 14,977,774
- ---------------------------------------------------------------------------------------------------------------------------------
1.52%, 04/25/03 - 24,912,389 24,912,389
- ---------------------------------------------------------------------------------------------------------------------------------
New Center Asset Trust (General Motors Acceptance
Corp.-ABS Program Sponsor)
1.59%, 04/03/03 (b) - 19,946,117 19,946,117
=================================================================================================================================
62,591,241 186,339,948 248,931,189
=================================================================================================================================
BANKS - 1.36%
Stadshypotek Delaware, Inc. (Svenska Handelsbanken A.B.-
ABS Program Sponsor)
1.37%, 02/13/03 (b) 39,984,798 - 39,984,798
=================================================================================================================================
DIVERSIFIED FINANCIAL SERVICES- 3.79%
Fortis Funding LLC
1.59%, 03/27/03 (b) 24,942,339 - 24,942,339
- ---------------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp.
1.58%, 04/03/03 - 39,892,911 39,892,911
- ---------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, Floating Rate,
1.39%, 02/21/03 (c) - 14,200,000 14,200,000
- ---------------------------------------------------------------------------------------------------------------------------------
National Australia Funding (Delaware) Inc.
2.09%, 02/07/03 6,998,356 24,991,292 31,989,648
=================================================================================================================================
31,940,695 79,084,203 111,024,898
=================================================================================================================================
Total Commercial Paper (Cost $782,475,140) 271,155,024 511,320,116 782,475,140
=================================================================================================================================
PAR (000)
- ----------------------------------
INVESCO AIM AIM
CASH MONEY MONEY MARKET
RESERVES MARKET FUND
FUND FUND PRO FORMA
COMBINING
- ----------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 23.30%
FEDERAL HOME LOAN BANK- 17.32%
Disc. Notes,
410,000 - 410,000 1.19%, 02/03/03
- -----------------------------------------------------------------------------------------------------------------------------------
Unsec. Bonds,
- 40,000 40,000 1.61%, 12/08/03
- -----------------------------------------------------------------------------------------------------------------------------------
- 30,000 30,000 1.70%, 12/08/03
- -----------------------------------------------------------------------------------------------------------------------------------
- 18,000 18,000 3.75%, 02/13/04
- -----------------------------------------------------------------------------------------------------------------------------------
10,000 - 10,000 1.50%, 02/17/04
- -----------------------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)- 3.40%
Disc. Notes
25,000 75,000 100,000 1.29%, 04/25/03 (a)
- -----------------------------------------------------------------------------------------------------------------------------------
OVERSEAS PRIVATE INVESTMENT CORP.- 2.58% (d)(e)
Gtd. Floating Rate Participation Ctfs.,
- 18,000 18,000 1.36%, 07/15/03
- -----------------------------------------------------------------------------------------------------------------------------------
- 3,700 3,700 1.24%, 01/15/15
- -----------------------------------------------------------------------------------------------------------------------------------
- 53,900 53,900 1.24%, 05/15/15
- -----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Securities (Cost $683,738,135)
MASTER NOTE AGREEMENTS - 5.11% (f)
Merrill Lynch Mortgage Capital, Inc.
$ - $ 70,000 $ 70,000 1.47%, 08/18/03 (g)
- -----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, Floating Rate
- 80,000 80,000 1.38%, 03/17/03 (d)(h)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Master Note Agreements (Cost $150,000,000)
ASSET-BACKED NOTES - 5.10%
FULLY BACKED - 1.02%
Capital One Auto Finance Trust-Series 2002-B, Class A1
13,648 16,247 29,895 1.76%, 09/15/03 (i)
- -----------------------------------------------------------------------------------------------------------------------------------
STRUCTURED INVESTMENT VEHICLES - 3.75%
Beta Finance Inc., Floating Rate (Citibank International PLC-ABS Program Sponsor) (b)(c)
15,000 - 15,000 2.60%, 06/02/03
- -----------------------------------------------------------------------------------------------------------------------------------
- 50,000 50,000 1.37%, 10/07/03
- -----------------------------------------------------------------------------------------------------------------------------------
- 45,000 45,000 1.37%, 10/14/03
- -----------------------------------------------------------------------------------------------------------------------------------
TRADE RECEIVABLES - 0.33%
World Omni Auto Receivables Trust-Series 2002-A, Class A1
5,659 4,018 9,677 1.87%, 07/15/03
- -----------------------------------------------------------------------------------------------------------------------------------
Total Asset-Backed Notes (Cost $149,619,979)
PROMISSORY NOTES - 4.70%
Goldman Sachs Group, Inc. (The) (b)(c)
40,000 - 40,000 1.51%, 02/28/03
- -----------------------------------------------------------------------------------------------------------------------------------
- 48,000 48,000 1.50%, 03/05/03
- -----------------------------------------------------------------------------------------------------------------------------------
- 50,000 50,000 1.53%, 03/21/03
- -----------------------------------------------------------------------------------------------------------------------------------
Total Promissory Notes (Cost $138,000,000)
VARIABLE RATE DEMAND NOTES - 4.04%
CORPORATE GUARANTEED - 0.34%
Mississippi (State of) Business Finance Corp. (GE Plastics Project); IDR,
- 10,000 10,000 1.36%, 02/01/23 (d)(j)(k)
- -----------------------------------------------------------------------------------------------------------------------------------
INSURED - 0.22% (d)(i)
Michigan (State of) Housing Development Authority; Series C RB,
- 6,405 6,405 1.34%, 12/01/20
- -----------------------------------------------------------------------------------------------------------------------------------
LETTER OF CREDIT GUARANTEED - 3.48% (d)(e)(l)
Capital One Funding Corp. -
Series 00-D, Floating Rate Notes (LOC-Bank One, N.A.),
- 7,600 7,600 1.40%, 05/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
Colorado (State of) Health Facilities Authority (National Benevolent Association); Series E RB
(LOC-KBC Bank N.V.),
- 9,650 9,650 1.40%, 03/01/30
- -----------------------------------------------------------------------------------------------------------------------------------
Family Express Corp., LLC-Series A, Loan Program Notes (LOC-First of America Bank N.A.),
- 9,070 9,070 1.39%, 04/01/28
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------------
INVESCO AIM AIM
CASH MONEY MONEY MARKET
RESERVES MARKET FUND
FUND FUND PRO FORMA
COMBINING
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 23.30%
FEDERAL HOME LOAN BANK - 17.32%
Disc. Notes,
1.19%, 02/03/03 $410,000,000 $ - $410,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Unsec. Bonds,
1.61%, 12/08/03 - 40,000,000 40,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
1.70%, 12/08/03 - 30,000,000 30,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
3.75%, 02/13/04 - 18,433,882 18,433,882
- ---------------------------------------------------------------------------------------------------------------------------------
1.50%, 02/17/04 10,000,000 - 10,000,000
=================================================================================================================================
420,000,000 88,433,882 508,433,882
=================================================================================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 3.40%
Disc. Notes
1.29%, 04/25/03 (a) 24,927,315 74,776,938 99,704,253
=================================================================================================================================
OVERSEAS PRIVATE INVESTMENT CORP.- 2.58% (d)(e)
Gtd. Floating Rate Participation Ctfs.,
1.36%, 07/15/03 - 18,000,000 18,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
1.24%, 01/15/15 - 3,700,000 3,700,000
- ---------------------------------------------------------------------------------------------------------------------------------
1.24%, 05/15/15 - 53,900,000 53,900,000
- ---------------------------------------------------------------------------------------------------------------------------------
- 75,600,000 75,600,000
=================================================================================================================================
Total U.S. Government Agency Securities (Cost $683,738,135) 444,927,315 238,810,820 683,738,135
=================================================================================================================================
MASTER NOTE AGREEMENTS - 5.11% (f)
Merrill Lynch Mortgage Capital, Inc.
1.47%, 08/18/03 (g) $ - $ 70,000,000 $ 70,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, Floating Rate
1.38%, 03/17/03 (d)(h) - 80,000,000 80,000,000
=================================================================================================================================
Total Master Note Agreements (Cost $150,000,000) - 150,000,000 150,000,000
=================================================================================================================================
ASSET-BACKED NOTES - 5.10%
FULLY BACKED - 1.02%
Capital One Auto Finance Trust-Series 2002-B, Class A1
1.76%, 09/15/03 (i) 13,647,840 16,247,429 29,895,269
=================================================================================================================================
STRUCTURED INVESTMENT VEHICLES - 3.75%
Beta Finance Inc., Floating Rate (Citibank International
PLC-ABS Program Sponsor) (b)(c)
2.60%, 06/02/03 15,047,625 - 15,047,625
- ---------------------------------------------------------------------------------------------------------------------------------
1.37%, 10/07/03 - 50,000,000 50,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
1.37%, 10/14/03 - 45,000,000 45,000,000
=================================================================================================================================
15,047,625 95,000,000 110,047,625
=================================================================================================================================
TRADE RECEIVABLES - 0.33%
World Omni Auto Receivables Trust-Series 2002-A, Class A1
1.87%, 07/15/03 5,659,114 4,017,971 9,677,085
=================================================================================================================================
Total Asset-Backed Notes (Cost $149,619,979) 34,354,579 115,265,400 149,619,979
=================================================================================================================================
PROMISSORY NOTES - 4.70%
Goldman Sachs Group, Inc. (The) (b)(c)
1.51%, 02/28/03 40,000,000 - 40,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
1.50%, 03/05/03 - 48,000,000 48,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
1.53%, 03/21/03 - 50,000,000 50,000,000
=================================================================================================================================
Total Promissory Notes (Cost $138,000,000) 40,000,000 98,000,000 138,000,000
=================================================================================================================================
VARIABLE RATE DEMAND NOTES - 4.04%
CORPORATE GUARANTEED - 0.34%
Mississippi (State of) Business Finance Corp.
(GE Plastics Project); IDR,
1.36%, 02/01/23 (d)(j)(k) - 10,000,000 10,000,000
=================================================================================================================================
INSURED - 0.22% (d)(i)
Michigan (State of) Housing Development Authority; Series C RB,
1.34%, 12/01/20 - 6,405,000 6,405,000
=================================================================================================================================
LETTER OF CREDIT GUARANTEED - 3.48% (d)(e)(l)
Capital One Funding Corp. -
Series 00-D, Floating Rate Notes (LOC-Bank One, N.A.),
1.40%, 05/01/26 - 7,600,000 7,600,000
- ---------------------------------------------------------------------------------------------------------------------------------
Colorado (State of) Health Facilities Authority
(National Benevolent Association); Series E RB
(LOC-KBC Bank N.V.),
1.40%, 03/01/30 - 9,650,000 9,650,000
- ---------------------------------------------------------------------------------------------------------------------------------
Family Express Corp., LLC-Series A, Loan
Program Notes (LOC-First of America Bank N.A.),
1.39%, 04/01/28 - 9,070,000 9,070,000
- ---------------------------------------------------------------------------------------------------------------------------------
PAR (000)
- ----------------------------------
INVESCO AIM AIM
CASH MONEY MONEY MARKET
RESERVES MARKET FUND
FUND FUND PRO FORMA
COMBINING
- ----------------------------------
Health Midwest Ventures-Series 94-A, Floating Rate Notes
(LOC-Bank of America N.A.),
- 16,330 16,330 2.08%, 08/01/19
- --------------------------------------------------------------------------------------------------------------
KBL Capital Fund Inc.-Series A, Loan Program Notes
(LOC-National City Bank),
- 16,730 16,730 1.39%, 05/01/27
- --------------------------------------------------------------------------------------------------------------
Miami-Dade (County of) Industrial Development Authority
(Dolphins Stadium); IDR (LOC-Societe Generale),
- 100 100 1.40%, 07/01/22
- --------------------------------------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Telepak Inc. Project); IDR
(LOC-Wachovia Bank N.A.),
- 20,000 20,000 1.34%, 09/01/15
- --------------------------------------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Viking Range Corp. Project);
IDR (LOC-Bank of America N.A.),
- 15,230 15,230 1.41%, 06/01/15
- --------------------------------------------------------------------------------------------------------------
Port Blakely Communities; Series C RB
(LOC-Bank of America N.A.),
- 7,500 7,500 1.35%, 02/15/21
==============================================================================================================
==============================================================================================================
Total Variable Rate Demand Notes (Cost $118,615,000)
==============================================================================================================
CERTIFICATES OF DEPOSIT - 3.54%
Danske Bank A/S (Denmark)
- 11,000 11,000 2.00%, 08/01/03
- --------------------------------------------------------------------------------------------------------------
HBOS Treasury Services PLC (United Kingdom)
20,000 - 20,000 1.52%, 05/06/03
- --------------------------------------------------------------------------------------------------------------
Lloyds TSB Bank PLC-New York (United Kingdom)
- 32,000 32,000 2.15%, 02/10/03
- --------------------------------------------------------------------------------------------------------------
Svenska Handelsbanken A.G. (Sweden)
- 41,000 41,000 1.77%, 02/28/03
==============================================================================================================
Total Certificates Of Deposit (Cost $104,000,000)
==============================================================================================================
MEDIUM TERM NOTES- 2.69%
M-Market Trust Lilly-Series 2002-B, Floating Rate Notes, (b)(j)
- 50,000 50,000 1.43%, 12/03/03
- --------------------------------------------------------------------------------------------------------------
Morgan Stanley, Sr. Floating Rate Notes,
29,000 - 29,000 1.62%, 02/21/03
==============================================================================================================
Total Medium Term Notes (Cost $79,042,630)
==============================================================================================================
Total Investments (excluding Repurchase Agreements)
(Cost $2,205,490,884)
==============================================================================================================
REPURCHASE AGREEMENTS- 28.68% (m)
BNP Paribas Securities Corp. (France)
- 312,640 312,640 1.34%, 02/03/03 (n)
- --------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The)
179,238 - 179,238 1.34%, 02/03/03 (o)(p)
- --------------------------------------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.
- 87,000 87,000 1.34%, 02/03/03 (q)
- --------------------------------------------------------------------------------------------------------------
Morgan Stanley
- 175,000 175,000 1.33%, 02/03/03 (r)
- --------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Inc.
- 88,000 88,000 1.34%, 02/03/03 (s)
==============================================================================================================
Total Repurchase Agreements (Cost $841,877,693)
==============================================================================================================
TOTAL INVESTMENTS - (COST $3,047,368,577) -103.82% (t)
==========================================================================
OTHER ASSETS LESS LIABILITIES--(3.81)%
==========================================================================
ACCRUED MERGER EXPENSES--(0.01)%
==========================================================================
NET ASSETS- 100.00%
==========================================================================
MARKET VALUE
------------------------------------------------------
INVESCO AIM AIM
CASH MONEY MONEY MARKET
RESERVES MARKET FUND
FUND FUND PRO FORMA
COMBINING
- -------------------------------------------------------------------------------------------------------------------------------
Health Midwest Ventures-Series 94-A, Floating Rate Notes
(LOC-Bank of America N.A.),
2.08%, 08/01/19 $ - $ 16,330,000 $ 16,330,000
- -------------------------------------------------------------------------------------------------------------------------------
KBL Capital Fund Inc.-Series A, Loan Program Notes
(LOC-National City Bank),
1.39%, 05/01/27 - 16,730,000 16,730,000
- -------------------------------------------------------------------------------------------------------------------------------
Miami-Dade (County of) Industrial Development Authority
(Dolphins Stadium); IDR (LOC-Societe Generale),
1.40%, 07/01/22 - 100,000 100,000
- -------------------------------------------------------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Telepak Inc. Project); IDR
(LOC-Wachovia Bank N.A.),
1.34%, 09/01/15 - 20,000,000 20,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Viking Range Corp. Project);
IDR (LOC-Bank of America N.A.),
1.41%, 06/01/15 - 15,230,000 15,230,000
- -------------------------------------------------------------------------------------------------------------------------------
Port Blakely Communities; Series C RB
(LOC-Bank of America N.A.),
1.35%, 02/15/21 - 7,500,000 7,500,000
==============================================================================================================================
- 102,210,000 102,210,000
==============================================================================================================================
Total Variable Rate Demand Notes (Cost $118,615,000) - 118,615,000 118,615,000
==============================================================================================================================
CERTIFICATES OF DEPOSIT- 3.54%
Danske Bank A/S (Denmark)
2.00%, 08/01/03 - 11,000,000 11,000,000
- -------------------------------------------------------------------------------------------------------------------------------
HBOS Treasury Services PLC (United Kingdom)
1.52%, 05/06/03 20,000,000 - 20,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Lloyds TSB Bank PLC-New York (United Kingdom)
2.15%, 02/10/03 - 32,000,000 32,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Svenska Handelsbanken A.G. (Sweden)
1.77%, 02/28/03 - 41,000,000 41,000,000
==============================================================================================================================
Total Certificates Of Deposit (Cost $104,000,000) 20,000,000 84,000,000 104,000,000
==============================================================================================================================
MEDIUM TERM NOTES- 2.69%
M-Market Trust Lilly-Series 2002-B, Floating Rate Notes, (b)(j)
1.43%, 12/03/03 - 50,000,000 50,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, Sr. Floating Rate Notes,
1.62%, 02/21/03 29,042,630 - 29,042,630
==============================================================================================================================
Total Medium Term Notes (Cost $79,042,630) 29,042,630 50,000,000 79,042,630
==============================================================================================================================
Total Investments (excluding Repurchase Agreements)
(Cost $2,205,490,884) 839,479,548 1,366,011,336 2,205,490,884
==============================================================================================================================
REPURCHASE AGREEMENTS- 28.68% (m)
BNP Paribas Securities Corp. (France)
1.34%, 02/03/03 (n) - 312,639,950 312,639,950
- -------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The)
1.34%, 02/03/03 (o)(p) 179,237,743 - 179,237,743
- -------------------------------------------------------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.
1.34%, 02/03/03 (q) - 87,000,000 87,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley
1.33%, 02/03/03 (r) - 175,000,000 175,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Inc.
1.34%, 02/03/03 (s) - 88,000,000 88,000,000
==============================================================================================================================
Total Repurchase Agreements (Cost $841,877,693) 179,237,743 662,639,950 841,877,693
==============================================================================================================================
TOTAL INVESTMENTS - (COST $3,047,368,577) -103.82% (t) 1,018,717,291 2,028,651,286 3,047,368,577
==============================================================================================================================
OTHER ASSETS LESS LIABILITIES--(3.81)% (70,521,719) (41,315,549) (111,837,268)
==============================================================================================================================
ACCRUED MERGER EXPENSES--(0.01)% - - (158,875)
==============================================================================================================================
NET ASSETS- 100.00% $ 948,195,572 $ 1,987,335,737 $ 2,935,372,434
==============================================================================================================================
Investment Abbreviations:
ABS Asset Backed Security
Ctfs. Certificates
Disc. Discounted
Gtd. Guaranteed
IDR Industrial Development Revenue Bonds
LOC Letter of Credit
RB Revenue Bonds
Unsec. Unsecured
Notes to Pro Forma Combining Schedule of Investments:
(a) Security is traded on a discount basis. The interest rate shown
represents the discount rate at the time of purchase by INVESCO Cash
Reserves Fund or AIM Money Market Fund.
(b) Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction); the security may be resold only pursuant
to an exemption from registration under the 1933 Act, typically to
qualified institutional buyers. The AIM Money Market Fund have no
rights to demand registration of these securities. The aggregate
market value of the securities for INVESCO Cash Reserves Fund at
01/31/03 was $319,204,293, which represented 33.66% of the INVESCO
Cash Reserves Fund's net assets. The aggregate market value of the
securities for AIM Money Market Fund at 01/31/03 was $675,235,913,
which represented 33.98% of the INVESCO Cash Reserves Fund's net
assets. The aggregate market value of all unregistered securities at
01/31/03 was $994,440,206, which represented 33.88% of the pro forma
combining net assets of AIM Money Market Fund.
(c) Interest rates are redetermined daily. Rate shown is the rate in
effect on 01/31/03.
(d) Demand securities; payable upon demand by INVESCO Cash Reserves Fund
or AIM Money Market Fund with usually no more than seven calendar
days' notice.
(e) Interest rates are redetermined weekly. Rate shown is the rate in
effect on 01/31/03.
(f) The investments in master note 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.
(g) AIM Money Market Fund may demand prepayment of notes purchased under
the Master Note Purchase Agreement upon one or two business day's
notice based on the timing of the demand. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in
effect on 01/31/03.
(h) AIM Money Market Fund may demand prepayment of notes purchased under
the Master Note Purchase Agreement upon one business day's oral
notice for up to 10% of outstanding amount, otherwise, upon seven
business day's notice for more than 10% outstanding balance.
Interest rates on master notes are redetermined periodically. Rate
shown is the rate in effect on 01/31/03.
(i) Principal and interest payments are secured by bond insurance
provided by MBIA Insurance Co.
(j) Interest rates are redetermined monthly. Rate shown is the rate in
effect on 01/31/03.
(k) Principal and interest payments are guaranteed by the corporate
guarantor.
(l) Principal and interest payments are guaranteed by the letter of
credit agreement.
(m) Collateral on repurchase agreements, including the AIM Money Markets
Fund's pro-rata interest in joint repurchase agreements, is taken
into possession by the AIM Money Market Fund upon entering into the
repurchase agreement. The collateral is marked to market daily to
ensure its market value 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.
(n) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $1,500,167,500. Collateralized by $1,435,763,000 U.S.
Government obligations, 0% to 9.80%, due 02/03/03 to 07/15/32, with
an aggregate market value at 01/31/03 of $1,530,001,170.
(o) Repurchase agreements held by the INVESCO Cash Reserves Fund are
fully collateralized by securities issued by the U.S. Government,
its agencies or instrumentalities and such collateral is in the
possession of the INVESCO Cash Reserves Fund's custodian. The
collateral is evaluated daily to ensure its market value exceeds the
current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase,
the INVESCO Cash Reserves Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation.
In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or
proceeds may be subject to legal proceedings.
(p) Repurchase agreement entered into 01/31/03 with a maturing value of
$179,257,758 and collateralized by U.S. Government obligations.
(q) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $500,055,833. Collateralized by $522,946,566 U.S.
Government obligations, 0% to 9.38%, due 04/15/03 to 02/01/33, with
an aggregate market value at 01/31/03 of $510,005,577.
(r) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $500,055,417. Collateralized by $488,214,008 U.S.
Government obligations, 5.50% to 6.50%, due 05/01/16 to 01/01/33,
with an aggregate market value at 01/31/03 of $510,000,000.
(s) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $500,055,833. Collateralized by $501,936,317 U.S.
Government obligations, 5.00% to 7.50%, due 01/01/16 to 08/01/32,
with an aggregate market value at 01/31/03 of $523,699,154.
(t) Also represents cost for federal income tax purposes.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF INVESCO CASH RESERVES FUND INTO AIM MONEY MARKET FUND
JANUARY 31, 2003
(UNAUDITED)
AIM
INVESCO AIM MONEY MARKET
CASH MONEY FUND
RESERVES MARKET PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
- -------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, excluding repurchase agreements at value
(amortized cost) $ 839,479,548 $1,366,011,336 $ - $2,205,490,884
- -------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 179,237,743 662,639,950 - 841,877,693
- -------------------------------------------------------------------------------------------------------------------------
Cash 39,863 - 39,863
- -------------------------------------------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 5,202,298 13,995,045 - 19,197,343
- -------------------------------------------------------------------------------------------------------------------------
Interest 536,595 1,951,751 - 2,488,346
- -------------------------------------------------------------------------------------------------------------------------
Due from advisor - - 158,875 158,875
- -------------------------------------------------------------------------------------------------------------------------
Investment for deferred compensation 37,380 71,741 - 109,121
- -------------------------------------------------------------------------------------------------------------------------
Other assets 104,233 472,611 - 576,844
- -------------------------------------------------------------------------------------------------------------------------
Total assets 1,024,637,660 2,045,142,434 158,875 3,069,938,969
=========================================================================================================================
LIABILITIES:
Payables for:
Fund shares reacquired 76,240,425 56,009,944 - 132,250,369
- -------------------------------------------------------------------------------------------------------------------------
Dividends 9,384 31,925 - 41,309
- -------------------------------------------------------------------------------------------------------------------------
Deferred compensation plan 37,380 71,741 - 109,121
- -------------------------------------------------------------------------------------------------------------------------
Accrued distribution fees 28,409 897,336 - 925,745
- -------------------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees - 322,411 - 322,411
- -------------------------------------------------------------------------------------------------------------------------
Accrued directors'/trustees' fees 3,497 1,371 - 4,868
- -------------------------------------------------------------------------------------------------------------------------
Accrued merger expenses - - 317,750 317,750
- -------------------------------------------------------------------------------------------------------------------------
Accrued operating expenses 122,993 471,969 - 594,962
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 76,442,088 57,806,697 317,750 134,566,535
- -------------------------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding 948,195,572 $1,987,335,737 $ (158,875) $2,935,372,434
=========================================================================================================================
NET ASSETS:
AIM Cash Reserve Shares $ - $1,188,726,767 $ 4,727,672 $1,193,454,439
=========================================================================================================================
Class A $ 4,792,267 $ - $ (4,792,267) $ -
=========================================================================================================================
Class B $ 625,438 $ 673,939,447 $ (36,508) $ 674,528,377
=========================================================================================================================
Class C $ 40,978,055 $ 117,100,349 $ (8,555) $ 158,069,849
=========================================================================================================================
Class R $ - $ 7,569,174 $ (410) $ 7,568,764
=========================================================================================================================
Investor Class $ 901,799,812 $ - $ (48,807) $ 901,751,005
=========================================================================================================================
CAPITAL STOCK OUTSTANDING, $0.01 PAR VALUE PER SHARE (INVESCO CASH RESERVES
FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE (AIM MONEY MARKET FUND):
AIM Cash Reserve Shares - 1,188,740,482 4,792,267 1,193,532,749
=========================================================================================================================
Class A 4,792,267 - (4,792,267) -
=========================================================================================================================
Class B 625,438 673,899,311 625,438 674,524,749
=========================================================================================================================
Class C 40,978,055 117,100,755 40,978,055 158,078,810
=========================================================================================================================
Class R - 7,569,398 7,569,398
=========================================================================================================================
Investor Class 901,799,812 - 901,799,812 901,799,812
=========================================================================================================================
AIM Cash Reserve Shares:
Net asset value and offering price per share N/A $ 1.00 $ - $ 1.00
=========================================================================================================================
Class A:
Net asset value and offering price per share $ 1.00 N/A $ - N/A
=========================================================================================================================
Class B:
Net asset value and offering price per share $ 1.00 $ 1.00 $ - $ 1.00
=========================================================================================================================
Class C:
Net asset value and offering price per share $ 1.00 $ 1.00 $ - $ 1.00
=========================================================================================================================
Class R:
Net asset value and offering price per share N/A $ 1.00 $ - $ 1.00
=========================================================================================================================
Investor Class:
Net asset value and offering price per share $ 1.00 N/A $ - $ 1.00
=========================================================================================================================
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF INVESCO CASH RESERVES FUND INTO AIM MONEY MARKET FUND
FOR THE YEAR ENDED JANUARY 31, 2003
(UNAUDITED)
AIM
INVESCO AIM MONEY MARKET
CASH MONEY FUND
RESERVES MARKET PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
- ------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest $ 17,385,256 $ 33,553,129 $ - $ 50,938,385
==================================================================================================================
EXPENSES:
Advisory fees 3,776,066 9,633,042 1,132,980 14,542,088
- ------------------------------------------------------------------------------------------------------------------
Administrative services fees 455,806 322,849 (341,754) 436,901
- ------------------------------------------------------------------------------------------------------------------
Custodian fees 115,503 65,141 - 180,644
- ------------------------------------------------------------------------------------------------------------------
Distribution fees -- AIM Cash Reserve Shares - 2,796,996 4,715 2,801,711
- ------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 6,497 - (6,497) -
- ------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 4,985 5,979,972 (36) 5,984,921
- ------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 375,728 1,090,779 (2,024) 1,464,483
- ------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class R - 3,674 - 3,674
- ------------------------------------------------------------------------------------------------------------------
Reports to shareholders 350,934 233,226 (236,725) 347,435
- ------------------------------------------------------------------------------------------------------------------
Professional fees 78,806 37,804 (8,663) 107,947
- ------------------------------------------------------------------------------------------------------------------
Registration fees 111,426 308,240 - 419,666
- ------------------------------------------------------------------------------------------------------------------
Transfer agent fees 3,173,808 3,141,985 (1,639,619) 4,676,174
- ------------------------------------------------------------------------------------------------------------------
Directors'/trustees' fees 77,910 18,789 - 96,699
- ------------------------------------------------------------------------------------------------------------------
Other 29,172 104,880 - 134,052
- ------------------------------------------------------------------------------------------------------------------
Total expenses 8,556,641 23,737,377 (1,097,623) 31,196,395
==================================================================================================================
Less: Fees reimbursed by distributor (268,998) (437,656) 294,347 (412,307)
- ------------------------------------------------------------------------------------------------------------------
Fees waived by advisor - (260,906) (140,238) (401,144)
- ------------------------------------------------------------------------------------------------------------------
Expenses paid indirectly (10,972) (25,632) - (36,604)
- ------------------------------------------------------------------------------------------------------------------
Net expenses 8,276,671 23,013,183 (943,514) 30,346,340
- ------------------------------------------------------------------------------------------------------------------
Net investment income 9,108,585 10,539,946 943,514 20,592,045
- ------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities - 41,092 - 41,092
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 9,108,585 $ 10,581,038 $ 943,514 $ 20,633,137
==================================================================================================================
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
Notes to Pro Forma Combining Schedule of Investments:
(a) Security is traded on a discount basis. The interest rate shown
represents the discount rate at the time of purchase by INVESCO Cash
Reserves Fund or AIM Money Market Fund.
(b) Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction); the security may be resold only pursuant
to an exemption from registration under the 1933 Act, typically to
qualified institutional buyers. The AIM Money Market Fund have no
rights to demand registration of these securities. The aggregate
market value of the securities for INVESCO Cash Reserves Fund at
01/31/03 was $319,204,293, which represented 33.66% of the INVESCO
Cash Reserves Fund's net assets. The aggregate market value of the
securities for AIM Money Market Fund at 01/31/03 was $675,235,913,
which represented 33.98% of the INVESCO Cash Reserves Fund's net
assets. The aggregate market value of all unregistered securities at
01/31/03 was $994,440,206, which represented 33.88% of the pro forma
combining net assets of AIM Money Market Fund.
(c) Interest rates are redetermined daily. Rate shown is the rate in
effect on 01/31/03.
(d) Demand securities; payable upon demand by INVESCO Cash Reserves Fund
or AIM Money Market Fund with usually no more than seven calendar
days' notice.
(e) Interest rates are redetermined weekly. Rate shown is the rate in
effect on 01/31/03.
(f) The investments in master note 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.
(g) AIM Money Market Fund may demand prepayment of notes purchased under
the Master Note Purchase Agreement upon one or two business day's
notice based on the timing of the demand. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in
effect on 01/31/03.
(h) AIM Money Market Fund may demand prepayment of notes purchased under
the Master Note Purchase Agreement upon one business day's oral
notice for up to 10% of outstanding amount, otherwise, upon seven
business day's notice for more than 10% outstanding balance.
Interest rates on master notes are redetermined periodically. Rate
shown is the rate in effect on 01/31/03.
(i) Principal and interest payments are secured by bond insurance
provided by MBIA Insurance Co.
(j) Interest rates are redetermined monthly. Rate shown is the rate in
effect on 01/31/03.
(k) Principal and interest payments are guaranteed by the corporate
guarantor.
(l) Principal and interest payments are guaranteed by the letter of
credit agreement.
(m) Collateral on repurchase agreements, including the AIM Money Markets
Fund's pro-rata interest in joint repurchase agreements, is taken
into possession by the AIM Money Market Fund upon entering into the
repurchase agreement. The collateral is marked to market daily to
ensure its market value 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.
(n) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $1,500,167,500. Collateralized by $1,435,763,000 U.S.
Government obligations, 0% to 9.80%, due 02/03/03 to 07/15/32, with
an aggregate market value at 01/31/03 of $1,530,001,170.
(o) Repurchase agreements held by the INVESCO Cash Reserves Fund are
fully collateralized by securities issued by the U.S. Government,
its agencies or instrumentalities and such collateral is in the
possession of the INVESCO Cash Reserves Fund's custodian. The
collateral is evaluated daily to ensure its market value exceeds the
current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase,
the INVESCO Cash Reserves Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation.
In the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral or
proceeds may be subject to legal proceedings.
(p) Repurchase agreement entered into 01/31/03 with a maturing value of
$179,257,758 and collateralized by U.S. Government obligations.
(q) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $500,055,833. Collateralized by $522,946,566 U.S.
Government obligations, 0% to 9.38%, due 04/15/03 to 02/01/33, with
an aggregate market value at 01/31/03 of $510,005,577.
(r) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $500,055,417. Collateralized by $488,214,008 U.S.
Government obligations, 5.50% to 6.50%, due 05/01/16 to 01/01/33,
with an aggregate market value at 01/31/03 of $510,000,000.
(s) Joint repurchase agreement entered into 01/31/03 with a maturing
value of $500,055,833. Collateralized by $501,936,317 U.S.
Government obligations, 5.00% to 7.50%, due 01/01/16 to 08/01/32,
with an aggregate market value at 01/31/03 of $523,699,154.
(t) Also represents cost for federal income tax purposes.
* As of 1/31/03, all of the securities held by the INVESCO Cash
Reserves Fund would comply with the compliance guidelines and/or
investment restrictions of the AIM Money Market Fund.
See Accompanying Notes to Proforma Combining Financial Statements.
APPENDIX IX
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
OF INVESCO TAX-FREE BOND FUND INTO AIM MUNICIPAL BOND FUND
JANUARY 31, 2003
(UNAUDITED)
PAR (000)
- -------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------
ALABAMA -- 1.32%
Alabama (State of) Public School & College
Authority; Capital Improvement Series 1999 C RB
$ - $ 1,400 $ 1,400 5.75%, 07/01/17
- -------------------------------------------------------------------------------------------
Birmingham (City of) Special Care Facilities
Financing Authority (Children's Hospital of
Alabama); Health Care Facility Series 2002 RB
- 1,500 1,500 5.38%, 06/01/23 (a)
- -------------------------------------------------------------------------------------------
Courtland (City of) Industrial Development
Board (Champion International Corp. Project);
Refunding Environmental Improvement Series
1996 RB
- 2,315 2,315 6.40%, 11/01/26 (b)
- -------------------------------------------------------------------------------------------
Jefferson (County of);
Capital Improvement Sewer Series 2001 A
RB Wts.
- 1,000 1,000 5.00%, 02/01/41 (a)
- -------------------------------------------------------------------------------------------
Limited Tax School Series 2000 GO Wts.
1,250 - 1,250 5.50%, 02/15/20 (a)
- -------------------------------------------------------------------------------------------
Lauderdale (County of) & Florence (City of)
Health Care Authority (Coffee Health Group);
Series 2000 A RB
1,000 - 1,000 6.00%, 07/01/29 (a)
===========================================================================================
===========================================================================================
ALASKA -- 0.48%
Alaska (State of) Housing Finance Corp.;
Collateralized First Veterans' Home Mortgage
Series 1992 A-2 RB
- 1,065 1,065 6.75%, 12/01/24 (b)
- -------------------------------------------------------------------------------------------
Alaska (State of) Housing Finance Corp. (State
Building Lease); Unlimited Tax Series 1999 GO
2,000 - 2,000 5.75%, 04/01/17 (a)
- -------------------------------------------------------------------------------------------
Alaska (State of) Individual Development &
Export Authority (Revolving Fund-Lots 1-29);
Refunding Series 1994 A RB
85 - 85 5.70%, 04/01/04
===========================================================================================
===========================================================================================
AMERICAN SAMOA -- 0.21%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO
- 1,280 1,280 6.00%, 09/01/08 (a)
===========================================================================================
MARKET VALUE
------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
------------------------------------
ALABAMA -- 1.32%
Alabama (State of) Public School & College
Authority; Capital Improvement Series 1999 C RB
5.75%, 07/01/17 $ - $ 1,561,897 $ 1,561,897
- ----------------------------------------------------------------------------------------------
Birmingham (City of) Special Care Facilities
Financing Authority (Children's Hospital of
Alabama); Health Care Facility Series 2002 RB
5.38%, 06/01/23 (a) - 1,562,955 1,562,955
- ----------------------------------------------------------------------------------------------
Courtland (City of) Industrial Development
Board (Champion International Corp. Project);
Refunding Environmental Improvement Series
1996 RB
6.40%, 11/01/26 (b) - 2,396,557 2,396,557
- ----------------------------------------------------------------------------------------------
Jefferson (County of);
Capital Improvement Sewer Series 2001 A
RB Wts.
5.00%, 02/01/41 (a) - 988,250 988,250
- ----------------------------------------------------------------------------------------------
Limited Tax School Series 2000 GO Wts.
5.50%, 02/15/20 (a) 1,323,787 - 1,323,787
- ----------------------------------------------------------------------------------------------
Lauderdale (County of) & Florence (City of)
Health Care Authority (Coffee Health Group);
Series 2000 A RB
6.00%, 07/01/29 (a) 1,112,710 - 1,112,710
===============================================================================================
2,436,497 6,509,659 8,946,156
===============================================================================================
ALASKA -- 0.48%
Alaska (State of) Housing Finance Corp.;
Collateralized First Veterans' Home Mortgage
Series 1992 A-2 RB
6.75%, 12/01/24 (b) - 1,076,683 1,076,683
- ----------------------------------------------------------------------------------------------
Alaska (State of) Housing Finance Corp. (State
Building Lease); Unlimited Tax Series 1999 GO
5.75%, 04/01/17 (a) 2,100,200 - 2,100,200
- ----------------------------------------------------------------------------------------------
Alaska (State of) Individual Development &
Export Authority (Revolving Fund-Lots 1-29);
Refunding Series 1994 A RB
5.70%, 04/01/04 89,032 - 89,032
===============================================================================================
2,189,232 1,076,683 3,265,915
===============================================================================================
AMERICAN SAMOA -- 0.21%
American Samoa (Territory of); Refunding
Unlimited Tax Series 2000 GO
6.00%, 09/01/08 (a) - 1,436,557 1,436,557
===============================================================================================
PAR (000)
- -------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------
ARIZONA -- 1.33%
Arizona (State of) Educational Loan Marketing
Corp.; Educational Loan Series 1992 B RB
$ 1,000 $ - $ 1,000 7.00%, 03/01/05 (b)
- --------------------------------------------------------------------------------------------
Phoenix (City of) Civic Improvement Corp.; Jr.
Lien Wastewater System Series 2000 RB
1,055 - 1,055 5.70%, 07/01/08 (a)
- --------------------------------------------------------------------------------------------
1,275 - 1,275 5.70%, 07/01/09 (a)
- --------------------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center Project);
Refunding Development Series 2002 RB
325 - 325 6.50%, 12/01/07
- --------------------------------------------------------------------------------------------
345 - 345 6.50%, 12/01/08
- --------------------------------------------------------------------------------------------
- 365 365 6.50%, 12/01/09
- --------------------------------------------------------------------------------------------
- 390 390 6.70%, 12/01/10
- --------------------------------------------------------------------------------------------
- 415 415 6.70%, 12/01/11
- --------------------------------------------------------------------------------------------
Pima (County of) Unified School District No.
10; Unlimited Tax School Improvement Series
1992 E GO
- 3,100 3,100 6.50%, 07/01/05
============================================================================================
============================================================================================
ARKANSAS -- 0.48%
Jefferson (County of) (Regional Medical Center
Project); Refunding & Improvement Hospital
Series 2001 RB
- 500 500 5.85%, 06/01/26
- --------------------------------------------------------------------------------------------
North Little Rock (City of) Health Facilities
Broad (Baptist Health); Health Care Series
2001 RB
500 - 500 5.70%, 07/01/22
- --------------------------------------------------------------------------------------------
University of Arkansas (Fayetteville Campus
Facilities); University Series 2002 RB
- 1,155 1,155 5.00%, 12/01/27 (a)
- --------------------------------------------------------------------------------------------
Van Buren (County of); Refunding &
Construction Sales & Use Tax Series 2000 RB
- 1,000 1,000 5.60%, 12/01/25 (a)
============================================================================================
============================================================================================
CALIFORNIA -- 2.12%
Abag Financing Authority for Non-Profit Corps.
(Lincoln Glen Manor for Sr. Citizens); Series
2000 COP
- 1,000 1,000 6.10%, 02/15/25
- --------------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit Corps.
(Lytton Gardens Inc.); Series 1999 COP
- 2,085 2,085 6.00%, 02/15/19
- --------------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit Corps.
(Old Fellow Home of California); Series 1999
COP
- 1,000 1,000 6.00%, 08/15/24
- --------------------------------------------------------------------------------------------
Big Bear Lake (City of); Refunding Water
Series 1996 RB
2,000 - 2,000 6.00%, 04/01/22 (a)
- --------------------------------------------------------------------------------------------
California (State of) Department of Water
Resources; Power Supply Series 2002 A RB
- 1,000 1,000 5.38%, 05/01/22
- --------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
------------------------------------
ARIZONA -- 1.33%
Arizona (State of) Educational Loan Marketing
Corp.; Educational Loan Series 1992 B RB
7.00%, 03/01/05 (b) $1,002,740 $ - $ 1,002,740
- ----------------------------------------------------------------------------------------------
Phoenix (City of) Civic Improvement Corp.; Jr.
Lien Wastewater System Series 2000 RB
5.70%, 07/01/08 (a) 1,208,988 - 1,208,988
- ----------------------------------------------------------------------------------------------
5.70%, 07/01/09 (a) 1,466,212 - 1,466,212
- ----------------------------------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center Project);
Refunding Development Series 2002 RB
6.50%, 12/01/07 328,702 - 328,702
- ----------------------------------------------------------------------------------------------
6.50%, 12/01/08 349,764 - 349,764
- ----------------------------------------------------------------------------------------------
6.50%, 12/01/09 - 365,197 365,197
- ----------------------------------------------------------------------------------------------
6.70%, 12/01/10 - 390,304 390,304
- ----------------------------------------------------------------------------------------------
6.70%, 12/01/11 - 415,440 415,440
- ----------------------------------------------------------------------------------------------
Pima (County of) Unified School District No.
10; Unlimited Tax School Improvement Series
1992 E GO
6.50%, 07/01/05 - 3,445,619 3,445,619
==============================================================================================
4,356,406 4,616,560 8,972,966
==============================================================================================
ARKANSAS -- 0.48%
Jefferson (County of) (Regional Medical Center
Project); Refunding & Improvement Hospital
Series 2001 RB
5.85%, 06/01/26 - 516,570 516,570
- ----------------------------------------------------------------------------------------------
North Little Rock (City of) Health Facilities
Broad (Baptist Health); Health Care Series
2001 RB
5.70%, 07/01/22 514,885 - 514,885
- ----------------------------------------------------------------------------------------------
University of Arkansas (Fayetteville Campus
Facilities); University Series 2002 RB
5.00%, 12/01/27 (a) - 1,162,045 1,162,045
- ----------------------------------------------------------------------------------------------
Van Buren (County of); Refunding &
Construction Sales & Use Tax Series 2000 RB
5.60%, 12/01/25 (a) - 1,061,630 1,061,630
==============================================================================================
514,885 2,740,245 3,255,130
==============================================================================================
CALIFORNIA -- 2.12%
Abag Financing Authority for Non-Profit Corps.
(Lincoln Glen Manor for Sr. Citizens); Series
2000 COP
6.10%, 02/15/25 - 1,079,260 1,079,260
- ----------------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit Corps.
(Lytton Gardens Inc.); Series 1999 COP
6.00%, 02/15/19 - 2,183,454 2,183,454
- ----------------------------------------------------------------------------------------------
Abag Financing Authority for Non-Profit Corps.
(Old Fellow Home of California); Series 1999
COP
6.00%, 08/15/24 - 1,080,500 1,080,500
- ----------------------------------------------------------------------------------------------
Big Bear Lake (City of); Refunding Water
Series 1996 RB
6.00%, 04/01/22 (a) 2,326,120 - 2,326,120
- ----------------------------------------------------------------------------------------------
California (State of) Department of Water
Resources; Power Supply Series 2002 A RB
5.38%, 05/01/22 - 1,018,440 1,018,440
- ----------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------
CALIFORNIA -- (CONTINUED)
California (State of) Educational Facilities
Authority (Fresno Pacific University); Series
2000 A RB
$ - $ 1,350 $ 1,350 6.05%, 03/01/11
- ----------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency (California
Toll Road Project); Sr. Lien Series 1995 A RB
- 400 400 6.00%, 01/01/10 (c)(d)
- ----------------------------------------------------------------------------------------------
Los Angeles (County of); Series 2001 RB
- 328 328 5.15%, 02/12/06 (e)
- ----------------------------------------------------------------------------------------------
Los Angeles Community Redevelopment Agency
(Cinerama Dome Public Parking Project);
Parking System Series 2000 RB
(LOC-Bank of America N.A.)
1,000 - 1,000 5.75%, 07/01/26 (a)(f)
- ----------------------------------------------------------------------------------------------
Sacramento (City of) Cogeneration Authority
(Proctor & Gamble Project); Series 1995 RB
- 500 500 7.00%, 07/01/04
- ----------------------------------------------------------------------------------------------
Sacramento City Financing Authority
(Convention Center Hotel); Sr. Series 1999 A RB
- 750 750 6.25%, 01/01/30
- ----------------------------------------------------------------------------------------------
Whittier (City of) Utility Authority;
Water Series 2003 RB
- 1,000 1,000 5.00%, 06/01/33 (a)
- ----------------------------------------------------------------------------------------------
Water Series 2003 A RB
1,000 - 1,000 5.00%, 06/01/28 (a)
==============================================================================================
==============================================================================================
COLORADO -- 2.80%
Aurora (City of); Public Improvement Series
2000 COP
- 3,230 3,230 5.50%, 12/01/30 (a)
- ----------------------------------------------------------------------------------------------
Broomfield (City of); Refunding & Improvement
Sales & Use Tax Series 2002 A RB
- 1,000 1,000 5.00%, 12/01/31 (a)
- ----------------------------------------------------------------------------------------------
Clear Creek (City of) School District No. Re1;
Refunding Unlimited Tax Series 2002 GO
500 - 500 5.00%, 12/01/19 (a)
- ----------------------------------------------------------------------------------------------
Colorado (State of) E-470 Public Highway
Authority; Sr. Series 2000 A RB
- 1,000 1,000 5.75%, 09/01/35 (a)
- ----------------------------------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Student
Housing-University of Colorado Foundation
Project); Series 2002 RB
- 1,000 1,000 5.00%, 07/01/22 (a)
- ----------------------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Exempla Inc.); Series 2002 A RB
- 3,500 3,500 5.50%, 01/01/23
- ----------------------------------------------------------------------------------------------
- 2,000 2,000 5.63%, 01/01/33
- ----------------------------------------------------------------------------------------------
El Paso (County of) School District No. 2
(Harrison Project); Unlimited Tax Series 2001
GO
1,000 1,435 2,435 5.25%, 12/01/26 (a)
- ----------------------------------------------------------------------------------------------
Garfield (County of) School District No.
Re002; Unlimited Tax Series 2003 GO
1,000 - 1,000 5.00%, 12/01/23 (a)
- ----------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
------------------------------------
CALIFORNIA -- (CONTINUED)
California (State of) Educational Facilities
Authority (Fresno Pacific University); Series
2000 A RB
6.05%, 03/01/11 $ - $ 1,500,957 $ 1,500,957
- ----------------------------------------------------------------------------------------------
Foothill/Eastern Corridor Agency (California
Toll Road Project); Sr. Lien Series 1995 A RB
6.00%, 01/01/10 (c)(d) - 469,700 469,700
- ----------------------------------------------------------------------------------------------
Los Angeles (County of); Series 2001 RB
5.15%, 02/12/06 (e) - 347,558 347,558
- ----------------------------------------------------------------------------------------------
Los Angeles Community Redevelopment Agency
(Cinerama Dome Public Parking Project);
Parking System Series 2000 RB
(LOC-Bank of America N.A.)
5.75%, 07/01/26 (a)(f) 1,037,830 - 1,037,830
- ----------------------------------------------------------------------------------------------
Sacramento (City of) Cogeneration Authority
(Proctor & Gamble Project); Series 1995 RB
7.00%, 07/01/04 - 536,860 536,860
- ----------------------------------------------------------------------------------------------
Sacramento City Financing Authority
(Convention Center Hotel); Sr. Series 1999 A RB
6.25%, 01/01/30 - 735,030 735,030
- ----------------------------------------------------------------------------------------------
Whittier (City of) Utility Authority;
Water Series 2003 RB
5.00%, 06/01/33 (a) - 1,001,130 1,001,130
- ----------------------------------------------------------------------------------------------
Water Series 2003 A RB
5.00%, 06/01/28 (a) 999,480 - 999,480
==============================================================================================
4,363,430 9,952,889 14,316,319
==============================================================================================
COLORADO -- 2.80%
Aurora (City of); Public Improvement Series
2000 COP
5.50%, 12/01/30 (a) - 3,382,198 3,382,198
- ----------------------------------------------------------------------------------------------
Broomfield (City of); Refunding & Improvement
Sales & Use Tax Series 2002 A RB
5.00%, 12/01/31 (a) - 1,009,210 1,009,210
- ----------------------------------------------------------------------------------------------
Clear Creek (City of) School District No. Re1;
Refunding Unlimited Tax Series 2002 GO
5.00%, 12/01/19 (a) 518,610 - 518,610
- ----------------------------------------------------------------------------------------------
Colorado (State of) E-470 Public Highway
Authority; Sr. Series 2000 A RB
5.75%, 09/01/35 (a) - 1,090,330 1,090,330
- ----------------------------------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Student
Housing-University of Colorado Foundation
Project); Series 2002 RB
5.00%, 07/01/22 (a) - 1,035,290 1,035,290
- ----------------------------------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Exempla Inc.); Series 2002 A RB
5.50%, 01/01/23 - 3,507,735 3,507,735
- ----------------------------------------------------------------------------------------------
5.63%, 01/01/33 - 2,008,180 2,008,180
- ----------------------------------------------------------------------------------------------
El Paso (County of) School District No. 2
(Harrison Project); Unlimited Tax Series 2001
GO
5.25%, 12/01/26 (a) 1,028,560 1,477,777 2,506,337
- ----------------------------------------------------------------------------------------------
Garfield (County of) School District No.
Re002; Unlimited Tax Series 2003 GO
5.00%, 12/01/23 (a) 1,012,630 - 1,012,630
- ----------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------
COLORADO -- (CONTINUED)
Meridian (City of) Metro District; Refunding &
Improvement Unlimited Tax Series 2001 B GO
$ - $ 1,000 $ 1,000 5.00%, 12/01/25
- ---------------------------------------------------------------------------------------------
Montrose (County of); Series 1994 COP
300 - 300 6.35%, 06/15/06
- ---------------------------------------------------------------------------------------------
Northwest Parkway Public Highway Authority;
Sr. Series 2001 A RB
- 1,000 1,000 5.25%, 06/15/41 (a)
- ---------------------------------------------------------------------------------------------
University of Colorado Hospital Authority;
Series 2001 A RB
500 - 500 5.60%, 11/15/31
=============================================================================================
=============================================================================================
CONNECTICUT -- 3.59%
Brooklyn (City of); Unlimited Tax Series 1995
GO
- 250 250 5.50%, 05/01/05 (c)(d)
- ---------------------------------------------------------------------------------------------
- 250 250 5.70%, 05/01/05 (c)(d)
- ---------------------------------------------------------------------------------------------
Connecticut (State of) (Bradley International
Airport); Special Obligation Parking Series
2000 A RB
- 1,250 1,250 6.60%, 07/01/24 (a)(b)
- ---------------------------------------------------------------------------------------------
Connecticut (State of) (Transportation
Infrastructure); Special Obligation Tax Series
1991 B RB
- 530 530 6.50%, 10/01/10
- ---------------------------------------------------------------------------------------------
- 1,500 1,500 6.50%, 10/01/12
- ---------------------------------------------------------------------------------------------
Connecticut (State of) Area Cooperative
Educational Services; Unlimited Tax Staff
Development/Administration Facilities Series
1999 GO
- 1,060 1,060 5.63%, 07/15/19 (a)
Connecticut (State of) Clean Water Fund;
- ---------------------------------------------------------------------------------------------
Series 1991 RB
- 25 25 7.00%, 01/01/11 (c)(d)
- ---------------------------------------------------------------------------------------------
Connecticut (State of) Development Authority
(Pfizer Inc. Project); Series 1982 PCR
- 250 250 6.55%, 02/15/13
- ---------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Bridgeport Hospital);
Series 1992 A RB
- 500 500 6.63%, 07/01/18 (a)
- ---------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Danbury Hospital);
Series 1999 G RB
- 250 250 5.63%, 07/01/25 (a)
- ---------------------------------------------------------------------------------------------
Unrefunded Series 1991 E RB
- 110 110 6.50%, 07/01/14 (a)
- ---------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Loomis Chaffee School);
Series 2001 D RB
- 1,500 1,500 5.25%, 07/01/31
- ---------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Stamford Hospital);
Series 1996 F RB
- 1,000 1,000 5.40%, 07/01/09 (a)
- ---------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
------------------------------------
COLORADO -- (CONTINUED)
Meridian (City of) Metro District; Refunding &
Improvement Unlimited Tax Series 2001 B GO
5.00%, 12/01/25 $ - $ 993,200 $ 993,200
- ----------------------------------------------------------------------------------------------
Montrose (County of); Series 1994 COP
6.35%, 06/15/06 320,178 - 320,178
- ----------------------------------------------------------------------------------------------
Northwest Parkway Public Highway Authority;
Sr. Series 2001 A RB
5.25%, 06/15/41 (a) - 1,021,580 1,021,580
- ----------------------------------------------------------------------------------------------
University of Colorado Hospital Authority;
Series 2001 A RB
5.60%, 11/15/31 502,840 - 502,840
==============================================================================================
3,382,818 15,525,500 18,908,318
==============================================================================================
CONNECTICUT -- 3.59%
Brooklyn (City of); Unlimited Tax Series 1995
GO
5.50%, 05/01/05 (c)(d) - 277,650 277,650
- ----------------------------------------------------------------------------------------------
5.70%, 05/01/05 (c)(d) - 278,750 278,750
- ----------------------------------------------------------------------------------------------
Connecticut (State of) (Bradley International
Airport); Special Obligation Parking Series
2000 A RB
6.60%, 07/01/24 (a)(b) - 1,309,162 1,309,162
- ----------------------------------------------------------------------------------------------
Connecticut (State of) (Transportation
Infrastructure); Special Obligation Tax Series
1991 B RB
6.50%, 10/01/10 - 641,088 641,088
- ----------------------------------------------------------------------------------------------
6.50%, 10/01/12 - 1,828,770 1,828,770
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Area Cooperative
Educational Services; Unlimited Tax Staff
Development/Administration Facilities Series
1999 GO
5.63%, 07/15/19 (a) - 1,117,558 1,117,558
Connecticut (State of) Clean Water Fund;
- ----------------------------------------------------------------------------------------------
Series 1991 RB
7.00%, 01/01/11 (c)(d) - 25,175 25,175
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Development Authority
(Pfizer Inc. Project); Series 1982 PCR
6.55%, 02/15/13 - 263,032 263,032
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Bridgeport Hospital);
Series 1992 A RB
6.63%, 07/01/18 (a) - 510,800 510,800
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Danbury Hospital);
Series 1999 G RB
5.63%, 07/01/25 (a) - 265,647 265,647
- ----------------------------------------------------------------------------------------------
Unrefunded Series 1991 E RB
6.50%, 07/01/14 (a) - 111,807 111,807
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Loomis Chaffee School);
Series 2001 D RB
5.25%, 07/01/31 - 1,528,920 1,528,920
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Stamford Hospital);
Series 1996 F RB
5.40%, 07/01/09 (a) - 1,102,060 1,102,060
- ----------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------
CONNECTICUT -- (CONTINUED)
Connecticut (State of) Health & Educational
Facilities Authority (William W. Backus
Hospital); Series 1997 D RB
$ - $ 1,000 $ 1,000 5.75%, 07/01/27 (a)
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Windham Community
Memorial Hospital); Series 1996 C RB
- 740 740 5.75%, 07/01/11 (a)
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Group Home Mortgage); Special
Obligation Series 2000 GH-5 RB
- 500 500 5.85%, 06/15/30 (a)
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance Program);
Series 1993 E-1 RB
- 675 675 6.00%, 05/15/17
- ----------------------------------------------------------------------------------------------
Series 1996 C-1 RB
- 1,270 1,270 6.30%, 11/15/17
- ----------------------------------------------------------------------------------------------
Series 1996 C-2 RB
- 750 750 6.25%, 11/15/18
- ----------------------------------------------------------------------------------------------
Series 1996 G RB
- 1,000 1,000 6.00%, 11/15/27 (b)
- ----------------------------------------------------------------------------------------------
Series 1998 C RB
- 1,775 1,775 5.50%, 11/15/35 (b)
- ----------------------------------------------------------------------------------------------
Series 1998 D-2 RB
- 250 250 5.45%, 11/15/24 (b)
- ----------------------------------------------------------------------------------------------
Series 2001 A-1 RB
- 550 550 5.25%, 11/15/28
- ----------------------------------------------------------------------------------------------
Sub-Series 1996 E-1 RB
- 500 500 5.95%, 05/15/17
- ----------------------------------------------------------------------------------------------
Sub-Series 1997 C-2 RB
- 400 400 5.85%, 11/15/28 (b)
- ----------------------------------------------------------------------------------------------
Sub-Series 1998 E-1 RB
- 445 445 5.13%, 05/15/21
- ----------------------------------------------------------------------------------------------
Sub-Series 2000 B-2 RB
- 860 860 5.85%, 05/15/31 (b)
- ----------------------------------------------------------------------------------------------
Manchester (City of) Eighth Utilities
District; Unlimited Tax Series 1991 GO
- 180 180 6.75%, 08/15/06
- ----------------------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax Series 1990
GO
- 100 100 6.00%, 06/15/07
v---------------------------------------------------------------------------------------------
- 100 100 6.00%, 06/15/08
- ----------------------------------------------------------------------------------------------
- 100 100 6.00%, 06/15/09
- ----------------------------------------------------------------------------------------------
New Britain (City of); Unlimited Tax Series
1992 GO
- 400 400 6.00%, 02/01/11 (a)
- ----------------------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax Series
1991 GO
- 125 125 6.50%, 01/15/08
- ----------------------------------------------------------------------------------------------
- 125 125 6.50%, 01/15/09
- ----------------------------------------------------------------------------------------------
- 125 125 6.50%, 01/15/10
- ----------------------------------------------------------------------------------------------
- 125 125 6.50%, 01/15/11
- ----------------------------------------------------------------------------------------------
Somers (City of); Unlimited Tax Series 1990 GO
- 190 190 6.00%, 12/01/10
- ----------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
------------------------------------
CONNECTICUT -- (CONTINUED)
Connecticut (State of) Health & Educational
Facilities Authority (William W. Backus
Hospital); Series 1997 D RB
5.75%, 07/01/27 (a) $ - $ 1,071,660 $ 1,071,660
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Health & Educational
Facilities Authority (Windham Community
Memorial Hospital); Series 1996 C RB
5.75%, 07/01/11 (a) - 790,564 790,564
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Group Home Mortgage); Special
Obligation Series 2000 GH-5 RB
5.85%, 06/15/30 (a) - 525,615 525,615
- ----------------------------------------------------------------------------------------------
Connecticut (State of) Housing Finance
Authority (Housing Mortgage Finance Program);
Series 1993 E-1 RB
6.00%, 05/15/17 - 675,837 675,837
- ----------------------------------------------------------------------------------------------
Series 1996 C-1 RB
6.30%, 11/15/17 - 1,344,003 1,344,003
- ----------------------------------------------------------------------------------------------
Series 1996 C-2 RB
6.25%, 11/15/18 - 792,577 792,577
- ----------------------------------------------------------------------------------------------
Series 1996 G RB
6.00%, 11/15/27 (b) - 1,037,370 1,037,370
- ----------------------------------------------------------------------------------------------
Series 1998 C RB
5.50%, 11/15/35 (b) - 1,808,175 1,808,175
- ----------------------------------------------------------------------------------------------
Series 1998 D-2 RB
5.45%, 11/15/24 (b) - 255,242 255,242
- ----------------------------------------------------------------------------------------------
Series 2001 A-1 RB
5.25%, 11/15/28 - 554,119 554,119
- ----------------------------------------------------------------------------------------------
Sub-Series 1996 E-1 RB
5.95%, 05/15/17 - 522,770 522,770
- ----------------------------------------------------------------------------------------------
Sub-Series 1997 C-2 RB
5.85%, 11/15/28 (b) - 412,352 412,352
- ----------------------------------------------------------------------------------------------
Sub-Series 1998 E-1 RB
5.13%, 05/15/21 - 448,640 448,640
- ----------------------------------------------------------------------------------------------
Sub-Series 2000 B-2 RB
5.85%, 05/15/31 (b) - 882,618 882,618
- ----------------------------------------------------------------------------------------------
Manchester (City of) Eighth Utilities
District; Unlimited Tax Series 1991 GO
6.75%, 08/15/06 - 209,450 209,450
- ----------------------------------------------------------------------------------------------
Mansfield (City of); Unlimited Tax Series 1990
GO
6.00%, 06/15/07 - 115,446 115,446
- -----------------------------------------------------------------------------------------------
6.00%, 06/15/08 - 116,256 116,256
- ----------------------------------------------------------------------------------------------
6.00%, 06/15/09 - 116,936 116,936
- ----------------------------------------------------------------------------------------------
New Britain (City of); Unlimited Tax Series
1992 GO
6.00%, 02/01/11 (a) - 467,044 467,044
- ----------------------------------------------------------------------------------------------
North Canaan (City of); Unlimited Tax Series
1991 GO
6.50%, 01/15/08 - 146,404 146,404
- ----------------------------------------------------------------------------------------------
6.50%, 01/15/09 - 147,760 147,760
- ----------------------------------------------------------------------------------------------
6.50%, 01/15/10 - 148,871 148,871
- ----------------------------------------------------------------------------------------------
6.50%, 01/15/11 - 150,137 150,137
- ----------------------------------------------------------------------------------------------
Somers (City of); Unlimited Tax Series 1990 GO
6.00%, 12/01/10 - 224,099 224,099
- ----------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------
CONNECTICUT -- (CONTINUED)
University of Connecticut; Student Fee Series
2000 A RB
$ - $ 1,325 $ 1,325 6.00%, 11/15/10 (c)(d)
- ----------------------------------------------------------------------------------------------
Westbrook (City of); Unlimited Tax Series 1992
GO
- 380 380 6.40%, 03/15/10 (a)
==============================================================================================
==============================================================================================
DELAWARE -- 0.05%
Delaware (State of) Economic Development
Authority (Osteopathic Hospital Association);
Series 1993 A RB
==============================================================================================
- 250 250 6.75%, 01/01/13 (c)(d)
==============================================================================================
DISTRICT OF COLUMBIA -- 0.50%
District of Columbia; Refunding Unlimited Tax
Series 1993 A-3 GO
10 - 10 5.20%, 06/01/03 (c)
- ----------------------------------------------------------------------------------------------
District of Columbia (George Washington
University); Series 2001 A RB
1,000 1,000 2,000 5.13%, 09/15/31 (a)
- ----------------------------------------------------------------------------------------------
District of Columbia (Gonzaga College High
School); Series 1999 RB
- 1,055 1,055 5.38%, 07/01/19 (a)
- ----------------------------------------------------------------------------------------------
District of Columbia (Mandarin Oriental Hotel
Project); Series 2002 TAN
200 - 200 5.25%, 07/01/22 (a)
==============================================================================================
==============================================================================================
FLORIDA -- 1.73%
Crossings at Fleming Island Community
Development District; Refunding Special
Assessment Series 2000 B RB
- 1,000 1,000 5.80%, 05/01/16 (a)
- ----------------------------------------------------------------------------------------------
Escambia (County of) (Champion International
Corp. Project); Series 1994 PCR
- 1,125 1,125 6.90%, 08/01/22 (b)
- ----------------------------------------------------------------------------------------------
Escambia (County of) Health Facilities
Authority (Health Care Facility Loan-Veterans
Hospital Project); Series 2000 RB
1,000 1,000 2,000 5.95%, 07/01/20 (a)
- ----------------------------------------------------------------------------------------------
Jacksonville (City of) Electric Authority;
Water & Sewer Series 2000 A RB
- 1,000 1,000 5.30%, 10/01/30
- ----------------------------------------------------------------------------------------------
Jacksonville (City of) Health Facilities
Authority (Ascension Health Credit Group);
Series 2002 A RB
- 2,000 2,000 5.25%, 11/15/32
- ----------------------------------------------------------------------------------------------
Miami Beach Redevelopment Agency (City
Center-Historic Convention Building); Series
1994 TAN
40 - 40 5.10%, 12/01/03 (b)
- ----------------------------------------------------------------------------------------------
Miami-Dade (County of) (Miami International
Airport); Series 2000 B RB
- 2,000 2,000 5.75%, 10/01/29 (a)
- ----------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
------------------------------------
CONNECTICUT -- (CONTINUED)
University of Connecticut; Student Fee Series
2000 A RB
6.00%, 11/15/10 (c)(d) $ - $ 1,576,829 $ 1,576,829
- ----------------------------------------------------------------------------------------------
Westbrook (City of); Unlimited Tax Series 1992
GO
6.40%, 03/15/10 (a) - 453,576 453,576
==============================================================================================
- 24,254,769 24,254,769
==============================================================================================
DELAWARE -- 0.05%
Delaware (State of) Economic Development
Authority (Osteopathic Hospital Association);
Series 1993 A RB
==============================================================================================
6.75%, 01/01/13 (c)(d) - 305,975 305,975
==============================================================================================
DISTRICT OF COLUMBIA -- 0.50%
District of Columbia; Refunding Unlimited Tax
Series 1993 A-3 GO
5.20%, 06/01/03 (c) 10,133 - 10,133
- ----------------------------------------------------------------------------------------------
District of Columbia (George Washington
University); Series 2001 A RB
5.13%, 09/15/31 (a) 1,008,750 1,010,000 2,018,750
- ----------------------------------------------------------------------------------------------
District of Columbia (Gonzaga College High
School); Series 1999 RB
5.38%, 07/01/19 (a) - 1,121,032 1,121,032
- ----------------------------------------------------------------------------------------------
District of Columbia (Mandarin Oriental Hotel
Project); Series 2002 TAN
5.25%, 07/01/22 (a) 206,642 - 206,642
==============================================================================================
1,225,525 2,131,032 3,356,557
==============================================================================================
FLORIDA -- 1.73%
Crossings at Fleming Island Community
Development District; Refunding Special
Assessment Series 2000 B RB
5.80%, 05/01/16 (a) - 1,126,320 1,126,320
- ----------------------------------------------------------------------------------------------
Escambia (County of) (Champion International
Corp. Project); Series 1994 PCR
6.90%, 08/01/22 (b) - 1,168,132 1,168,132
- ----------------------------------------------------------------------------------------------
Escambia (County of) Health Facilities
Authority (Health Care Facility Loan-Veterans
Hospital Project); Series 2000 RB
5.95%, 07/01/20 (a) 1,094,770 1,096,020 2,190,790
- ----------------------------------------------------------------------------------------------
Jacksonville (City of) Electric Authority;
Water & Sewer Series 2000 A RB
5.30%, 10/01/30 - 1,017,250 1,017,250
- ----------------------------------------------------------------------------------------------
Jacksonville (City of) Health Facilities
Authority (Ascension Health Credit Group);
Series 2002 A RB
5.25%, 11/15/32 - 1,973,140 1,973,140
- ----------------------------------------------------------------------------------------------
Miami Beach Redevelopment Agency (City
Center-Historic Convention Building); Series
1994 TAN
5.10%, 12/01/03 (b) 41,148 - 41,148
- ----------------------------------------------------------------------------------------------
Miami-Dade (County of) (Miami International
Airport); Series 2000 B RB
5.75%, 10/01/29 (a) - 2,154,280 2,154,280
- ----------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------
FLORIDA -- (CONTINUED)
Orlando (City of) Utilities Commission;
Refunding Water & Electric Series 2002 C RB
$ - $ 1,000 $ 1,000 5.00%, 10/01/27
- ---------------------------------------------------------------------------------------------
Sunrise (City of) Utility System; Refunding
Series 1998 RB
- 1,000 1,000 5.00%, 10/01/28 (a)
=============================================================================================
=============================================================================================
GEORGIA -- 0.99%
Athens-Clarke (County of) Unified Government
Development Authority (Catholic Health East);
Series 2002 RB
- 500 500 5.50%, 11/15/32
- ---------------------------------------------------------------------------------------------
Floyd (County of) Hospital Authority (Floyd
Medical Center Project); Series 2002 RAC
- 1,510 1,510 5.25%, 07/01/29 (a)
- ---------------------------------------------------------------------------------------------
Georgia (State of) Housing & Finance Authority
(Home Ownership Opportunity Program); Series
1992 C RB
- 390 390 6.50%, 12/01/11
- ---------------------------------------------------------------------------------------------
Griffin (City of); Combined Public Utility
Refunding & Improvement Series 2002 RB
- 1,000 1,000 5.00%, 01/01/32 (a)
- ---------------------------------------------------------------------------------------------
Gwinnett (County of) Water & Sewer Authority;
Series 2002 RB
2,000 - 2,000 5.25%, 08/01/24
- ---------------------------------------------------------------------------------------------
Tift (County of) Hospital Authority; Series
2002 RAC
1,130 - 1,130 5.00, 12/01/22 (a)
=============================================================================================
=============================================================================================
GUAM -- 0.02%
Guam (Territory of) Power Authority; Series
1993 A RB
- 125 125 5.25%, 10/01/23
=============================================================================================
ILLINOIS -- 8.57%
Bellwood (City of); Unlimited Tax Series 2002
GO
- 1,000 1,000 5.25%, 12/01/25 (a)
- ---------------------------------------------------------------------------------------------
Boone McHenry & DeKalb (Counties of) Community
Unit School District No. 100; Capital
Appreciation Unlimited Tax Series 1997 GO
2,720 - 2,720 6.82%, 12/01/10 (a)(g)
- ---------------------------------------------------------------------------------------------
Chicago (City of);
Project & Refunding Unlimited Tax
Series 2000 C GO
1,000 1,750 2,750 5.50%, 01/01/40 (a)
- ---------------------------------------------------------------------------------------------
Project & Refunding Unlimited Tax
Series 2001 A GO
- 3,940 3,940 5.25%, 01/01/33 (a)
- ---------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1993 B GO
3,065 - 3,065 5.13%, 01/01/22 (a)
- ---------------------------------------------------------------------------------------------
Special Transportation Series 2001 RB
- 1,000 1,000 5.25%, 01/01/31 (a)
- ---------------------------------------------------------------------------------------------
MARKET VALUE
------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
------------------------------------
FLORIDA -- (CONTINUED)
Orlando (City of) Utilities Commission;
Refunding Water & Electric Series 2002 C RB
5.00%, 10/01/27 $ - $ 1,009,860 $ 1,009,860
- ----------------------------------------------------------------------------------------------
Sunrise (City of) Utility System; Refunding
Series 1998 RB
5.00%, 10/01/28 (a) - 1,021,770 1,021,770
==============================================================================================
1,135,918 10,566,772 11,702,690
==============================================================================================
GEORGIA -- 0.99%
Athens-Clarke (County of) Unified Government
Development Authority (Catholic Health East);
Series 2002 RB
5.50%, 11/15/32 - 499,955 499,955
- ----------------------------------------------------------------------------------------------
Floyd (County of) Hospital Authority (Floyd
Medical Center Project); Series 2002 RAC
5.25%, 07/01/29 (a) - 1,551,706 1,551,706
- ----------------------------------------------------------------------------------------------
Georgia (State of) Housing & Finance Authority
(Home Ownership Opportunity Program); Series
1992 C RB
6.50%, 12/01/11 - 398,440 398,440
- ----------------------------------------------------------------------------------------------
Griffin (City of); Combined Public Utility
Refunding & Improvement Series 2002 RB
5.00%, 01/01/32 (a) - 1,008,890 1,008,890
- ----------------------------------------------------------------------------------------------
Gwinnett (County of) Water & Sewer Authority;
Series 2002 RB
5.25%, 08/01/24 2,088,720 - 2,088,720
- ----------------------------------------------------------------------------------------------
Tift (County of) Hospital Authority; Series
2002 RAC
5.00, 12/01/22 (a) 1,139,808 - 1,139,808
==============================================================================================
3,228,528 3,458,991 6,687,519
==============================================================================================
GUAM -- 0.02%
Guam (Territory of) Power Authority; Series
1993 A RB
5.25%, 10/01/23 - 126,224 126,224
==============================================================================================
ILLINOIS -- 8.57%
Bellwood (City of); Unlimited Tax Series 2002
GO
5.25%, 12/01/25 (a) - 1,031,680 1,031,680
- ----------------------------------------------------------------------------------------------
Boone McHenry & DeKalb (Counties of) Community
Unit School District No. 100; Capital
Appreciation Unlimited Tax Series 1997 GO
6.82%, 12/01/10 (a)(g) 1,999,635 - 1,999,635
- ----------------------------------------------------------------------------------------------
Chicago (City of);
Project & Refunding Unlimited Tax
Series 2000 C GO
5.50%, 01/01/40 (a) 1,043,840 1,828,908 2,872,748
- ----------------------------------------------------------------------------------------------
Project & Refunding Unlimited Tax
Series 2001 A GO
5.25%, 01/01/33 (a) - 4,038,382 4,038,382
- ----------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 1993 B GO
5.13%, 01/01/22 (a) 3,207,308 - 3,207,308
- ----------------------------------------------------------------------------------------------
Special Transportation Series 2001 RB
5.25%, 01/01/31 (a) - 1,022,790 1,022,790
- ----------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
ILLINOIS -- (CONTINUED)
Chicago (City of) (Cottage View
Terrace Apartments); FHA/GNMA
Collateralized Multi-Family Housing
Series 2000 A RB
$ - $ 1,580 $ 1,580 6.13%, 02/20/42 (b)
- ----------------------------------------------------------------------------------------------
Chicago (City of) (People's Gas Light
& Coke Co.); Gas Supply Series 1985 A RB
2,875 - 2,875 6.88%, 03/01/15
- ----------------------------------------------------------------------------------------------
Chicago (City of) Park District;
Refunding Unlimited Tax Parking
Series 2002 A GO
1,250 - 1,250 5.00%, 01/01/22 (a)
- ----------------------------------------------------------------------------------------------
Unlimited Tax Series 2001 D GO
- 3,000 3,000 5.00%, 01/01/29 (a)
- ----------------------------------------------------------------------------------------------
Freeport (City of); Unlimited Tax
Sewer Improvement Series 2000 GO
- 1,000 1,000 6.00%, 12/01/29 (a)
- ----------------------------------------------------------------------------------------------
Illinois (State of) Department of
Central Management Services; Series
1999 COP
1,750 - 1,750 5.85%, 07/01/19 (a)
- ----------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (Adventist Health
Systems Project); Series 1997 A RB
- 2,500 2,500 6.00%, 11/15/11 (a)
- ----------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (Catholic Charities
Housing Development Project); Series
1995 RB
1,500 - 1,500 6.35%, 01/01/25
- ----------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (CPC International
Inc. Project); Refunding Series 1992 PCR
- 2,000 2,000 6.75%, 05/01/16
- ----------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (Evanston
Northwestern Healthcare Corp.); VRD
Series 2001 C RB
- 10,000 10,000 1.15%, 05/01/31 (h)
- ----------------------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Northwestern
University); Adjustable Rate Medium
Term Series 1997 RB
- 1,000 1,000 5.25%, 11/01/14 (d)
- ----------------------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Robert Morris
College); Series 2000 RB
1,305 - 1,305 5.75%, 06/01/20 (a)
- ----------------------------------------------------------------------------------------------
- 1,000 1,000 5.80%, 06/01/30 (a)
- ----------------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Blessing Hospital); Series
1999 A RB
- 1,000 1,000 6.00%, 11/15/19 (a)
- ----------------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital
Corp.);
Refunding Series 1992 A RB
- 1,000 1,000 6.25%, 04/15/22 (c)(d)
- ----------------------------------------------------------------------------------------------
Series 1992 C RB
- 1,150 1,150 6.25%, 04/15/22 (c)(d)
----------------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Franciscan Sisters Health
Care); Series 1992 RB
- 2,000 2,000 6.40%, 09/01/04 (c)(d)
- ----------------------------------------------------------------------------------------------
Illinois State University Auxiliary
Facilities System; Series 1993 RB
- 1,000 1,000 5.75%, 04/01/14 (a)
- ----------------------------------------------------------------------------------------------
MARKET VALUE
-----------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
ILLINOIS -- (CONTINUED)
Chicago (City of) (Cottage View
Terrace Apartments); FHA/GNMA
Collateralized Multi-Family Housing
Series 2000 A RB
6.13%, 02/20/42 (b) $ - $ 1,638,223 $ 1,638,223
- ----------------------------------------------------------------------------------------------------------
Chicago (City of) (People's Gas Light
& Coke Co.); Gas Supply Series 1985 A RB
6.88%, 03/01/15 2,938,537 - 2,938,537
- ----------------------------------------------------------------------------------------------------------
Chicago (City of) Park District;
Refunding Unlimited Tax Parking
Series 2002 A GO
5.00%, 01/01/22 (a) 1,265,938 - 1,265,938
- ----------------------------------------------------------------------------------------------------------
Unlimited Tax Series 2001 D GO
5.00%, 01/01/29 (a) - 3,003,930 3,003,930
- --------------------------------------------------------------------------------------------------------
Freeport (City of); Unlimited Tax
Sewer Improvement Series 2000 GO
6.00%, 12/01/29 (a) - 1,118,300 1,118,300
- --------------------------------------------------------------------------------------------------------
Illinois (State of) Department of
Central Management Services; Series
1999 COP
5.85%, 07/01/19 (a) 1,924,772 - 1,924,772
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (Adventist Health
Systems Project); Series 1997 A RB
6.00%, 11/15/11 (a) - 2,902,350 2,902,350
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (Catholic Charities
Housing Development Project); Series
1995 RB
6.35%, 01/01/25 1,489,110 - 1,489,110
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (CPC International
Inc. Project); Refunding Series 1992 PCR
6.75%, 05/01/16 - 2,038,820 2,038,820
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (Evanston
Northwestern Healthcare Corp.); VRD
Series 2001 C RB
1.15%, 05/01/31 (h) - 10,000,000 10,000,000
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Northwestern
University); Adjustable Rate Medium
Term Series 1997 RB
5.25%, 11/01/14 (d) - 1,112,160 1,112,160
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Educational
Facilities Authority (Robert Morris
College); Series 2000 RB
5.75%, 06/01/20 (a) 1,430,123 - 1,430,123
- ----------------------------------------------------------------------------------------------------------
5.80%, 06/01/30 (a) - 1,086,390 1,086,390
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Blessing Hospital); Series
1999 A RB
6.00%, 11/15/19 (a) - 1,110,750 1,110,750
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Evangelical Hospital
Corp.);
Refunding Series 1992 A RB
6.25%, 04/15/22 (c)(d) - 1,154,990 1,154,990
- ----------------------------------------------------------------------------------------------------------
Series 1992 C RB
6.25%, 04/15/22 (c)(d) - 1,328,239 1,328,239
- ----------------------------------------------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Franciscan Sisters Health
Care); Series 1992 RB
6.40%, 09/01/04 (c)(d) - 2,162,780 2,162,780
- ----------------------------------------------------------------------------------------------------------
Illinois State University Auxiliary
Facilities System; Series 1993 RB
5.75%, 04/01/14 (a) - 1,026,490 1,026,490
- ----------------------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
ILLINOIS -- (CONTINUED)
Metropolitan Pier & Exposition
Authority (McCormick Place
Expansion); Dedicated State Tax
Series 2002 A RB
$ - $ 1,000 $ 1,000 5.25%, 06/15/42 (a)
- -----------------------------------------------------------------------------------------------
- 1,500 1,500 6.00%, 12/15/29 (a)(g)
- -----------------------------------------------------------------------------------------------
- 1,000 1,000 6.02%, 06/15/30 (a)(g)
- -----------------------------------------------------------------------------------------------
Rockford (City of) School District
No. 205; Unlimited Tax Series 2001 GO
- 500 500 5.00%, 02/01/17 (a)
- -----------------------------------------------------------------------------------------------
Tazewell (County of) Community High
School District No. 303 (Pekin);
Unlimited Tax Series 1996 GO
- 1,435 1,435 5.63%, 01/01/14 (a)
- -----------------------------------------------------------------------------------------------
Will (County of) School District No.
122; Unlimited Tax Series 2000 A GO
1,165 - 1,165 6.500%, 11/1/2014 (c)
===============================================================================================
===============================================================================================
INDIANA -- 4.91%
Carmel (City of) (Beverly Enterprises
Inc. Project); Refunding Retirement
Rental Housing Series 1992 RB
- 75 75 8.75%, 12/01/08
- -----------------------------------------------------------------------------------------------
DeKalb (County of) Redevelopment
Authority (Mini-Mill Local Public
Improvement Project); Series 1995 A RB
900 - 900 6.50%, 01/15/14
- -----------------------------------------------------------------------------------------------
East Allen (City of) Multi-School
Building Corp.; First Mortgage Series
2000 RB
- 735 735 5.75%, 01/15/10 (c)(d)
- -----------------------------------------------------------------------------------------------
Hamilton Southeastern Cumberland
Campus School Building Corp.; First
Mortgage Series 2001 RB
1,000 - 1,000 5.13%, 01/15/23 (a)
- -----------------------------------------------------------------------------------------------
Indiana (State of) Bond Bank; Special
Program Series 2000 A RB
- 1,000 1,000 5.90%, 02/01/14 (a)
- -----------------------------------------------------------------------------------------------
Indiana (State of) Housing Finance
Authority; Single Family Mortgage
Series 1995 B-1 RB
- 100 100 6.15%, 07/01/17
- -----------------------------------------------------------------------------------------------
Indiana (State of) Transportation
Finance Authority;
Highway Series 2000 RB
- 2,000 2,000 5.38%, 12/01/25
- -----------------------------------------------------------------------------------------------
Unrefunded Airport Facilities
Lease
Series 1992 A RB
- 105 105 6.25%, 11/01/16
- -----------------------------------------------------------------------------------------------
Indianapolis (City of) (Lake Nora &
Fox Club Project); Multifamily Series
1999 A RB
- 1,795 1,795 5.90%, 10/01/19 (a)
- -----------------------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank (Waterworks
Project); Series 2002 A RB
- 1,000 1,000 5.25%, 07/01/33 (a)
- -----------------------------------------------------------------------------------------------
MARKET VALUE
----------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
ILLINOIS -- (CONTINUED)
Metropolitan Pier & Exposition
Authority (McCormick Place
Expansion); Dedicated State Tax
Series 2002 A RB
5.25%, 06/15/42 (a) $ - $ 1,022,400 $ 1,022,400
- ---------------------------------------------------------------------------------------------------------
6.00%, 12/15/29 (a)(g) - 340,245 340,245
- ---------------------------------------------------------------------------------------------------------
6.02%, 06/15/30 (a)(g) - 220,070 220,070
- ---------------------------------------------------------------------------------------------------------
Rockford (City of) School District
No. 205; Unlimited Tax Series 2001 GO
5.00%, 02/01/17 (a) - 537,050 537,050
- ---------------------------------------------------------------------------------------------------------
Tazewell (County of) Community High
School District No. 303 (Pekin);
Unlimited Tax Series 1996 GO
5.63%, 01/01/14 (a) - 1,563,963 1,563,963
- ---------------------------------------------------------------------------------------------------------
Will (County of) School District No
122; Unlimited Tax Series 2000 A GO
6.500%, 11/1/2014 (c) 1,380,374 - 1,380,374
=========================================================================================================
16,679,637 41,288,910 57,968,547
=========================================================================================================
INDIANA -- 4.91%
Carmel (City of) (Beverly Enterprises
Inc. Project); Refunding Retirement
Rental Housing Series 1992 RB
8.75%, 12/01/08 - 77,322 77,322
- ---------------------------------------------------------------------------------------------------------
DeKalb (County of) Redevelopment
Authority (Mini-Mill Local Public
Improvement Project); Series 1995 A RB
6.50%, 01/15/14 959,904 - 959,904
- ---------------------------------------------------------------------------------------------------------
East Allen (City of) Multi-School
Building Corp.; First Mortgage Series
2000 RB
5.75%, 01/15/10 (c)(d) - 844,949 844,949
- ---------------------------------------------------------------------------------------------------------
Hamilton Southeastern Cumberland
Campus School Building Corp.; First
Mortgage Series 2001 RB
5.13%, 01/15/23 (a) 1,016,310 - 1,016,310
- ---------------------------------------------------------------------------------------------------------
Indiana (State of) Bond Bank; Special
Program Series 2000 A RB
5.90%, 02/01/14 (a) - 1,138,820 1,138,820
- ---------------------------------------------------------------------------------------------------------
Indiana (State of) Housing Finance
Authority; Single Family Mortgage
Series 1995 B-1 RB
6.15%, 07/01/17 - 103,612 103,612
- ---------------------------------------------------------------------------------------------------------
Indiana (State of) Transportation
Finance Authority;
Highway Series 2000 RB
5.38%, 12/01/25 - 2,082,060 2,082,060
- ---------------------------------------------------------------------------------------------------------
Unrefunded Airport Facilities
Lease
Series 1992 A RB
6.25%, 11/01/16 - 107,546 107,546
- ---------------------------------------------------------------------------------------------------------
Indianapolis (City of) (Lake Nora &
Fox Club Project); Multifamily Series
1999 A RB
5.90%, 10/01/19 (a) - 1,902,072 1,902,072
- ---------------------------------------------------------------------------------------------------------
Indianapolis (City of) Local Public
Improvement Bond Bank (Waterworks
Project); Series 2002 A RB
5.25%, 07/01/33 (a) - 1,025,320 1,025,320
- ---------------------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
INDIANA -- (CONTINUED)
Indianapolis (City of) Thermal Energy
System; Series 2001 A RB
$ 2,500 $ 1,500 $ 4,000 5.00%, 10/01/11 (a)
- --------------------------------------------------------------------------------------------
Lafayette (City of); Sewer Series
2002 RB
- 1,000 1,000 5.15%, 07/01/24 (a)
- --------------------------------------------------------------------------------------------
Mount Vernon of Hancock (County of)
Multi-School Building Corp.; First
Mortgage Series 2001 A RB
1,000 - 1,000 5.45%, 07/15/22
- --------------------------------------------------------------------------------------------
Northern Wells (City of) Community
School Building Corp.; First Mortgage
Series 2002 RB
500 - 500 5.40%, 07/15/23 (a)
- --------------------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project);
Refunding Convertible Series 1991
PCR
1,500 2,500 4,000 5.75%, 08/01/21
- --------------------------------------------------------------------------------------------
Refunding Series 1993 B PCR
9,850 - 9,850 5.40%, 08/01/17 (a)
- --------------------------------------------------------------------------------------------
St Joseph (County of) Hospital
Authority (Memorial Health System);
Health System Series 2000 RB
1,000 - 1,000 5.63%, 08/15/33 (a)
- --------------------------------------------------------------------------------------------
Wa-Nee Middle School Building Corp.;
Unlimited Tax First Mortage Series
2001 GO
- 1,000 1,000 5.50%, 01/15/20 (a)
============================================================================================
============================================================================================
IOWA -- 0.08%
Iowa (State of) Finance Authority
(Burlington Medical Center); VRD
Series 1997 RB
500 - 500 1.35%, 06/01/27 (a)(i)
============================================================================================
KANSAS -- 0.37%
Newton (City of) (Newton Healthcare
Corp.); Hospital Series 1994 A RB
- 250 250 7.38%, 11/15/04 (c)(d)
- --------------------------------------------------------------------------------------------
Overland Park (City of) Development
Corp. (First Tier-Overland Park
Project); Series 2001 A RB
1,000 1,135 2,135 7.38%, 01/01/32
============================================================================================
============================================================================================
KENTUCKY -- 0.69%
Jefferson (County of) (Beverly
Enterprises Project); Refunding
Health Facilities Series 1999 RB
- 595 595 5.88%, 05/01/08
- --------------------------------------------------------------------------------------------
Mount Sterling (City of) (Kentucky
League Cities); Lease Funding Series
1993 A RB
- 3,000 3,000 6.15%, 03/01/13
- --------------------------------------------------------------------------------------------
Russell (City of) (Bon Secours-St.
Francis Medical Center Inc.); Series
2002 A RB
- 1,000 1,000 5.63%, 11/15/30
============================================================================================
============================================================================================
MARKET VALUE
-----------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
INDIANA -- (CONTINUED)
Indianapolis (City of) Thermal Energy
System; Series 2001 A RB
5.00%, 10/01/11 (a) $ 2,739,475 $ 1,645,560 $ 4,385,035
- ------------------------------------------------------------------------------------------------------
Lafayette (City of); Sewer Series
2002 RB
5.15%, 07/01/24 (a) - 1,020,720 1,020,720
- ------------------------------------------------------------------------------------------------------
Mount Vernon of Hancock (County of)
Multi-School Building Corp.; First
Mortgage Series 2001 A RB
5.45%, 07/15/22 1,037,080 - 1,037,080
- ------------------------------------------------------------------------------------------------------
Northern Wells (City of) Community
School Building Corp.; First Mortgage
Series 2002 RB
5.40%, 07/15/23 (a) 523,475 - 523,475
- ------------------------------------------------------------------------------------------------------
Petersburg (City of) (Indiana Power &
Lighting Project);
Refunding Convertible Series 1991
PCR
5.75%, 08/01/21 1,441,725 2,409,125 3,850,850
- ------------------------------------------------------------------------------------------------------
Refunding Series 1993 B PCR
5.40%, 08/01/17 (a) 10,951,920 - 10,951,920
- ------------------------------------------------------------------------------------------------------
St Joseph (County of) Hospital
Authority (Memorial Health System);
Health System Series 2000 RB
5.63%, 08/15/33 (a) 1,051,800 - 1,051,800
- ------------------------------------------------------------------------------------------------------
Wa-Nee Middle School Building Corp.;
Unlimited Tax First Mortage Series
2001 GO
5.50%, 01/15/20 (a) - 1,112,600 1,112,600
======================================================================================================
19,721,689 13,469,706 33,191,395
======================================================================================================
IOWA -- 0.08%
Iowa (State of) Finance Authority
(Burlington Medical Center); VRD
Series 1997 RB
1.35%, 06/01/27 (a)(i) 500,000 - 500,000
======================================================================================================
KANSAS -- 0.37%
Newton (City of) (Newton Healthcare
Corp.); Hospital Series 1994 A RB
7.38%, 11/15/04 (c)(d) - 280,570 280,570
- ------------------------------------------------------------------------------------------------------
Overland Park (City of) Development
Corp. (First Tier-Overland Park
Project); Series 2001 A RB
7.38%, 01/01/32 1,038,730 1,156,156 2,194,886
======================================================================================================
1,038,730 1,436,726 2,475,456
======================================================================================================
KENTUCKY -- 0.69%
Jefferson (County of) (Beverly
Enterprises Project); Refunding
Health Facilities Series 1999 RB
5.88%, 05/01/08 - 586,224 586,224
- ------------------------------------------------------------------------------------------------------
Mount Sterling (City of) (Kentucky
League Cities); Lease Funding Series
1993 A RB
6.15%, 03/01/13 - 3,069,540 3,069,540
- ------------------------------------------------------------------------------------------------------
Russell (City of) (Bon Secours-St
Francis Medical Center Inc.); Series
2002 A RB
5.63%, 11/15/30 - 996,420 996,420
======================================================================================================
- 4,652,184 4,652,184
======================================================================================================
PAR (000)
- -------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
LOUISIANA -- 5.68%
Lafayette (City of);
Public Improvement Sales Tax
Series 2000 A RB
$ 1,000 $ 1,360 $ 2,360 5.50%, 03/01/23 (a)
- --------------------------------------------------------------------------------------------
Refunding Public Improvement
Sales Tax
Series 2002 RB
1,000 - 1,000 4.00%, 03/01/08 (a)
- --------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Enviromental Facilities & Community
Development Authority;
Capital Projects & Equipment
Acquisitions
Series 2000 RB
6,000 6,040 12,040 6.55%, 09/01/25 (a)
- --------------------------------------------------------------------------------------------
Capital Projects & Equipment
Acquisitions
Series 2000 A RB
1,000 3,000 4,000 6.30%, 07/01/30 (a)
- --------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environment Facilities & Community
Development Authority (Bossier Parish
Community College); Series 2002 RB
1,000 - 1,000 5.13%, 12/01/24 (a)
- --------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (BRCC
Facilities Corp. Project); Series
2002 RB
500 1,000 1,500 5.00%, 12/01/26 (a)
- --------------------------------------------------------------------------------------------
- 2,000 2,000 5.00%, 12/01/32 (a)
- --------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environment Facilities & Community
Development Authority (Parking
Facilities Corp. Garage Project);
Series 2001 A RB
760 1,000 1,760 5.20%, 10/01/20 (a)
- --------------------------------------------------------------------------------------------
Louisiana (State of) Public
Facilities Authority (Dillard
University Project); Series 2002 B RB
250 - 250 5.30%, 08/01/26 (a)
- --------------------------------------------------------------------------------------------
Louisiana (State of) Public
Facilities Authority (Ochsner Clinic
Foundation Project); Series 2002 B RB
- 1,250 1,250 5.50%, 05/15/32
- --------------------------------------------------------------------------------------------
Louisiana (State of) Public
Facilities Authority (Tulane
University);
Series 1996 RB
- 2,500 2,500 6.00%, 10/01/16 (a)
- --------------------------------------------------------------------------------------------
Series 2002 A RB
- 2,100 2,100 5.13%, 07/01/27 (a)
- --------------------------------------------------------------------------------------------
Series 2002 D RB
- 500 500 5.00%, 02/15/26 (a)
- --------------------------------------------------------------------------------------------
Ouachita (Parish of) Hospital Service
District No. 1 (Glenwood Regional
Medical Center); Refunding Hospital
Series 1996 RB
- 1,000 1,000 5.70%, 05/15/16 (a)
- --------------------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales
Tax District; Series 1987 RB
- 500 500 7.60%, 01/01/08 (c)(d)
- --------------------------------------------------------------------------------------------
- 500 500 7.60%, 01/01/09 (c)(d)
- --------------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
LOUISIANA -- 5.68%
Lafayette (City of);
Public Improvement Sales Tax
Series 2000 A RB
5.50%, 03/01/23 (a) $ 1,055,940 $ 1,437,778 $ 2,493,718
- -----------------------------------------------------------------------------------------------------
Refunding Public Improvement
Sales Tax
Series 2002 RB
4.00%, 03/01/08 (a) 1,054,620 - 1,054,620
- -----------------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Enviromental Facilities & Community
Development Authority;
Capital Projects & Equipment
Acquisitions
Series 2000 RB
6.55%, 09/01/25 (a) 6,692,640 6,744,808 13,437,448
- -----------------------------------------------------------------------------------------------------
Capital Projects & Equipment
Acquisitions
Series 2000 A RB
6.30%, 07/01/30 (a) 1,184,790 3,558,120 4,742,910
- -----------------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environment Facilities & Community
Development Authority (Bossier Parish
Community College); Series 2002 RB
5.13%, 12/01/24 (a) 1,018,250 - 1,018,250
- -----------------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environmental Facilities & Community
Development Authority (BRCC
Facilities Corp. Project); Series
2002 RB
5.00%, 12/01/26 (a) 502,815 1,006,880 1,509,695
- -----------------------------------------------------------------------------------------------------
5.00%, 12/01/32 (a) - 2,007,560 2,007,560
- -----------------------------------------------------------------------------------------------------
Louisiana (State of) Local Government
Environment Facilities & Community
Development Authority (Parking
Facilities Corp. Garage Project);
Series 2001 A RB
5.20%, 10/01/20 (a) 790,157 1,040,930 1,831,087
- -----------------------------------------------------------------------------------------------------
Louisiana (State of) Public
Facilities Authority (Dillard
University Project); Series 2002 B RB
5.30%, 08/01/26 (a) 258,160 - 258,160
- -----------------------------------------------------------------------------------------------------
Louisiana (State of) Public
Facilities Authority (Ochsner Clinic
Foundation Project); Series 2002 B RB
5.50%, 05/15/32 - 1,233,763 1,233,763
- -----------------------------------------------------------------------------------------------------
Louisiana (State of) Public
Facilities Authority (Tulane
University);
Series 1996 RB
6.00%, 10/01/16 (a) - 2,861,775 2,861,775
- -----------------------------------------------------------------------------------------------------
Series 2002 A RB
5.13%, 07/01/27 (a) - 2,130,429 2,130,429
- -----------------------------------------------------------------------------------------------------
Series 2002 D RB
5.00%, 02/15/26 (a) - 503,240 503,240
- -----------------------------------------------------------------------------------------------------
Ouachita (Parish of) Hospital Service
District No. 1 (Glenwood Regional
Medical Center); Refunding Hospital
Series 1996 RB
5.70%, 05/15/16 (a) - 1,095,780 1,095,780
- -----------------------------------------------------------------------------------------------------
St. John Baptist (Parish of) Sales
Tax District; Series 1987 RB
7.60%, 01/01/08 (c)(d) - 612,210 612,210
- -----------------------------------------------------------------------------------------------------
7.60%, 01/01/09 (c)(d) - 620,300 620,300
- -----------------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
LOUISIANA -- (CONTINUED)
West Feliciana (Parish of) (Gulf
States Utilities); Series 1992 A PCR
$ - $ 1,000 $ 1,000 7.50%, 05/01/15
===========================================================================================
===========================================================================================
MAINE -- 0.23%
Maine (State of) Housing Authority;
Mortgage Series 1999 E-1 RB
- 1,500 1,500 5.85%, 11/15/20
===========================================================================================
MARYLAND -- 0.58%
Maryland (State of) Health & Higher
Educational Facilities Authority
(Johns Hopkins University); Refunding
Series 2001 B RB
- 1,000 1,000 5.00%, 07/01/41
- -------------------------------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical
System); Series 2001 RB
- 1,000 1,000 5.25%, 07/01/28
- -------------------------------------------------------------------------------------------
- 2,000 2,000 5.25%, 07/01/34
===========================================================================================
===========================================================================================
MASSACHUSETTS -- 2.80%
Boston (City of) Water & Sewer
Commission; Sr. Series 1993 A RB
5,385 - 5,385 5.25%, 11/01/19 (a)
- -------------------------------------------------------------------------------------------
Massachusetts (State of);
Consolidated Loan Unlimited Tax
Series 2000 A GO
785 - 785 5.75%, 02/01/09
- -------------------------------------------------------------------------------------------
Massachusetts (State of) Development
Finance Agency (Boston University);
Series 1999 P RB
4,500 - 4,500 6.00%, 05/15/59
- -------------------------------------------------------------------------------------------
Massachusetts (State of) Health &
Educational Facilities Authority
(Winchester Hospital); Series 1994 D
RB
- 1,000 1,000 5.80%, 07/01/09 (a)
- -------------------------------------------------------------------------------------------
Massachusetts (State of) Housing
Finance Agency; Single Family Housing
Series 1994 RB
- 1,250 1,250 6.60%, 12/01/26 (b)
- -------------------------------------------------------------------------------------------
Massachusetts (State of) Water
Resources Authority; Refunding Multi
Modal VRD Sub-Series 2002 D RB
(LOC-Landesbank Baden-Wurttemberg)
1,500 - 1,500 1.25%, 08/01/17 (f)(i)
- -------------------------------------------------------------------------------------------
Massachusetts (State of) Water
Resources Authority;
Series 2002 B RB
- 2,000 2,000 5.13%, 08/01/27 (a)
- -------------------------------------------------------------------------------------------
Series 2002 J RB
- 1,500 1,500 5.00%, 08/01/42
===========================================================================================
===========================================================================================
MARKET VALUE
---------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
LOUISIANA -- (CONTINUED)
West Feliciana (Parish of) (Gulf
States Utilities); Series 1992 A PCR
7.50%, 05/01/15 $ - $ 1,019,720 $ 1,019,720
===================================================================================================
12,557,372 25,873,293 38,430,665
===================================================================================================
MAINE -- 0.23%
Maine (State of) Housing Authority;
Mortgage Series 1999 E-1 RB
5.85%, 11/15/20 - 1,564,530 1,564,530
===================================================================================================
MARYLAND -- 0.58%
Maryland (State of) Health & Higher
Educational Facilities Authority
(Johns Hopkins University); Refunding
Series 2001 B RB
5.00%, 07/01/41 - 1,001,990 1,001,990
- ---------------------------------------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical
System); Series 2001 RB
5.25%, 07/01/28 - 995,780 995,780
- ---------------------------------------------------------------------------------------------------
5.25%, 07/01/34 - 1,942,980 1,942,980
===================================================================================================
- 3,940,750 3,940,750
===================================================================================================
MASSACHUSETTS -- 2.80%
Boston (City of) Water & Sewer
Commission; Sr. Series 1993 A RB
5.25%, 11/01/19 (a) 5,849,241 - 5,849,241
- ---------------------------------------------------------------------------------------------------
Massachusetts (State of);
Consolidated Loan Unlimited Tax
Series 2000 A GO
5.75%, 02/01/09 893,699 - 893,699
- ---------------------------------------------------------------------------------------------------
Massachusetts (State of) Development
Finance Agency (Boston University);
Series 1999 P RB
6.00%, 05/15/59 4,813,965 - 4,813,965
- ---------------------------------------------------------------------------------------------------
Massachusetts (State of) Health &
Educational Facilities Authority
(Winchester Hospital); Series 1994 D
RB
5.80%, 07/01/09 (a) - 1,073,000 1,073,000
- ---------------------------------------------------------------------------------------------------
Massachusetts (State of) Housing
Finance Agency; Single Family Housing
Series 1994 RB
6.60%, 12/01/26 (b) - 1,294,525 1,294,525
- ---------------------------------------------------------------------------------------------------
Massachusetts (State of) Water
Resources Authority; Refunding Multi
Modal VRD Sub-Series 2002 D RB
(LOC-Landesbank Baden-Wurttemberg)
1.25%, 08/01/17 (f)(i) 1,500,000 - 1,500,000
- ---------------------------------------------------------------------------------------------------
Massachusetts (State of) Water
Resources Authority;
Series 2002 B RB
5.13%, 08/01/27 (a) - 2,038,200 2,038,200
- ---------------------------------------------------------------------------------------------------
Series 2002 J RB
5.00%, 08/01/42 - 1,482,150 1,482,150
===================================================================================================
13,056,905 5,887,875 18,944,780
===================================================================================================
PAR (000)
- -------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------------
MICHIGAN -- 5.68%
Allegan (City of) Public School
District; Unlimited Tax Series 2000
GO
$ 500 $ - $ 500 5.75%, 05/01/30 (a)
- ---------------------------------------------------------------------------------------------
Almont (City of) Community Schools;
Refunding Unlimited Tax School
Building & Site Series 2002 GO
- 1,580 1,580 5.00%, 05/01/27
- ---------------------------------------------------------------------------------------------
Anchor Bay School District; Refunding
Unlimited Tax Series 2001 GO
- 1,000 1,000 5.00%, 05/01/29
- ---------------------------------------------------------------------------------------------
Bullock Creek School District;
Unlimited Tax Series 2000 GO
- 1,000 1,000 5.50%, 05/01/22
- ---------------------------------------------------------------------------------------------
Caledonia (City of) Community
Schools; Unlimited Tax Series 2000 GO
1,000 - 1,000 5.50%, 05/01/23 (a)
- ---------------------------------------------------------------------------------------------
Chippewa Valley Schools; Refunding
Unlimited Tax Series 2002 GO
- 1,000 1,000 5.13%, 05/01/27
- ---------------------------------------------------------------------------------------------
Detroit (City of) School District;
Unlimited Tax Series 2001 A GO
- 1,000 1,000 5.13%, 05/01/31 (a)
- ---------------------------------------------------------------------------------------------
Detroit (City of) Water Supply
System; Sr. Lien Series 2001 A RB
- 6,000 6,000 5.00%, 07/01/30 (a)
- ---------------------------------------------------------------------------------------------
- 3,500 3,500 5.25%, 07/01/33 (a)
- ---------------------------------------------------------------------------------------------
Garden City Hospital Finance
Authority (Garden City Hospital);
Refunding Hospital Series 1998 A RB
- 850 850 5.63%, 09/01/10
- ---------------------------------------------------------------------------------------------
Grand Rapids (City of) Building
Authority; Series 2002 A RB
- 1,660 1,660 5.00%, 10/01/22 (a)
- ---------------------------------------------------------------------------------------------
Huron (City) School District;
Unlimited Tax Series 2001 GO
250 - 250 5.38%, 05/01/26 (a)
- ---------------------------------------------------------------------------------------------
Jackson Brownfield (City of)
Redevelopment Authority; Series 2002
TAN
1,000 - 1,000 5.13%, 06/01/24 (a)
- ---------------------------------------------------------------------------------------------
Lake Orion Community School District;
Refunding Unlimited Tax Series
1994 GO
- 2,500 2,500 7.00%, 05/01/05 (c)(d)
- ---------------------------------------------------------------------------------------------
Unlimited Tax Series 2000 A GO
500 - 500 6.00%, 05/01/10 (c)(d)
- ---------------------------------------------------------------------------------------------
Lincoln Park (City of) School
District; Unlimited Tax Series 1996 GO
- 1,210 1,210 6.00%, 05/01/06 (c)(d)
- ---------------------------------------------------------------------------------------------
Michigan (State of) Hospital Finance
Authority (Ascension Health Credit
Group); Series 1999 A RB
3,000 - 3,000 5.50%, 11/15/07 (a)
- ---------------------------------------------------------------------------------------------
Michigan (State of) Municipal Bond
Authority (Drinking Water Revolving
Fund); Series 2000 RB
- 1,000 1,000 5.50%, 10/01/10 (c)(d)
- ---------------------------------------------------------------------------------------------
Michigan (State of) Public Water
Agency (Combustion Turbine No. 1);
Series 2001 A RB
- 2,500 2,500 5.25%, 01/01/24 (a)
- ---------------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ----------------------------------------------------------------------------------------------------
MICHIGAN -- 5.68%
Allegan (City of) Public School
District; Unlimited Tax Series 2000
GO
5.75%, 05/01/30 (a) 539,190 $ - $ 539,190
- ----------------------------------------------------------------------------------------------------
Almont (City of) Community Schools;
Refunding Unlimited Tax School
Building & Site Series 2002 GO
5.00%, 05/01/27 - 1,589,575 1,589,575
- ----------------------------------------------------------------------------------------------------
Anchor Bay School District; Refunding
Unlimited Tax Series 2001 GO
5.00%, 05/01/29 - 1,005,960 1,005,960
- ----------------------------------------------------------------------------------------------------
Bullock Creek School District;
Unlimited Tax Series 2000 GO
5.50%, 05/01/22 - 1,052,290 1,052,290
- ----------------------------------------------------------------------------------------------------
Caledonia (City of) Community
Schools; Unlimited Tax Series 2000 GO
5.50%, 05/01/23 (a) 1,049,790 - 1,049,790
- ----------------------------------------------------------------------------------------------------
Chippewa Valley Schools; Refunding
Unlimited Tax Series 2002 GO
5.13%, 05/01/27 - 1,015,000 1,015,000
- ----------------------------------------------------------------------------------------------------
Detroit (City of) School District;
Unlimited Tax Series 2001 A GO
5.13%, 05/01/31 (a) - 1,013,510 1,013,510
- ----------------------------------------------------------------------------------------------------
Detroit (City of) Water Supply
System; Sr. Lien Series 2001 A RB
5.00%, 07/01/30 (a) - 6,016,080 6,016,080
- ----------------------------------------------------------------------------------------------------
5.25%, 07/01/33 (a) - 3,585,820 3,585,820
- ----------------------------------------------------------------------------------------------------
Garden City Hospital Finance
Authority (Garden City Hospital);
Refunding Hospital Series 1998 A RB
5.63%, 09/01/10 - 711,161 711,161
- ----------------------------------------------------------------------------------------------------
Grand Rapids (City of) Building
Authority; Series 2002 A RB
5.00%, 10/01/22 (a) - 1,696,902 1,696,902
- ----------------------------------------------------------------------------------------------------
Huron (City) School District;
Unlimited Tax Series 2001 GO
5.38%, 05/01/26 (a) 259,528 - 259,528
- ----------------------------------------------------------------------------------------------------
Jackson Brownfield (City of)
Redevelopment Authority; Series 2002
TAN
5.13%, 06/01/24 (a) 1,022,120 - 1,022,120
- ----------------------------------------------------------------------------------------------------
Lake Orion Community School District;
Refunding Unlimited Tax Series
1994 GO
7.00%, 05/01/05 (c)(d) - 2,831,675 2,831,675
- ----------------------------------------------------------------------------------------------------
Unlimited Tax Series 2000 A GO
6.00%, 05/01/10 (c)(d) 585,570 - 585,570
- ----------------------------------------------------------------------------------------------------
Lincoln Park (City of) School
District; Unlimited Tax Series 1996 GO
6.00%, 05/01/06 (c)(d) - 1,380,985 1,380,985
- ----------------------------------------------------------------------------------------------------
Michigan (State of) Hospital Finance
Authority (Ascension Health Credit
Group); Series 1999 A RB
5.50%, 11/15/07 (a) 3,391,830 - 3,391,830
- ----------------------------------------------------------------------------------------------------
Michigan (State of) Municipal Bond
Authority (Drinking Water Revolving
Fund); Series 2000 RB
5.50%, 10/01/10 (c)(d) - 1,150,370 1,150,370
- ----------------------------------------------------------------------------------------------------
Michigan (State of) Public Water
Agency (Combustion Turbine No. 1);
Series 2001 A RB
5.25%, 01/01/24 (a) - 2,587,975 2,587,975
- ----------------------------------------------------------------------------------------------------
PAR (000)
- -------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- -------------------------------------------
MICHIGAN -- (CONTINUED)
Newaygo (City of) Public Schools;
Unlimited Tax Series 2000 GO
$ 1,000 $ - $ 1,000 5.50%, 05/01/21
- ---------------------------------------------------------------------------------------------
Ypsilanti (City of) School District;
Refunding Unlimited Tax Series 1996 GO
- 4,275 4,275 5.75%, 05/01/07 (c)(d)
=============================================================================================
=============================================================================================
MINNESOTA -- 0.38%
Brooklyn Center (City of) (Brookdale
Corp. III Project); Refunding VRD
Series 2001 RB (LOC-Firstar Bank)
300 - 300 1.35%, 12/01/07 (f)(i)
- ---------------------------------------------------------------------------------------------
Minneapolis (City of); Unlimited Tax
Parking Ramp Series 2000 A GO
- 1,000 1,000 5.90%, 12/01/20
- ---------------------------------------------------------------------------------------------
Minneapolis & St. Paul (Cities of)
Metropolitan Airports Commission
(Northwest Airlines Inc.); Special
Facilities Series 2001 A RB
500 1,000 1,500 7.00%, 04/01/25 (b)
=============================================================================================
=============================================================================================
MISSISSIPPI -- 0.92%
Mississippi (State of) Higher
Education Assistance Corp.;
Sub-Series 1994 C RB
- 5,000 5,000 7.50%, 09/01/09 (b)
- ---------------------------------------------------------------------------------------------
Mississippi (State of) Hospital
Equipment & Facilities Authority
(Forrest County General Hospital
Project); Series 2000 RB
1,000 - 1,000 5.50%, 01/01/27 (a)
=============================================================================================
=============================================================================================
MISSOURI -- 0.91%
Kansas City Industrial Development
Authority (General Motors Corp.
Project); Series 1984 PCR
- 170 170 6.05%, 04/01/06
- ---------------------------------------------------------------------------------------------
Missouri (State of) Environmental
Improvement & Energy Resources
Authority (State Revolving Fund);
Prerefunded Water Pollution
Series 1995 C RB
- 730 730 5.85%, 01/01/05 (c)(d)
- ---------------------------------------------------------------------------------------------
Unrefunded Water Pollution Series
1995 C RB
- 270 270 5.85%, 01/01/10
- ---------------------------------------------------------------------------------------------
Missouri (State of) Health &
Educational Facilities Authority
(Washington University Project);
Educational Facilities Series 2001 A
RB
1,250 2,750 4,000 5.13%, 06/15/41
- ---------------------------------------------------------------------------------------------
Missouri (State of) Housing
Development Commission; Multifamily
Housing Series 2001 II RB
820 - 820 5.38%, 12/01/18
=============================================================================================
=============================================================================================
MARKET VALUE
---------------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- --------------------------------------------------------------------------------------------------------------
MICHIGAN -- (CONTINUED)
Newaygo (City of) Public Schools;
Unlimited Tax Series 2000 GO
5.50%, 05/01/21 $ 1,053,550 $ - $ 1,053,550
- --------------------------------------------------------------------------------------------------------------
Ypsilanti (City of) School District;
Refunding Unlimited Tax Series 1996 GO
5.75%, 05/01/07 (c)(d) - 4,883,974 4,883,974
==============================================================================================================
7,901,578 30,521,277 38,422,855
==============================================================================================================
MINNESOTA -- 0.38%
Brooklyn Center (City of) (Brookdale
Corp. III Project); Refunding VRD
Series 2001 RB (LOC-Firstar Bank)
1.35%, 12/01/07 (f)(i) 300,000 - 300,000
- --------------------------------------------------------------------------------------------------------------
Minneapolis (City of); Unlimited Tax
Parking Ramp Series 2000 A GO
5.90%, 12/01/20 - 1,112,280 1,112,280
- --------------------------------------------------------------------------------------------------------------
Minneapolis & St. Paul (Cities of)
Metropolitan Airports Commission
(Northwest Airlines Inc.); Special
Facilities Series 2001 A RB
7.00%, 04/01/25 (b) 376,550 757,740 1,134,290
==============================================================================================================
676,550 1,870,020 2,546,570
==============================================================================================================
MISSISSIPPI -- 0.92%
Mississippi (State of) Higher
Education Assistance Corp.;
Sub-Series 1994 C RB
7.50%, 09/01/09 (b) - 5,188,000 5,188,000
- --------------------------------------------------------------------------------------------------------------
Mississippi (State of) Hospital
Equipment & Facilities Authority
(Forrest County General Hospital
Project); Series 2000 RB
5.50%, 01/01/27 (a) 1,043,780 - 1,043,780
==============================================================================================================
1,043,780 5,188,000 6,231,780
==============================================================================================================
MISSOURI -- 0.91%
Kansas City Industrial Development
Authority (General Motors Corp.
Project); Series 1984 PCR
6.05%, 04/01/06 - 170,700 170,700
- --------------------------------------------------------------------------------------------------------------
Missouri (State of) Environmental
Improvement & Energy Resources
Authority (State Revolving Fund);
Prerefunded Water Pollution
Series 1995 C RB
5.85%, 01/01/05 (c)(d) - 797,970 797,970
- --------------------------------------------------------------------------------------------------------------
Unrefunded Water Pollution Series
1995 C RB
5.85%, 01/01/10 - 292,467 292,467
- --------------------------------------------------------------------------------------------------------------
Missouri (State of) Health &
Educational Facilities Authority
(Washington University Project);
Educational Facilities Series 2001 A
RB
5.13%, 06/15/41 1,261,488 2,778,710 4,040,198
- --------------------------------------------------------------------------------------------------------------
Missouri (State of) Housing
Development Commission; Multifamily
Housing Series 2001 II RB
5.38%, 12/01/18 841,361 - 841,361
==============================================================================================================
2,102,849 4,039,847 6,142,696
==============================================================================================================
PAR (000)
- ---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ---------------------------------------
NEBRASKA -- 0.15%
Omaha (City of) Public Power
District; Electric Series 2002 A RB
$ - $ 1,000 $ 1,000 5.20%, 02/01/22
======================================================================================
NEVADA -- 2.62%
Boulder (City of) (Boulder City
Hospital Inc. Project); Refunding
Hospital Series 1998 RB
- 500 500 5.85%, 01/01/22
- --------------------------------------------------------------------------------------
Clark (County of); Airport Sub-Lien
Series 2001 B RB
2,250 - 2,250 5.13%, 07/01/21 (a)
- --------------------------------------------------------------------------------------
- 3,000 3,000 5.25%, 07/01/34 (a)
Clark (County of) (Nevada Power Co.
Project); Series 1992 C IDR
- --------------------------------------------------------------------------------------
- 1,500 1,500 7.20%, 10/01/22
Clark (County of) Bond Bank; Limited
Tax Series 2001 GO
- --------------------------------------------------------------------------------------
- 5,000 5,000 5.00%, 06/01/31 (a)
Humboldt (County of) (Sierra Pacific
Project); Refunding Series 1987 PCR
- --------------------------------------------------------------------------------------
- 3,000 3,000 6.55%, 10/01/13 (a)
Nevada (State of) Housing Divison
(Single Family Program); Sr. Series
1994 B-1 RB
- --------------------------------------------------------------------------------------
45 - 45 5.90%, 04/01/03
Reno (City of) Redevelopment Agency;
Refunding Sub-Series 1995 A TAN
- --------------------------------------------------------------------------------------
- 1,185 1,185 6.00%, 06/01/10
Truckee Meadows Water Authority;
Water Series 2001 A RB
- --------------------------------------------------------------------------------------
- 1,000 1,000 5.13%, 07/01/30 (a)
======================================================================================
NEW JERSEY -- 2.54%
New Jersey (State of) Economic
Development Authority (Continental
Airlines, Inc. Project);
Special Facility Series 1999 RB
- 6,300 6,300 6.25%, 09/15/29 (b)
- --------------------------------------------------------------------------------------
- 1,000 1,000 6.40%, 09/15/23 (b)
- --------------------------------------------------------------------------------------
Special Facility Series 2000 RB
- 4,000 4,000 7.00%, 11/15/30 (b)
- --------------------------------------------------------------------------------------
New Jersey (State of) Health Care
Facilities Financing Authority
(Raritan Bay Medical Center); Series
1994 RB
- 250 250 7.25%, 07/01/27
- --------------------------------------------------------------------------------------
New Jersey (State of) Health Care
Facilities Financing Authority (St.
Peters University Hospital); Series
2000 A RB
500 - 500 6.88%, 07/01/20
- --------------------------------------------------------------------------------------
New Jersey (State of) Transportation
Trust Fund Authority; Transportation
System Series 1999 A RB
1,670 - 1,670 5.50%, 06/15/10
- --------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
---------------------------------------
NEBRASKA -- 0.15%
Omaha (City of) Public Power
District; Electric Series 2002 A RB
5.20%, 02/01/22 $ - $ 1,027,690 $ 1,027,690
===========================================================================================
NEVADA -- 2.62%
Boulder (City of) (Boulder City
Hospital Inc. Project); Refunding
Hospital Series 1998 RB
5.85%, 01/01/22 - 430,350 430,350
- -------------------------------------------------------------------------------------------
Clark (County of); Airport Sub-Lien
Series 2001 B RB
5.13%, 07/01/21 (a) 2,295,607 - 2,295,607
- -------------------------------------------------------------------------------------------
5.25%, 07/01/34 (a) - 3,038,490 3,038,490
- -------------------------------------------------------------------------------------------
Clark (County of) (Nevada Power Co.
Project); Series 1992 C IDR
7.20%, 10/01/22 - 1,498,695 1,498,695
- -------------------------------------------------------------------------------------------
Clark (County of) Bond Bank; Limited
Tax Series 2001 GO
5.00%, 06/01/31 (a) - 5,019,900 5,019,900
- -------------------------------------------------------------------------------------------
Humboldt (County of) (Sierra Pacific
Project); Refunding Series 1987 PCR
6.55%, 10/01/13 (a) - 3,145,500 3,145,500
- -------------------------------------------------------------------------------------------
Nevada (State of) Housing Divison
(Single Family Program); Sr. Series
1994 B-1 RB
5.90%, 04/01/03 45,239 - 45,239
- -------------------------------------------------------------------------------------------
Reno (City of) Redevelopment Agency;
Refunding Sub-Series 1995 A TAN
6.00%, 06/01/10 - 1,239,202 1,239,202
- -------------------------------------------------------------------------------------------
Truckee Meadows Water Authority;
Water Series 2001 A RB
5.13%, 07/01/30 (a) - 1,009,130 1,009,130
===========================================================================================
2,340,846 15,381,267 17,722,113
===========================================================================================
NEW JERSEY -- 2.54%
New Jersey (State of) Economic
Development Authority (Continental
Airlines, Inc. Project);
Special Facility Series 1999 RB
6.25%, 09/15/29 (b) - 4,446,477 4,446,477
- -------------------------------------------------------------------------------------------
6.40%, 09/15/23 (b) - 720,770 720,770
- -------------------------------------------------------------------------------------------
Special Facility Series 2000 RB
7.00%, 11/15/30 (b) - 2,943,120 2,943,120
- -------------------------------------------------------------------------------------------
New Jersey (State of) Health Care
Facilities Financing Authority
(Raritan Bay Medical Center); Series
1994 RB
7.25%, 07/01/27 - 250,350 250,350
- -------------------------------------------------------------------------------------------
New Jersey (State of) Health Care
Facilities Financing Authority (St.
Peters University Hospital); Series
2000 A RB
6.88%, 07/01/20 532,560 - 532,560
- -------------------------------------------------------------------------------------------
New Jersey (State of) Transportation
Trust Fund Authority; Transportation
System Series 1999 A RB
5.50%, 06/15/10 1,884,094 - 1,884,094
- -------------------------------------------------------------------------------------------
</Table>
PAR (000)
- ---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ---------------------------------------
NEW JERSEY -- (CONTINUED)
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 RB
$ 2,000 $ - $ 2,000 5.38%, 06/01/18
- ----------------------------------------------------------------------------------------
1,000 2,500 3,500 5.75%, 06/01/32
- ----------------------------------------------------------------------------------------
500 - 500 6.00%, 06/01/37
- ----------------------------------------------------------------------------------------
- 1,000 1,000 6.13%, 06/01/42
========================================================================================
========================================================================================
NEW MEXICO -- 1.54%
Las Cruces (City of) South Central
Solid Waste Authority; Enviromental
Services Series 1995 RB
- 575 575 5.65%, 06/01/09
- ----------------------------------------------------------------------------------------
Los Alamos (County of);
Refunding Utility System Series
1994 A RB
- 2,000 2,000 6.00%, 07/01/15 (a)
- ----------------------------------------------------------------------------------------
Utility System Series 1994 A RB
5,000 - 5,000 6.00%, 07/01/09 (a)
- ----------------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 RB
- 2,100 2,100 6.25%, 06/01/04 (c)(d)
========================================================================================
========================================================================================
NEW YORK -- 4.17%
Metropolitan Transportation Authority;
Dedicated Tax Fund Series 2000 A
RB
- 1,500 1,500 5.88%, 04/01/10 (c)(d)
- ----------------------------------------------------------------------------------------
Refunding Series 2002 A RB
- 1,000 1,000 5.13%, 01/01/29
- ----------------------------------------------------------------------------------------
New York (City of);
Prerefunded Unlimited Tax Series
1994 B1 GO
- 500 500 7.38%, 08/15/04 (c)(d)
- ----------------------------------------------------------------------------------------
Prerefunded Unlimited Tax Series
1996 A GO
- 2,540 2,540 6.25%, 08/01/06 (c)(d)
- ----------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1991 B GO
- 40 40 7.00%, 02/01/18 (c)(d)
- ----------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1992 D GO
- 15 15 7.70%, 03/07/03 (c)(d)
- ----------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1996 A GO
- 495 495 6.25%, 08/01/17
- ----------------------------------------------------------------------------------------
New York (City of) Industrial
Development Agency (University of
Staten Island Hospital Project);
Civic Facilities Series 2001 B RB
- 600 600 6.38%, 07/01/31
- ----------------------------------------------------------------------------------------
New York (City of) Municipal Water
Finance Authority;
Prerefunded Water & Sewer System
Series 2000 B RB
935 - 935 6.00%, 06/15/10 (c)(d)
- ----------------------------------------------------------------------------------------
Unrefunded Water & Sewer System
Series 2000 B RB
565 - 565 6.00%, 06/15/33
- ----------------------------------------------------------------------------------------
Water & Sewer System Series 1996
A RB
- 1,000 1,000 5.50%, 06/15/24 (a)
- ----------------------------------------------------------------------------------------
Water & Sewer System Series 1997
B RB
- 3,850 3,850 5.75%, 06/15/29
- ----------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
---------------------------------------
NEW JERSEY -- (CONTINUED)
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 RB
5.38%, 06/01/18 $ 1,933,480 $ - $ 1,933,480
- -------------------------------------------------------------------------------------------
5.75%, 06/01/32 896,250 2,243,750 3,140,000
- -------------------------------------------------------------------------------------------
6.00%, 06/01/37 443,420 - 443,420
- -------------------------------------------------------------------------------------------
6.13%, 06/01/42 - 891,690 891,690
===========================================================================================
5,689,804 11,496,157 17,185,961
===========================================================================================
NEW MEXICO -- 1.54%
Las Cruces (City of) South Central
Solid Waste Authority; Enviromental
Services Series 1995 RB
5.65%, 06/01/09 - 604,411 604,411
- -------------------------------------------------------------------------------------------
Los Alamos (County of);
Refunding Utility System Series
1994 A RB
6.00%, 07/01/15 (a) - 2,157,080 2,157,080
- -------------------------------------------------------------------------------------------
Utility System Series 1994 A RB
6.00%, 07/01/09 (a) 5,391,250 - 5,391,250
- -------------------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 RB
6.25%, 06/01/04 (c)(d) - 2,239,818 2,239,818
===========================================================================================
5,391,250 5,001,309 10,392,559
===========================================================================================
NEW YORK -- 4.17%
Metropolitan Transportation Authority;
Dedicated Tax Fund Series 2000 A
RB
5.88%, 04/01/10 (c)(d) - 1,757,865 1,757,865
- -------------------------------------------------------------------------------------------
Refunding Series 2002 A RB
5.13%, 01/01/29 - 1,004,030 1,004,030
- -------------------------------------------------------------------------------------------
New York (City of);
Prerefunded Unlimited Tax Series
1994 B1 GO
7.38%, 08/15/04 (c)(d) - 552,645 552,645
- -------------------------------------------------------------------------------------------
Prerefunded Unlimited Tax Series
1996 A GO
6.25%, 08/01/06 (c)(d) - 2,961,996 2,961,996
- -------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1991 B GO
7.00%, 02/01/18 (c)(d) - 40,579 40,579
- -------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1992 D GO
7.70%, 03/07/03 (c)(d) - 15,230 15,230
- -------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1996 A GO
6.25%, 08/01/17 - 577,239 577,239
- -------------------------------------------------------------------------------------------
New York (City of) Industrial
Development Agency (University of
Staten Island Hospital Project);
Civic Facilities Series 2001 B RB
6.38%, 07/01/31 - 602,688 602,688
- -------------------------------------------------------------------------------------------
New York (City of) Municipal Water
Finance Authority;
Prerefunded Water & Sewer System
Series 2000 B RB
6.00%, 06/15/10 (c)(d) 1,114,885 - 1,114,885
- -------------------------------------------------------------------------------------------
Unrefunded Water & Sewer System
Series 2000 B RB
6.00%, 06/15/33 660,406 - 660,406
- -------------------------------------------------------------------------------------------
Water & Sewer System Series 1996
A RB
5.50%, 06/15/24 (a) - 1,041,650 1,041,650
- -------------------------------------------------------------------------------------------
Water & Sewer System Series 1997
B RB
5.75%, 06/15/29 - 4,173,516 4,173,516
- -------------------------------------------------------------------------------------------
</Table>
PAR (000)
- ---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ---------------------------------------
NEW YORK -- (CONTINUED)
New York (State of) Dormitory
Authority (State University
Educational Facilities); Series 1995
A RB
$ - $ 1,000 $ 1,000 6.50%, 05/15/06
- -----------------------------------------------------------------------------------------
New York (State of) Environmental
Facilities Corp. (State Water
Revolving Project); Unrefunded Series
1991 E PCR
- 1,100 1,100 6.88%, 06/15/10
- -----------------------------------------------------------------------------------------
Port Authority of New York & New
Jersey (States of); Series 1994 93th
RB
5,250 - 5,250 6.13%, 06/01/94
- -----------------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority;
General Purpose Series 1992 Y RB
2,900 - 2,900 5.50%, 01/01/17 (c)
- -----------------------------------------------------------------------------------------
General Purpose Series 1993 B RB
1,935 - 1,935 5.00%, 01/01/20 (c)
=========================================================================================
=========================================================================================
NORTH CAROLINA -- 0.86%
North Carolina (State of) Eastern
Municipal Power Agency; Power System
Series 1993 A RB
- 1,500 1,500 6.13%, 01/01/10 (c)(d)
- -----------------------------------------------------------------------------------------
North Carolina (State of) Housing
Finance Agency; Single Family Series
1996 II RB
- 440 440 6.20%, 03/01/16
- -----------------------------------------------------------------------------------------
North Carolina (State of) Municipal
Power Agency (No. 1 Catawba Electric
Project);
Prerefunded Series 1990 RB
- 260 260 6.50%, 01/01/10 (c)(d)
- -----------------------------------------------------------------------------------------
Refunding Series 1992 RB
- 2,890 2,890 7.25%, 01/01/07
=========================================================================================
=========================================================================================
NORTH DAKOTA -- 0.16%
Fargo (City of) Health System
(Meritcare Medical Group); Series
2002 A RB
- 500 500 5.13%, 06/01/27 (a)
- -----------------------------------------------------------------------------------------
Ward (County of) (Trinity Health
Group); Health Care
Facilities VRD Series
2002 A RB (LOC-U.S. Bank
N.A.)
600 - 600 1.35%, 07/01/29 (f)(i)
=========================================================================================
=========================================================================================
OHIO -- 2.43%
Cleveland (City of); Refunding First
Mortgage Waterworks Series 1993 G RB
3,300 - 3,300 5.50%, 01/01/21 (a)
- -----------------------------------------------------------------------------------------
Fairfield (City of) School District;
Unlimited Tax Series 1995 GO
- 1,000 1,000 6.10%, 12/01/05 (c)(d)
- -----------------------------------------------------------------------------------------
Findlay (City of); Limited Tax Series
1996 GO
- 1,000 1,000 5.88%, 07/01/17
- -----------------------------------------------------------------------------------------
Lake Ohio School District (Stark
County School District); Unlimited
Tax Series 2000 GO
- 2,500 2,500 5.75%, 12/01/26 (a)
- -----------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
---------------------------------------
NEW YORK -- (CONTINUED)
New York (State of) Dormitory
Authority (State University
Educational Facilities); Series 1995
A RB
6.50%, 05/15/06 $ - $ 1,138,290 $ 1,138,290
- --------------------------------------------------------------------------------------------
New York (State of) Environmental
Facilities Corp. (State Water
Revolving Project); Unrefunded Series
1991 E PCR
6.88%, 06/15/10 - 1,116,500 1,116,500
- --------------------------------------------------------------------------------------------
Port Authority of New York & New
Jersey (States of); Series 1994 93th
RB
6.13%, 06/01/94 6,057,450 - 6,057,450
- --------------------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority;
General Purpose Series 1992 Y RB
5.50%, 01/01/17 (c) 3,307,595 - 3,307,595
- --------------------------------------------------------------------------------------------
General Purpose Series 1993 B RB
5.00%, 01/01/20 (c) 2,037,207 - 2,037,207
============================================================================================
13,177,543 14,982,228 28,159,771
============================================================================================
NORTH CAROLINA -- 0.86%
North Carolina (State of) Eastern
Municipal Power Agency; Power System
Series 1993 A RB
6.13%, 01/01/10 (c)(d) - 1,757,700 1,757,700
- --------------------------------------------------------------------------------------------
North Carolina (State of) Housing
Finance Agency; Single Family Series
1996 II RB
6.20%, 03/01/16 - 460,992 460,992
- --------------------------------------------------------------------------------------------
North Carolina (State of) Municipal
Power Agency (No. 1 Catawba Electric
Project);
Prerefunded Series 1990 RB
6.50%, 01/01/10 (c)(d) - 308,240 308,240
- --------------------------------------------------------------------------------------------
Refunding Series 1992 RB
7.25%, 01/01/07 - 3,310,668 3,310,668
============================================================================================
- 5,837,600 5,837,600
============================================================================================
NORTH DAKOTA -- 0.16%
Fargo (City of) Health System
(Meritcare Medical Group); Series
2002 A RB
5.13%, 06/01/27 (a) - 508,305 508,305
- --------------------------------------------------------------------------------------------
Ward (County of) (Trinity Health
Group); Health Care
Facilities VRD Series
2002 A RB (LOC-U.S. Bank
N.A.)
1.35%, 07/01/29 (f)(i) 600,000 - 600,000
============================================================================================
600,000 508,305 1,108,305
============================================================================================
OHIO -- 2.43%
Cleveland (City of); Refunding First
Mortgage Waterworks Series 1993 G RB
5.50%, 01/01/21 (a) 3,689,829 - 3,689,829
- --------------------------------------------------------------------------------------------
Fairfield (City of) School District;
Unlimited Tax Series 1995 GO
6.10%, 12/01/05 (c)(d) - 1,126,620 1,126,620
- --------------------------------------------------------------------------------------------
Findlay (City of); Limited Tax Series
1996 GO
5.88%, 07/01/17 - 1,120,870 1,120,870
- --------------------------------------------------------------------------------------------
Lake Ohio School District (Stark
County School District); Unlimited
Tax Series 2000 GO
5.75%, 12/01/26 (a) - 2,712,550 2,712,550
- --------------------------------------------------------------------------------------------
PAR (000)
- ---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ---------------------------------------
OHIO -- (CONTINUED)
Montgomery (County of) (Grandview
Hospital & Medical Center); Refunding
Hospital Series 1997 RB
$ - $ 1,000 $ 1,000 5.50%, 12/01/09 (c)(d)
- ----------------------------------------------------------------------------------------
Ohio (State of) Department of
Transportation (Panhandle Rail Line
Project); Series 1992 COP
- 1,100 1,100 6.50%, 04/15/12 (a)
- ----------------------------------------------------------------------------------------
Ohio (State of) Water Development
Authority (Cleveland Pollution
Control Project); Refunding Series
1999 A PCR
3,000 - 3,000 5.58%, 06/15/04 (b)(d)
- ----------------------------------------------------------------------------------------
Plain (City of) Local School District;
Prerefunded Unlimited Tax Series
2000 GO
410 - 410 6.00%, 06/01/11 (c)(d)
- ----------------------------------------------------------------------------------------
Unlimited Tax Series 2000 GO
90 - 90 6.00%, 12/01/25 (a)
- ----------------------------------------------------------------------------------------
University of Cincinnati; Series 2002
F RB
- 820 820 5.00%, 06/01/22
- ----------------------------------------------------------------------------------------
- 1,000 1,000 5.00%, 06/01/23
========================================================================================
========================================================================================
OKLAHOMA -- 1.92%
Jenks (City of) Aquarium Authority;
First Mortgage Series 2000 RB
800 - 800 6.00%, 07/01/20 (a)
- ----------------------------------------------------------------------------------------
Mustang (City of) Improvement Utility
Authority; Series 1999 RB
- 1,500 1,500 5.70%, 10/01/19 (a)
- ----------------------------------------------------------------------------------------
Oklahoma (State of) Development
Finance Authority (St. John Health
System); Refunding Series 1999 RB
- 675 675 5.75%, 02/15/18
- ----------------------------------------------------------------------------------------
- 1,750 1,750 5.75%, 02/15/25
- ----------------------------------------------------------------------------------------
Oklahoma (State of) Water Resource
Board; State Loan Program Series 2003
A RB
- 1,000 1,000 5.00%, 10/01/22
- ----------------------------------------------------------------------------------------
Oklahoma City Airport Trust; Jr. Lien
Series 2000 A 27th RB
2,675 - 2,675 5.13%, 07/01/20 (a)
- ----------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority
(St. John's Medical Center Project);
Hospital Series 1994 RB
- 2,000 2,000 6.25%, 02/15/06 (c)(d)
- ----------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority
(Tulsa Regional Medical Center);
Hospital Series 1992 RB
- 500 500 7.20%, 06/01/03 (c)(d)
- ----------------------------------------------------------------------------------------
Tulsa (City of) Public Facilities
Authority; Capital Improvement Series
1988 B RB
- 1,305 1,305 6.00%, 03/01/08
========================================================================================
========================================================================================
OREGON -- 0.50%
Cow Creek Band Umpqua Tribe of
Indians; Series 1998 B RB
- 1,000 1,000 5.10%, 07/01/12 (a)(e)
- ----------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
---------------------------------------
OHIO -- (CONTINUED)
Montgomery (County of) (Grandview
Hospital & Medical Center); Refunding
Hospital Series 1997 RB
5.50%, 12/01/09 (c)(d) $ - $ 1,141,890 $ 1,141,890
- -------------------------------------------------------------------------------------------
Ohio (State of) Department of
Transportation (Panhandle Rail Line
Project); Series 1992 COP
6.50%, 04/15/12 (a) - 1,121,681 1,121,681
- -------------------------------------------------------------------------------------------
Ohio (State of) Water Development
Authority (Cleveland Pollution
Control Project); Refunding Series
1999 A PCR
5.58%, 06/15/04 (b)(d) 3,065,220 - 3,065,220
- -------------------------------------------------------------------------------------------
Plain (City of) Local School District;
Prerefunded Unlimited Tax Series
2000 GO
6.00%, 06/01/11 (c)(d) 481,807 - 481,807
- -------------------------------------------------------------------------------------------
Unlimited Tax Series 2000 GO
6.00%, 12/01/25 (a) 100,091 - 100,091
- -------------------------------------------------------------------------------------------
University of Cincinnati; Series 2002
F RB
5.00%, 06/01/22 - 835,244 835,244
- -------------------------------------------------------------------------------------------
5.00%, 06/01/23 - 1,014,070 1,014,070
===========================================================================================
7,336,947 9,072,925 16,409,872
===========================================================================================
OKLAHOMA -- 1.92%
Jenks (City of) Aquarium Authority;
First Mortgage Series 2000 RB
6.00%, 07/01/20 (a) 903,312 - 903,312
- -------------------------------------------------------------------------------------------
Mustang (City of) Improvement Utility
Authority; Series 1999 RB
5.70%, 10/01/19 (a) - 1,670,670 1,670,670
- -------------------------------------------------------------------------------------------
Oklahoma (State of) Development
Finance Authority (St. John Health
System); Refunding Series 1999 RB
5.75%, 02/15/18 - 718,382 718,382
- -------------------------------------------------------------------------------------------
5.75%, 02/15/25 - 1,848,158 1,848,158
- -------------------------------------------------------------------------------------------
Oklahoma (State of) Water Resource
Board; State Loan Program Series 2003
A RB
5.00%, 10/01/22 - 1,015,850 1,015,850
- -------------------------------------------------------------------------------------------
Oklahoma City Airport Trust; Jr. Lien
Series 2000 A 27th RB
5.13%, 07/01/20 (a) 2,715,179 - 2,715,179
- -------------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority
(St. John's Medical Center Project);
Hospital Series 1994 RB
6.25%, 02/15/06 (c)(d) - 2,261,740 2,261,740
- -------------------------------------------------------------------------------------------
Tulsa (City of) Industrial Authority
(Tulsa Regional Medical Center);
Hospital Series 1992 RB
7.20%, 06/01/03 (c)(d) - 519,820 519,820
- -------------------------------------------------------------------------------------------
Tulsa (City of) Public Facilities
Authority; Capital Improvement Series
1988 B RB
6.00%, 03/01/08 - 1,334,389 1,334,389
===========================================================================================
3,618,491 9,369,009 12,987,500
===========================================================================================
OREGON -- 0.50%
Cow Creek Band Umpqua Tribe of
Indians; Series 1998 B RB
5.10%, 07/01/12 (a)(e) - 1,040,260 1,040,260
- -------------------------------------------------------------------------------------------
PAR (000)
- ---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ---------------------------------------
OREGON -- (CONTINUED)
Portland (City of) Sewer System;
Series 1994 A RB
$ - $ 1,200 $ 1,200 6.20%, 06/01/04 (c)(d)
- -----------------------------------------------------------------------------------------
- 1,000 1,000 6.25%, 06/01/04 (c)(d)
=========================================================================================
=========================================================================================
PENNSYLVANIA -- 1.89%
Allegheny (County of) Higher
Education Building Authority
(Carnegie Mellon University); Series
2002 RB
- 1,500 1,500 5.25%, 03/01/32
- -----------------------------------------------------------------------------------------
Allegheny (County of) Port Authority;
Special Transportation Series 1999 RB
- 1,000 1,000 6.13%, 03/01/09 (c)(d)
- -----------------------------------------------------------------------------------------
Benton Area School District;
Unlimited Tax Series 2002 B GO
- 1,000 1,000 5.13%, 06/01/31 (a)
- -----------------------------------------------------------------------------------------
Chester (County of) Industrial
Development Authority (Westtown
School Project); Educational
Facilities Series 2002 RB
- 1,000 1,000 5.00%, 01/01/31 (a)
- -----------------------------------------------------------------------------------------
Clarion (County of) Industrial
Development Authority (Beverly
Enterprises Inc. Project); Refunding
Series 2001 RB
- 1,450 1,450 7.38%, 12/01/08
- -----------------------------------------------------------------------------------------
Montgomery (County of) Industrial
Development Authority (Pennsburg
Nursing & Rehabilitation Center);
Series 1993 RB
- 100 100 7.63%, 03/31/04 (c)(d)
- -----------------------------------------------------------------------------------------
Pennsylvania (State of); Unlimited
Tax Third Series 1994 GO
- 1,250 1,250 6.75%, 11/15/04 (c)(d)
- -----------------------------------------------------------------------------------------
Pennsylvania (State of) Economic
Financing Authority (Colver Project);
Resource Recovery Series 1994 D RB
- 2,900 2,900 7.05%, 12/01/10 (b)
- -----------------------------------------------------------------------------------------
Pennsylvania (State of) Public School
Building Authority (Lehigh Career &
Technical Institution); Series 2001 RB
- 1,000 1,000 5.00%, 10/01/26 (a)
- -----------------------------------------------------------------------------------------
Spring-Ford Area School District;
Unlimited Tax Series 2002 GO
- 1,025 1,025 5.00%, 04/01/23 (a)
=========================================================================================
=========================================================================================
PUERTO RICO -- 0.45%
Children's Trust Fund (Tobacco
Settlement);
Asset-Backed Series 2000 RB
- 1,250 1,250 5.38%, 05/15/33
- -----------------------------------------------------------------------------------------
Sr. Series 2000 RB
- 1,000 1,000 6.00%, 07/01/10 (c)(d)
- -----------------------------------------------------------------------------------------
Puerto Rico (Commonwealth of);
Unlimited Tax Public Improvement
Series 2000 GO
- 500 500 6.00%, 07/01/05 (c)(d)
- -----------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
---------------------------------------
OREGON -- (CONTINUED)
Portland (City of) Sewer System;
Series 1994 A RB
6.20%, 06/01/04 (c)(d) $ - $ 1,290,924 $ 1,290,924
- -------------------------------------------------------------------------------------------
6.25%, 06/01/04 (c)(d) - 1,076,420 1,076,420
===========================================================================================
- 3,407,604 3,407,604
===========================================================================================
PENNSYLVANIA -- 1.89%
Allegheny (County of) Higher
Education Building Authority
(Carnegie Mellon University); Series
2002 RB
5.25%, 03/01/32 - 1,541,340 1,541,340
- -------------------------------------------------------------------------------------------
Allegheny (County of) Port Authority;
Special Transportation Series 1999 RB
6.13%, 03/01/09 (c)(d) - 1,179,400 1,179,400
- -------------------------------------------------------------------------------------------
Benton Area School District;
Unlimited Tax Series 2002 B GO
5.13%, 06/01/31 (a) - 1,016,610 1,016,610
- -------------------------------------------------------------------------------------------
Chester (County of) Industrial
Development Authority (Westtown
School Project); Educational
Facilities Series 2002 RB
5.00%, 01/01/31 (a) - 1,007,100 1,007,100
- -------------------------------------------------------------------------------------------
Clarion (County of) Industrial
Development Authority (Beverly
Enterprises Inc. Project); Refunding
Series 2001 RB
7.38%, 12/01/08 - 1,476,854 1,476,854
- -------------------------------------------------------------------------------------------
Montgomery (County of) Industrial
Development Authority (Pennsburg
Nursing & Rehabilitation Center);
Series 1993 RB
7.63%, 03/31/04 (c)(d) - 110,135 110,135
- -------------------------------------------------------------------------------------------
Pennsylvania (State of); Unlimited
Tax Third Series 1994 GO
6.75%, 11/15/04 (c)(d) - 1,388,575 1,388,575
- -------------------------------------------------------------------------------------------
Pennsylvania (State of) Economic
Financing Authority (Colver Project);
Resource Recovery Series 1994 D RB
7.05%, 12/01/10 (b) - 3,023,540 3,023,540
- -------------------------------------------------------------------------------------------
Pennsylvania (State of) Public School
Building Authority (Lehigh Career &
Technical Institution); Series 2001 RB
5.00%, 10/01/26 (a) - 1,010,440 1,010,440
- -------------------------------------------------------------------------------------------
Spring-Ford Area School District;
Unlimited Tax Series 2002 GO
5.00%, 04/01/23 (a) - 1,039,975 1,039,975
===========================================================================================
- 12,793,969 12,793,969
===========================================================================================
PUERTO RICO -- 0.45%
Children's Trust Fund (Tobacco
Settlement);
Asset-Backed Series 2000 RB
5.38%, 05/15/33 - 1,206,250 1,206,250
- -------------------------------------------------------------------------------------------
Sr. Series 2000 RB
6.00%, 07/01/10 (c)(d) - 1,178,230 1,178,230
- -------------------------------------------------------------------------------------------
Puerto Rico (Commonwealth of);
Unlimited Tax Public Improvement
Series 2000 GO
6.00%, 07/01/05 (c)(d) - 557,150 557,150
- -------------------------------------------------------------------------------------------
PAR (000)
- ---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ---------------------------------------
PUERTO RICO -- (CONTINUED)
Puerto Rico (Commonwealth of) Highway
& Transportation Authority;
Transportation Series 2000 B RB
$ - $ 100 $ 100 6.00%, 07/01/10 (c)(d)
=========================================================================================
=========================================================================================
RHODE ISLAND -- 0.93%
Providence (City of) Public Building
Authority; General Series 2000 A RB
1,210 - 1,210 5.75%, 12/15/16 (a)
- -----------------------------------------------------------------------------------------
Rhode Island (State of) Housing &
Mortgage Finance Corp.; Homeownership
Opportunity Series 1994 15-B RB
- 1,000 1,000 6.00%, 10/01/04
- -----------------------------------------------------------------------------------------
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
- 4,000 4,000 6.00%, 06/01/23
=========================================================================================
=========================================================================================
SOUTH CAROLINA -- 1.11%
Piedmont Municipal Power Agency;
Refunding Electric Series 1986 A RB
- 1,150 1,150 5.75%, 01/01/24
- -----------------------------------------------------------------------------------------
South Carolina (State of) Jobs
Economic Development Authority (Bon
Secours-St. Francis Medical Center
Inc.); Economic Development Series
2002 A RB
1,000 1,000 2,000 5.50%, 11/15/23
- -----------------------------------------------------------------------------------------
South Carolina (State of) Jobs
Economic Development Authority
(Palmetto Health Alliance); Hospital
Facilities Improvement Series 2000 A
RB
- 1,000 1,000 7.13%, 12/15/15
- -----------------------------------------------------------------------------------------
South Carolina (State of) Jobs
Economic Development Authority (South
Carolina Electric & Gas Co. Project);
Series 2002 A IDR
- 1,000 1,000 5.20%, 11/01/27 (a)
- -----------------------------------------------------------------------------------------
South Carolina (State of) Public
Service Authority; Series 2002 B RB
- 1,250 1,250 5.13%, 01/01/32 (a)
- -----------------------------------------------------------------------------------------
South Carolina (State of)
Transportation Infrastructure Bank;
Series 2001 A RB
- 1,000 1,000 5.00%, 10/01/29 (a)
=========================================================================================
=========================================================================================
SOUTH DAKOTA -- 0.62%
Aberdeen (City of) School District
No. 6-1; Unlimited Tax Series 2000 GO
1,940 2,000 3,940 5.45%, 01/01/26 (a)
- -----------------------------------------------------------------------------------------
South Dakota (State of) Health &
Educational Facilities Authority
(Huron Regional Medical Center);
Series 1994 RB
- 100 100 7.25%, 04/01/20
=========================================================================================
=========================================================================================
MARKET VALUE
---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
---------------------------------------
PUERTO RICO -- (CONTINUED)
Puerto Rico (Commonwealth of) Highway
& Transportation Authority;
Transportation Series 2000 B RB
6.00%, 07/01/10 (c)(d) $ - $ 118,973 $ 118,973
==========================================================================================
- 3,060,603 3,060,603
==========================================================================================
RHODE ISLAND -- 0.93%
Providence (City of) Public Building
Authority; General Series 2000 A RB
5.75%, 12/15/16 (a) 1,363,271 - 1,363,271
- ------------------------------------------------------------------------------------------
Rhode Island (State of) Housing &
Mortgage Finance Corp.; Homeownership
Opportunity Series 1994 15-B RB
6.00%, 10/01/04 - 1,044,750 1,044,750
- ------------------------------------------------------------------------------------------
Tobacco Settlement Financing Corp.;
Asset-Backed Series 2002 A RB
6.00%, 06/01/23 - 3,870,200 3,870,200
==========================================================================================
1,363,271 4,914,950 6,278,221
==========================================================================================
SOUTH CAROLINA -- 1.11%
Piedmont Municipal Power Agency;
Refunding Electric Series 1986 A RB
5.75%, 01/01/24 - 1,133,429 1,133,429
- ------------------------------------------------------------------------------------------
South Carolina (State of) Jobs
Economic Development Authority (Bon
Secours-St. Francis Medical Center
Inc.); Economic Development Series
2002 A RB
5.50%, 11/15/23 992,510 995,010 1,987,520
- ------------------------------------------------------------------------------------------
South Carolina (State of) Jobs
Economic Development Authority
(Palmetto Health Alliance); Hospital
Facilities Improvement Series 2000 A
RB
7.13%, 12/15/15 - 1,104,050 1,104,050
- ------------------------------------------------------------------------------------------
South Carolina (State of) Jobs
Economic Development Authority (South
Carolina Electric & Gas Co. Project);
Series 2002 A IDR
5.20%, 11/01/27 (a) - 1,015,190 1,015,190
- ------------------------------------------------------------------------------------------
South Carolina (State of) Public
Service Authority; Series 2002 B RB
5.13%, 01/01/32 (a) - 1,275,475 1,275,475
- ------------------------------------------------------------------------------------------
South Carolina (State of)
Transportation Infrastructure Bank;
Series 2001 A RB
5.00%, 10/01/29 (a) - 1,011,850 1,011,850
==========================================================================================
992,510 6,535,004 7,527,514
==========================================================================================
SOUTH DAKOTA -- 0.62%
Aberdeen (City of) School District
No. 6-1; Unlimited Tax Series 2000 GO
5.45%, 01/01/26 (a) 2,018,337 2,083,260 4,101,597
- ------------------------------------------------------------------------------------------
South Dakota (State of) Health &
Educational Facilities Authority
(Huron Regional Medical Center);
Series 1994 RB
7.25%, 04/01/20 - 103,346 103,346
==========================================================================================
2,018,337 2,186,606 4,204,943
==========================================================================================
PAR (000)
- ---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
- ---------------------------------------
TENNESSEE -- 0.93%
Clarksville (City of)
Public Building
Authority (Tennessee
Municipal Bond Fund);
VRD Pooled Financing
Series 1997 RB (LOC-Bank
of America N.A.)
$ - $ 537 $ 537 1.15%, 11/01/27 (f)(h)
- -----------------------------------------------------------------------------------------
Franklin (City of) Industrial
Development Board (Landings Apartment
Project); Multifamily Housing
Refunding Series 1996 A RB
- 820 820 5.75%, 04/01/10 (a)
- -----------------------------------------------------------------------------------------
Putnam (County of); Refunding
Unlimited Tax Series 2001 GO
- 2,500 2,500 5.25%, 04/01/17 (a)
- -----------------------------------------------------------------------------------------
Robertson & Somner (Counties of)
White House Utility District; Water &
Sewer Series 2000 RB
- 1,000 1,000 6.00%, 01/01/10 (c)(d)
- -----------------------------------------------------------------------------------------
Shelby (County of) Health Educational
& Housing Facilities Board (Kirby
Pines Retirement Community); Health
Care Facilities Series 1997 A RB
- 1,000 1,000 6.25%, 11/15/16
- -----------------------------------------------------------------------------------------
Tennessee (State of) Housing
Development Agency; Homeownership
Progressive Series 1992 RB
- 20 20 6.80%, 07/01/17
=========================================================================================
=========================================================================================
TEXAS -- 21.71%
Allen (City of) Independent School
District; Refunding Unlimited Tax
Series 2000 GO (CEP-Texas Permanent
School Fund)
- 1,600 1,600 5.95%, 02/15/25
- -----------------------------------------------------------------------------------------
Arlington (City of) Independent
School District;
Prerefunded Unlimited Tax Series
1995 GO
(CEP-Texas Permanent School Fund)
- 705 705 5.75%, 02/15/05 (c)(d)
- -----------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1995 GO
(CEP-Texas Permanent School Fund)
- 295 295 5.75%, 02/15/21
- -----------------------------------------------------------------------------------------
Austin (City of); Refunding Hotel
Occupancy Tax Sub. Lien Series 1999 RB
- 1,000 1,000 5.80%, 11/15/29 (a)
- -----------------------------------------------------------------------------------------
Austin (City of) Community College
District; Refunding Combined Fee
Series 1995 RB
- 1,115 1,115 6.10%, 02/01/05 (c)(d)
- -----------------------------------------------------------------------------------------
Austin (City of) Electric Utility
System; Refunding Capital
Appreciation Series 1992 RB
1,400 - 1,400 8.19%, 11/15/11 (a)(g)
- -----------------------------------------------------------------------------------------
Austin (City of) Water & Wastewater
System; Refunding Series 2001 A&B RB
- 1,750 1,750 5.25%, 05/15/31 (a)
- -----------------------------------------------------------------------------------------
MARKET VALUE
---------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
---------------------------------------
TENNESSEE -- 0.93%
Clarksville (City of)
Public Building
Authority (Tennessee
Municipal Bond Fund);
VRD Pooled Financing
Series 1997 RB (LOC-Bank
of America N.A.)
1.15%, 11/01/27 (f)(h) $ - $ 537,000 $ 537,000
- -------------------------------------------------------------------------------------------
Franklin (City of) Industrial
Development Board (Landings Apartment
Project); Multifamily Housing
Refunding Series 1996 A RB
5.75%, 04/01/10 (a) - 877,015 877,015
- -------------------------------------------------------------------------------------------
Putnam (County of); Refunding
Unlimited Tax Series 2001 GO
5.25%, 04/01/17 (a) - 2,760,925 2,760,925
- -------------------------------------------------------------------------------------------
Robertson & Somner (Counties of)
White House Utility District; Water &
Sewer Series 2000 RB
6.00%, 01/01/10 (c)(d) - 1,164,140 1,164,140
- -------------------------------------------------------------------------------------------
Shelby (County of) Health Educational
& Housing Facilities Board (Kirby
Pines Retirement Community); Health
Care Facilities Series 1997 A RB
6.25%, 11/15/16 - 919,310 919,310
- -------------------------------------------------------------------------------------------
Tennessee (State of) Housing
Development Agency; Homeownership
Progressive Series 1992 RB
6.80%, 07/01/17 - 20,205 20,205
==========================================================================================
- 6,278,595 6,278,595
==========================================================================================
TEXAS -- 21.71%
Allen (City of) Independent School
District; Refunding Unlimited Tax
Series 2000 GO (CEP-Texas Permanent
School Fund)
5.95%, 02/15/25 - 1,743,456 1,743,456
- -------------------------------------------------------------------------------------------
Arlington (City of) Independent
School District;
Prerefunded Unlimited Tax Series
1995 GO
(CEP-Texas Permanent School Fund)
5.75%, 02/15/05 (c)(d) - 766,095 766,095
- -------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series
1995 GO
(CEP-Texas Permanent School Fund)
5.75%, 02/15/21 - 312,635 312,635
- -------------------------------------------------------------------------------------------
Austin (City of); Refunding Hotel
Occupancy Tax Sub. Lien Series 1999 RB
5.80%, 11/15/29 (a) - 1,081,200 1,081,200
- -------------------------------------------------------------------------------------------
Austin (City of) Community College
District; Refunding Combined Fee
Series 1995 RB
6.10%, 02/01/05 (c)(d) - 1,217,435 1,217,435
- -------------------------------------------------------------------------------------------
Austin (City of) Electric Utility
System; Refunding Capital
Appreciation Series 1992 RB
8.19%, 11/15/11 (a)(g) 971,110 - 971,110
- -------------------------------------------------------------------------------------------
Austin (City of) Water & Wastewater
System; Refunding Series 2001 A&B RB
5.25%, 05/15/31 (a) - 1,785,158 1,785,158
- -------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Bellville (City of) Independent School District;
Prerefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
$ - $ 535 $ 535 6.13%, 02/01/06 (c)(d)
- --------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
- 295 295 6.13%, 02/01/20
- --------------------------------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Dymaxion & Monarch Park Apartments);
Multifamily Housing Series 2000 A RB
- 1,000 1,000 6.10%, 08/01/30 (a)
- --------------------------------------------------------------------------------------------
Bexar (County of) Metropolitan Water District;
Lease Purchase Series 2001 RB
- 601 601 5.53%, 07/20/06 (e)
- --------------------------------------------------------------------------------------------
Brazos (County of) Health Facilities
Development Corp. (Franciscan Services Corp.);
Series 1997 A RB
- 1,250 1,250 5.38%, 01/01/22 (a)
- --------------------------------------------------------------------------------------------
Carroll (City of) Independent School District;
Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
- 1,350 1,350 5.25%, 02/15/33
- --------------------------------------------------------------------------------------------
Carrollton (City of); Limited Tax Series 1996 GO
(CEP-Texas Permanent School Fund)
- 1,000 1,000 5.75%, 08/15/06 (c)(d)
- --------------------------------------------------------------------------------------------
Cisco (City of) Jr. College District;
Refunding Consolidated Series 2002 RB
- 1,000 1,000 5.25%, 07/01/26 (a)
- --------------------------------------------------------------------------------------------
Cleveland (City of) Independent School District;
Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
- 2,000 2,000 5.13%, 02/01/31
--------------------------------------------------------------------------------------------
Comal (County of) Independent School District;
Refunding Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
- 1,000 1,000 5.75%, 08/01/28
- --------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
1,000 1,000 2,000 5.25%, 02/01/28
- --------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
- 1,500 1,500 5.00%, 02/01/28
- --------------------------------------------------------------------------------------------
Denton (City of) Utility System; Series 2000
A RB
1,000 - 1,000 5.40%, 12/01/13 (a)
- --------------------------------------------------------------------------------------------
DeSoto (City of) Independent School District;
Refunding Unlimited Tax Series 1998 GO
(CEP-Texas Permanent School Fund)
- 1,000 1,000 5.13%, 08/15/17
- --------------------------------------------------------------------------------------------
Galena Park (City of) Independent School
District; Refunding Capital Appreciation
Unlimited Tax Series 1996 GO (CEP-Texas
Permanent School Fund)
2,000 - 2,000 5.89%, 08/15/23 (g)
- --------------------------------------------------------------------------------------------
Georgetown (City of) Utility System;
Series 1995 A RB
- 1,500 1,500 6.20%, 08/15/05 (c)(d)
- --------------------------------------------------------------------------------------------
Grapevine (City of); Limited Tax Series 2000 GO
Ctfs.
- 1,610 1,610 5.88%, 08/15/26 (a)
- --------------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Bellville (City of) Independent School District;
Prerefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
6.13%, 02/01/06 (c)(d) $ - $ 602,201 602,201
- ----------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1995 GO
(CEP-Texas Permanent School Fund)
6.13%, 02/01/20 - 326,780 326,780
- ----------------------------------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Dymaxion & Monarch Park Apartments);
Multifamily Housing Series 2000 A RB
6.10%, 08/01/30 (a) - 1,049,170 1,049,170
- ----------------------------------------------------------------------------------------------
Bexar (County of) Metropolitan Water District;
Lease Purchase Series 2001 RB
5.53%, 07/20/06 (e) - 635,477 635,477
- ----------------------------------------------------------------------------------------------
Brazos (County of) Health Facilities
Development Corp. (Franciscan Services Corp.);
Series 1997 A RB
5.38%, 01/01/22 (a) - 1,284,325 1,284,325
- ----------------------------------------------------------------------------------------------
Carroll (City of) Independent School District;
Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.25%, 02/15/33 - 1,377,432 1,377,432
- ----------------------------------------------------------------------------------------------
Carrollton (City of); Limited Tax Series 1996 GO
(CEP-Texas Permanent School Fund)
5.75%, 08/15/06 (c)(d) - 1,132,960 1,132,960
- ----------------------------------------------------------------------------------------------
Cisco (City of) Jr. College District;
Refunding Consolidated Series 2002 RB
5.25%, 07/01/26 (a) - 1,026,080 1,026,080
- ----------------------------------------------------------------------------------------------
Cleveland (City of) Independent School District;
Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.13%, 02/01/31 - 2,018,900 2,018,900
- ----------------------------------------------------------------------------------------------
Comal (County of) Independent School District;
Refunding Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
5.75%, 08/01/28 - 1,084,280 1,084,280
- ----------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.25%, 02/01/28 1,022,320 1,023,570 2,045,890
- ----------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
5.00%, 02/01/28 - 1,500,975 1,500,975
- ----------------------------------------------------------------------------------------------
Denton (City of) Utility System; Series 2000
A RB
5.40%, 12/01/13 (a) 1,091,930 - 1,091,930
- ----------------------------------------------------------------------------------------------
DeSoto (City of) Independent School District;
Refunding Unlimited Tax Series 1998 GO
(CEP-Texas Permanent School Fund)
5.13%, 08/15/17 - 1,000,590 1,000,590
- ----------------------------------------------------------------------------------------------
Galena Park (City of) Independent School
District; Refunding Capital Appreciation
Unlimited Tax Series 1996 GO (CEP-Texas
Permanent School Fund)
5.89%, 08/15/23 (g) 674,120 - 674,120
- ----------------------------------------------------------------------------------------------
Georgetown (City of) Utility System;
Series 1995 A RB
6.20%, 08/15/05 (c)(d) - 1,676,205 1,676,205
- ----------------------------------------------------------------------------------------------
Grapevine (City of); Limited Tax Series 2000 GO
Ctfs.
5.88%, 08/15/26 (a) - 1,755,367 1,755,367
- ----------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Harris (County of); Refunding Limited Tax Series
2002 GO
$ 1,000 $ 1,000 $ 2,000 5.13%, 08/15/31
- --------------------------------------------------------------------------------------------
Harris (County of) Health Facilities Development
Corp. (Memorial Hermann Health Care Project);
Hospital Series 2001 A RB
- 750 750 6.38%, 06/01/29
- --------------------------------------------------------------------------------------------
Harris (County of) Health Facilities Development
Corp. (St. Luke's Episcopal Hospital Project);
Series 1991 RB
- 1,000 1,000 6.70%, 02/15/03 (c)(d)
- --------------------------------------------------------------------------------------------
Series 2001 A RB
- 1,000 1,000 5.38%, 02/15/26
- --------------------------------------------------------------------------------------------
Series 2002 RB
1,000 1,000 2,000 5.13%, 02/15/32
- --------------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Childrens' Hospital
Project); Hospital Series 1999 A RB
- 2,000 2,000 5.25%, 10/01/29
- --------------------------------------------------------------------------------------------
Harris (County of) Houston Sports Authority;
Refunding Jr. Lien Series 2001 B RB
2,000 3,000 5,000 5.25%, 11/15/40 (a)
- --------------------------------------------------------------------------------------------
Harris (County of) Mental Health and Mental
Retardation Authority; Refunding Series 1992 RB
- 4,500 4,500 6.25%, 09/15/10 (a)
- --------------------------------------------------------------------------------------------
Houston (City of) Airport System; Sub. Lien
Series 2000 B RB
- 1,000 1,000 5.50%, 07/01/30 (a)
- --------------------------------------------------------------------------------------------
Houston (City of) Water & Sewer System; Jr.
Lien Series 1997 C RB
- 2,495 2,495 5.38%, 12/01/27 (a)
- --------------------------------------------------------------------------------------------
Hurst-Euless-Bedford Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
- 640 640 6.50%, 08/15/04 (c)(d)
- --------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
- 360 360 6.50%, 08/15/24
- --------------------------------------------------------------------------------------------
Jefferson (County of); Refunding Limited Tax
Series 2002 GO
3,220 - 3,220 5.25%, 08/01/25 (a)
- --------------------------------------------------------------------------------------------
Katy (City of) Independent School District;
Limited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
- 1,500 1,500 6.13%, 02/15/32
- --------------------------------------------------------------------------------------------
Unlimited Tax Series 2001 B GO
(CEP-Texas Permanent School Fund)
- 3,000 3,000 5.00%, 02/15/32
- --------------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
- 2,000 2,000 5.25%, 08/15/26
- --------------------------------------------------------------------------------------------
Series 1994 COP
- 770 770 6.00%, 08/15/05 (a)
- --------------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Harris (County of); Refunding Limited Tax Series
2002 GO
5.13%, 08/15/31 $1,005,100 $1,006,350 $ 2,011,450
- ----------------------------------------------------------------------------------------------
Harris (County of) Health Facilities Development
Corp. (Memorial Hermann Health Care Project);
Hospital Series 2001 A RB
6.38%, 06/01/29 - 793,928 793,928
- ----------------------------------------------------------------------------------------------
Harris (County of) Health Facilities Development
Corp. (St. Luke's Episcopal Hospital Project);
Series 1991 RB
6.70%, 02/15/03 (c)(d) - 1,001,560 1,001,560
- ----------------------------------------------------------------------------------------------
Series 2001 A RB
5.38%, 02/15/26 - 1,005,070 1,005,070
- ----------------------------------------------------------------------------------------------
Series 2002 RB
5.13%, 02/15/32 976,050 978,550 1,954,600
- ----------------------------------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Texas Childrens' Hospital
Project); Hospital Series 1999 A RB
5.25%, 10/01/29 - 2,015,080 2,015,080
- ----------------------------------------------------------------------------------------------
Harris (County of) Houston Sports Authority;
Refunding Jr. Lien Series 2001 B RB
5.25%, 11/15/40 (a) 2,024,000 3,039,750 5,063,750
- ----------------------------------------------------------------------------------------------
Harris (County of) Mental Health and Mental
Retardation Authority; Refunding Series 1992 RB
6.25%, 09/15/10 (a) - 4,523,310 4,523,310
- ----------------------------------------------------------------------------------------------
Houston (City of) Airport System; Sub. Lien
Series 2000 B RB
5.50%, 07/01/30 (a) - 1,035,580 1,035,580
- ----------------------------------------------------------------------------------------------
Houston (City of) Water & Sewer System; Jr.
Lien Series 1997 C RB
5.38%, 12/01/27 (a) - 2,585,593 2,585,593
- ----------------------------------------------------------------------------------------------
Hurst-Euless-Bedford Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.50%, 08/15/04 (c)(d) - 691,603 691,603
- ----------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.50%, 08/15/24 - 385,780 385,780
- ----------------------------------------------------------------------------------------------
Jefferson (County of); Refunding Limited Tax
Series 2002 GO
5.25%, 08/01/25 (a) 3,303,108 - 3,303,108
- ----------------------------------------------------------------------------------------------
Katy (City of) Independent School District;
Limited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
6.13%, 02/15/32 - 1,655,700 1,655,700
- ----------------------------------------------------------------------------------------------
Unlimited Tax Series 2001 B GO
(CEP-Texas Permanent School Fund)
5.00%, 02/15/32 - 2,990,820 2,990,820
- ----------------------------------------------------------------------------------------------
Keller (City of) Independent School District;
Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.25%, 08/15/26 - 2,053,900 2,053,900
- ----------------------------------------------------------------------------------------------
Series 1994 COP
6.00%, 08/15/05 (a) - 854,007 854,007
- ----------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Laredo (City of) Community College District;
Limited Tax Series 2002 GO
$ 1,000 $ - $ 1,000 5.25%, 08/01/27 (a)
- --------------------------------------------------------------------------------------------
- 1,000 1,000 5.25%, 08/01/32 (a)
- --------------------------------------------------------------------------------------------
Little Elm (City of) Independent School
District;
Refunding Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
1,500 2,500 4,000 6.00%, 08/15/35
- --------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
- 1,000 1,000 6.13%, 08/15/35
- --------------------------------------------------------------------------------------------
Lockhart (City of) Tax and Utility Systems;
Limited Tax Series 1996 GO Ctfs. (CEP-Texas
Permanent School Fund)
- 605 605 5.85%, 08/01/11 (a)
- --------------------------------------------------------------------------------------------
- 1,100 1,100 5.90%, 08/01/06 (c)(d)
- --------------------------------------------------------------------------------------------
Lubbock (City of) Health Facilities
Development Corp. (St. Joseph Health System);
Series 1998 RB
2,000 - 2,000 5.25%, 07/01/13
- --------------------------------------------------------------------------------------------
Matagorda (County of) Navigation District No. 1
(Reliant Energy Project); Refunding Series 1999
B RB
- 2,000 2,000 5.95%, 05/01/30 (b)
- --------------------------------------------------------------------------------------------
Montgomery (County of); Limited Tax Series 2000
GO
1,000 - 1,000 5.25%, 09/01/20 (a)
- --------------------------------------------------------------------------------------------
Nacogdoches (City of) Independent School
District; Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
1,000 1,765 2,765 5.30%, 02/15/25
- --------------------------------------------------------------------------------------------
North Central Texas Health Facility Development
Corp. (Texas Health Resources System); Series
1997 B RB
2,000 - 2,000 5.75%, 02/15/12 (a)
- --------------------------------------------------------------------------------------------
North Texas Higher Education Authority Inc.;
Student Loan Series 1993 C RB
(CEP-Texas Permanent School Fund)
- 1,000 1,000 6.10%, 04/01/08 (b)
- --------------------------------------------------------------------------------------------
Student Loan Series 1993 D RB
(CEP-Texas Permanent School Fund)
- 500 500 6.30%, 04/01/09 (b)
- --------------------------------------------------------------------------------------------
Northside Independent School District; Unlimited
Tax Series 1999 A GO (CEP-Texas Permanent School
Fund)
- 1,000 1,000 5.50%, 08/15/24
- --------------------------------------------------------------------------------------------
Nueces River Authority (Corpus Christi Lake
Project); Water Supply Facilities Series 1997 RB
1,900 - 1,900 5.50%, 03/01/27 (a)
- --------------------------------------------------------------------------------------------
Pasadena (City of); Limited Tax Series 2002 GO
Ctfs.
- 2,000 2,000 5.25%, 04/01/32 (a)
- --------------------------------------------------------------------------------------------
Pflugerville (City of) Independent School
District; Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
- 1,615 1,615 5.50%, 08/15/23
- --------------------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000 GO
- 850 850 5.88%, 09/01/19
- --------------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Laredo (City of) Community College District;
Limited Tax Series 2002 GO
5.25%, 08/01/27 (a) $1,024,290 $ - $ 1,024,290
- ----------------------------------------------------------------------------------------------
5.25%, 08/01/32 (a) - 1,022,490 1,022,490
- ----------------------------------------------------------------------------------------------
Little Elm (City of) Independent School
District;
Refunding Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
6.00%, 08/15/35 1,654,470 2,760,575 4,415,045
- ----------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
6.13%, 08/15/35 - 1,115,610 1,115,610
- ----------------------------------------------------------------------------------------------
Lockhart (City of) Tax and Utility Systems;
Limited Tax Series 1996 GO Ctfs. (CEP-Texas
Permanent School Fund)
5.85%, 08/01/11 (a) - 676,178 676,178
- ----------------------------------------------------------------------------------------------
5.90%, 08/01/06 (c)(d) - 1,252,251 1,252,251
- ----------------------------------------------------------------------------------------------
Lubbock (City of) Health Facilities
Development Corp. (St. Joseph Health System);
Series 1998 RB
5.25%, 07/01/13 2,083,860 - 2,083,860
- ----------------------------------------------------------------------------------------------
Matagorda (County of) Navigation District No. 1
(Reliant Energy Project); Refunding Series 1999
B RB
5.95%, 05/01/30 (b) - 1,632,160 1,632,160
- ----------------------------------------------------------------------------------------------
Montgomery (County of); Limited Tax Series 2000
GO
5.25%, 09/01/20 (a) 1,044,430 - 1,044,430
- ----------------------------------------------------------------------------------------------
Nacogdoches (City of) Independent School
District; Refunding Unlimited Tax Series 2001 GO
(CEP-Texas Permanent School Fund)
5.30%, 02/15/25 1,029,030 1,818,444 2,847,474
- ----------------------------------------------------------------------------------------------
North Central Texas Health Facility Development
Corp. (Texas Health Resources System); Series
1997 B RB
5.75%, 02/15/12 (a) 2,226,080 - 2,226,080
- ----------------------------------------------------------------------------------------------
North Texas Higher Education Authority Inc.;
Student Loan Series 1993 C RB
(CEP-Texas Permanent School Fund)
6.10%, 04/01/08 (b) - 1,023,090 1,023,090
- ----------------------------------------------------------------------------------------------
Student Loan Series 1993 D RB
(CEP-Texas Permanent School Fund)
6.30%, 04/01/09 (b) - 511,400 511,400
- ----------------------------------------------------------------------------------------------
Northside Independent School District; Unlimited
Tax Series 1999 A GO (CEP-Texas Permanent School
Fund)
5.50%, 08/15/24 - 1,049,090 1,049,090
- ----------------------------------------------------------------------------------------------
Nueces River Authority (Corpus Christi Lake
Project); Water Supply Facilities Series 1997 RB
5.50%, 03/01/27 (a) 1,953,238 - 1,953,238
- ----------------------------------------------------------------------------------------------
Pasadena (City of); Limited Tax Series 2002 GO
Ctfs.
5.25%, 04/01/32 (a) - 2,041,080 2,041,080
- ----------------------------------------------------------------------------------------------
Pflugerville (City of) Independent School
District; Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
5.50%, 08/15/23 - 1,708,686 1,708,686
- ----------------------------------------------------------------------------------------------
Plano (City of); Limited Tax Series 2000 GO
5.88%, 09/01/19 - 947,334 947,334
- ----------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Richardson (City of);
Limited Tax Series 2000 A GO Ctfs.
$ - $ 2,000 $ 2,000 5.75%, 02/15/21 (a)
- -----------------------------------------------------------------------------------------
Limited Tax Series 2001 GO Ctfs.
- 1,720 1,720 5.00%, 02/15/19
- -----------------------------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Richardson Medical Center); Unrefunded
Hospital Series 1993 RB
- 785 785 6.50%, 12/01/12
- -----------------------------------------------------------------------------------------
- 1,000 1,000 6.75%, 12/01/23
- -----------------------------------------------------------------------------------------
San Angelo (City of) Waterworks & Sewer System;
Refunding & Improvement Series 2001 RB
- 1,000 1,000 5.25%, 04/01/19 (a)
- -----------------------------------------------------------------------------------------
San Antonio (City of);
Limited Tax Series 2000 A GO
1,185 - 1,185 5.38%, 02/01/19
- -----------------------------------------------------------------------------------------
Refunding Water Series 1999 RB
1,000 - 1,000 5.88%, 05/15/18
- -----------------------------------------------------------------------------------------
San Antonio (City of) Independent School
District; Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
- 3,500 3,500 5.50%, 08/15/24
- -----------------------------------------------------------------------------------------
Schertz-Cibolo-Universal City Independent School
District;
Refunding Unlimited Tax Building Series 2001
GO
(CEP-Texas Permanent School Fund)
- 1,535 1,535 5.13%, 08/01/25
- -----------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
- 750 750 5.00%, 08/01/23
- -----------------------------------------------------------------------------------------
Spring Branch Independent School District;
Limited Tax Series 2000 GO (CEP-Texas Permanent
School Fund)
3,300 1,700 5,000 5.75%, 02/01/24
- -----------------------------------------------------------------------------------------
Texas (State of) (Veteran's Land); Unlimited Tax
Series 1994 GO
- 2,000 2,000 6.40%, 12/01/24 (b)
- -----------------------------------------------------------------------------------------
Texas (State of) (Water Development);
Refunding Unlimited Tax Series 2001 A GO
- 1,840 1,840 5.25%, 08/01/35
- -----------------------------------------------------------------------------------------
Texas (State of) (Water Financial Assistance);
Unlimited Tax Series 1999 GO
1,500 - 1,500 5.50%, 08/01/24
- -----------------------------------------------------------------------------------------
Unlimited Tax Series 2002 GO
- 1,000 1,000 5.00%, 08/01/23
- -----------------------------------------------------------------------------------------
Texas (State of) Department of Housing &
Community Affairs (Asmara Affordable Housing
Inc. Project); Multifamily Housing Series 1996 A
RB
- 310 310 6.30%, 01/01/16
- -----------------------------------------------------------------------------------------
Texas (State of) Public Property Finance Corp.
(Mental Health & Mental Retardation); Series
1996 RB
- 735 735 6.20%, 09/01/16
- -----------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Richardson (City of);
Limited Tax Series 2000 A GO Ctfs.
5.75%, 02/15/21 (a) $ - $2,167,960 $ 2,167,960
- ----------------------------------------------------------------------------------------------
Limited Tax Series 2001 GO Ctfs.
5.00%, 02/15/19 - 1,762,243 1,762,243
- ----------------------------------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Richardson Medical Center); Unrefunded
Hospital Series 1993 RB
6.50%, 12/01/12 - 815,144 815,144
- ----------------------------------------------------------------------------------------------
6.75%, 12/01/23 - 1,030,490 1,030,490
- ----------------------------------------------------------------------------------------------
San Angelo (City of) Waterworks & Sewer System;
Refunding & Improvement Series 2001 RB
5.25%, 04/01/19 (a) - 1,049,270 1,049,270
- ----------------------------------------------------------------------------------------------
San Antonio (City of);
Limited Tax Series 2000 A GO
5.38%, 02/01/19 1,243,527 - 1,243,527
- ----------------------------------------------------------------------------------------------
Refunding Water Series 1999 RB
5.88%, 05/15/18 1,105,910 - 1,105,910
- ----------------------------------------------------------------------------------------------
San Antonio (City of) Independent School
District; Unlimited Tax Series 1999 GO
(CEP-Texas Permanent School Fund)
5.50%, 08/15/24 - 3,671,815 3,671,815
- ----------------------------------------------------------------------------------------------
Schertz-Cibolo-Universal City Independent School
District;
Refunding Unlimited Tax Building Series 2001
GO
(CEP-Texas Permanent School Fund)
5.13%, 08/01/25 - 1,559,806 1,559,806
- ----------------------------------------------------------------------------------------------
Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
5.00%, 08/01/23 - 756,188 756,188
- ----------------------------------------------------------------------------------------------
Spring Branch Independent School District;
Limited Tax Series 2000 GO (CEP-Texas Permanent
School Fund)
5.75%, 02/01/24 3,561,393 1,836,782 5,398,175
- ----------------------------------------------------------------------------------------------
Texas (State of) (Veteran's Land); Unlimited Tax
Series 1994 GO
6.40%, 12/01/24 (b) - 2,155,500 2,155,500
- ----------------------------------------------------------------------------------------------
Texas (State of) (Water Development);
Refunding Unlimited Tax Series 2001 A GO
5.25%, 08/01/35 - 1,876,598 1,876,598
- ----------------------------------------------------------------------------------------------
Texas (State of) (Water Financial Assistance);
Unlimited Tax Series 1999 GO
5.50%, 08/01/24 1,577,415 - 1,577,415
- ----------------------------------------------------------------------------------------------
Unlimited Tax Series 2002 GO
5.00%, 08/01/23 - 1,006,760 1,006,760
- ----------------------------------------------------------------------------------------------
Texas (State of) Department of Housing &
Community Affairs (Asmara Affordable Housing
Inc. Project); Multifamily Housing Series 1996 A
RB
6.30%, 01/01/16 - 317,294 317,294
- ----------------------------------------------------------------------------------------------
Texas (State of) Public Property Finance Corp.
(Mental Health & Mental Retardation); Series
1996 RB
6.20%, 09/01/16 - 739,072 739,072
- ----------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Texas (State of) Turnpike Authority; First Tier
Turnpike System Series 2002 A RB
$ - $ 1,000 $ 1,000 5.50%, 08/15/39 (a)
- --------------------------------------------------------------------------------------------
Town Center Improvement District; Sales & Hotel
Occupancy Tax Series 2001 RB
2,500 - 2,500 5.13%, 03/01/21 (a)
- --------------------------------------------------------------------------------------------
- 1,000 1,000 5.13%, 03/01/23 (a)
- --------------------------------------------------------------------------------------------
- 2,800 2,800 5.25%, 03/01/27 (a)
- --------------------------------------------------------------------------------------------
- 1,725 1,725 5.50%, 03/01/13 (a)
- --------------------------------------------------------------------------------------------
Tyler (City of) Health Facilities Development
Corp. (Mother Frances Hospital); Hospital Series
1997 A RB
- 1,000 1,000 5.63%, 07/01/13
- --------------------------------------------------------------------------------------------
United Independent School District; Unlimited
Tax Series 2000 GO (CEP-Texas Permanent School
Fund)
- 1,000 1,000 5.13%, 08/15/26
- --------------------------------------------------------------------------------------------
University of Texas Financing System; Series
1999 B RB
- 1,000 1,000 5.70%, 08/15/09 (c)(d)
- --------------------------------------------------------------------------------------------
Victoria (County of) (Citizens Medical Center);
Hospital Series 1994 RB
- 1,000 1,000 6.20%, 01/01/10 (a)
- --------------------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
1,400 2,000 3,400 5.25%, 08/15/26
- --------------------------------------------------------------------------------------------
2,890 - 2,890 5.25%, 08/15/30
- --------------------------------------------------------------------------------------------
1,000 1,000 2,000 5.38%, 08/15/27
- --------------------------------------------------------------------------------------------
Weatherford (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
- 900 900 6.40%, 02/15/05 (c)(d)
- --------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
- 100 100 6.40%, 02/15/12
- --------------------------------------------------------------------------------------------
West University Place; Limited Tax Series
2000 GO
1,000 - 1,000 5.30%, 02/01/18 (a)
- --------------------------------------------------------------------------------------------
2,150 - 2,150 5.35%, 02/01/20 (a)
- --------------------------------------------------------------------------------------------
Ysleta (City of) Independent School District
Public Facility Corp.; Refunding Lease Series
2001 RB
- 1,300 1,300 5.38%, 11/15/24 (a)
===============================================================================================
===============================================================================================
UTAH -- 1.39%
Intermountain Power Agency;
Power Supply Series 1995 B RB
- 2,000 2,000 5.00%, 07/01/16 (c)(d)
- --------------------------------------------------------------------------------------------
Unrefunded Power Supply Series 1995 B RB
- 1,150 1,150 5.00%, 07/01/16
- --------------------------------------------------------------------------------------------
Salt Lake (County of) (Westminster College
Project); Series 1997 RB
- 1,000 1,000 5.75%, 10/01/27
- --------------------------------------------------------------------------------------------
South Jordan (City of); Sales Tax Series 2001 RB
- 1,500 1,500 5.20%, 08/15/26 (a)
- --------------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
TEXAS -- (CONTINUED)
Texas (State of) Turnpike Authority; First Tier
Turnpike System Series 2002 A RB
5.50%, 08/15/39 (a) $ - $ 1,052,230 $ 1,052,230
- ----------------------------------------------------------------------------------------------
Town Center Improvement District; Sales & Hotel
Occupancy Tax Series 2001 RB
5.13%, 03/01/21 (a) 2,560,725 - 2,560,725
- ----------------------------------------------------------------------------------------------
5.13%, 03/01/23 (a) - 1,015,480 1,015,480
- ----------------------------------------------------------------------------------------------
5.25%, 03/01/27 (a) - 2,862,720 2,862,720
- ----------------------------------------------------------------------------------------------
5.50%, 03/01/13 (a) - 1,901,951 1,901,951
- ----------------------------------------------------------------------------------------------
Tyler (City of) Health Facilities Development
Corp. (Mother Frances Hospital); Hospital Series
1997 A RB
5.63%, 07/01/13 - 1,000,700 1,000,700
- ----------------------------------------------------------------------------------------------
United Independent School District; Unlimited
Tax Series 2000 GO (CEP-Texas Permanent School
Fund)
5.13%, 08/15/26 - 1,016,190 1,016,190
- ----------------------------------------------------------------------------------------------
University of Texas Financing System; Series
1999 B RB
5.70%, 08/15/09 (c)(d) - 1,157,690 1,157,690
- ----------------------------------------------------------------------------------------------
Victoria (County of) (Citizens Medical Center);
Hospital Series 1994 RB
6.20%, 01/01/10 (a) - 1,058,250 1,058,250
- ----------------------------------------------------------------------------------------------
Waxahachie (City of) Independent School
District; Refunding Unlimited Tax Series 2002 GO
(CEP-Texas Permanent School Fund)
5.25%, 08/15/26 1,435,980 2,053,900 3,489,880
- ----------------------------------------------------------------------------------------------
5.25%, 08/15/30 2,954,129 - 2,954,129
- ----------------------------------------------------------------------------------------------
5.38%, 08/15/27 1,037,880 1,039,130 2,077,010
- ----------------------------------------------------------------------------------------------
Weatherford (City of) Independent School
District;
Prerefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.40%, 02/15/05 (c)(d) - 989,649 989,649
- ----------------------------------------------------------------------------------------------
Unrefunded Unlimited Tax Series 1994 GO
(CEP-Texas Permanent School Fund)
6.40%, 02/15/12 - 108,554 108,554
- ----------------------------------------------------------------------------------------------
West University Place; Limited Tax Series
2000 GO
5.30%, 02/01/18 (a) 1,057,320 - 1,057,320
- ----------------------------------------------------------------------------------------------
5.35%, 02/01/20 (a) 2,238,838 - 2,238,838
- ----------------------------------------------------------------------------------------------
Ysleta (City of) Independent School District
Public Facility Corp.; Refunding Lease Series
2001 RB
5.38%, 11/15/24 (a) - 1,335,035 1,335,035
==============================================================================================
40,856,253 105,911,661 146,767,914
==============================================================================================
UTAH -- 1.39%
Intermountain Power Agency;
Power Supply Series 1995 B RB
5.00%, 07/01/16 (c)(d) - 2,008,240 2,008,240
- ----------------------------------------------------------------------------------------------
Unrefunded Power Supply Series 1995 B RB
5.00%, 07/01/16 - 1,153,255 1,153,255
- ----------------------------------------------------------------------------------------------
Salt Lake (County of) (Westminster College
Project); Series 1997 RB
5.75%, 10/01/27 - 1,022,150 1,022,150
- ----------------------------------------------------------------------------------------------
South Jordan (City of); Sales Tax Series 2001 RB
5.20%, 08/15/26 (a) - 1,527,900 1,527,900
- ----------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
UTAH -- (CONTINUED)
Utah (State of) Housing Finance Agency;
Single Family Mortgage Series 1994 D-1 RB
$ 145 $ - $ 145 6.45%, 07/01/11
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 C RB
- 90 90 6.05%, 07/01/06
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 E-1 RB
- 60 60 6.30%, 07/01/06
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 G-1 RB
- 20 20 7.15%, 07/01/06
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 2000 B-1 RB
- 665 665 6.00%, 07/01/10 (b)
- -----------------------------------------------------------------------------------------------
Sr. Single Family Mortgage Series 1995 G-2 RB
- 480 480 6.45%, 07/01/27 (b)
- -----------------------------------------------------------------------------------------------
Utah (State of) Transit Authority; Sales Tax
Series 2002 A RB
- 1,105 1,105 5.00%, 06/15/25 (a)
- -----------------------------------------------------------------------------------------------
West Valley City; Sales Tax Series 2002 A RB
1,035 - 1,035 5.00%, 07/15/19 (a)
===============================================================================================
===============================================================================================
VERMONT -- 0.27%
Vermont (State of) Educational & Health
Buildings Financing Agency (Fletcher Allen
Health Care); Hospital Series 2000 A RB
- 1,000 1,000 6.00%, 12/01/23 (a)
- -----------------------------------------------------------------------------------------------
Vermont (State of) Housing Finance Agency;
Single Family Housing Series 1994 5 RB
645 - 645 6.88%, 11/01/16 (b)
===============================================================================================
===============================================================================================
VIRGIN ISLANDS -- 0.08%
Virgin Islands (Territory of) Public Finance
Authority (Gross Receipts Taxes Loan Notes);
Series 1999 A RB
- 500 500 6.13%, 10/01/29 (a)
===============================================================================================
VIRGINIA -- 1.35%
Fauquier (County of) Individual Development
Authority; Hospital Series 2002 RB
500 - 500 5.50%, 10/01/17
- -----------------------------------------------------------------------------------------------
Fauquier (County of) Industrial Development
Authority (Fauquier Hospital Foundation, Inc.);
Hospital Series 2002 RB
- 1,000 1,000 5.25%, 10/01/31
- -----------------------------------------------------------------------------------------------
Fredericksburg (City of) Industrial Development
Authority (Medicorp. Health System); Series 2002
B RB
- 250 250 5.13%, 06/15/33
- -----------------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
UTAH -- (CONTINUED)
Utah (State of) Housing Finance Agency;
Single Family Mortgage Series 1994 D-1 RB
6.45%, 07/01/11 $ 150,617 $ - $ 150,617
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 C RB
6.05%, 07/01/06 - 95,492 95,492
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 E-1 RB
6.30%, 07/01/06 - 63,878 63,878
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 1994 G-1 RB
7.15%, 07/01/06 - 20,727 20,727
- -----------------------------------------------------------------------------------------------
Single Family Mortgage Sub-Series 2000 B-1 RB
6.00%, 07/01/10 (b) - 698,749 698,749
- -----------------------------------------------------------------------------------------------
Sr. Single Family Mortgage Series 1995 G-2 RB
6.45%, 07/01/27 (b) - 497,261 497,261
- -----------------------------------------------------------------------------------------------
Utah (State of) Transit Authority; Sales Tax
Series 2002 A RB
5.00%, 06/15/25 (a) - 1,110,061 1,110,061
- -----------------------------------------------------------------------------------------------
West Valley City; Sales Tax Series 2002 A RB
5.00%, 07/15/19 (a) 1,067,509 - 1,067,509
===============================================================================================
1,218,126 8,197,713 9,415,839
===============================================================================================
VERMONT -- 0.27%
Vermont (State of) Educational & Health
Buildings Financing Agency (Fletcher Allen
Health Care); Hospital Series 2000 A RB
6.00%, 12/01/23 (a) - 1,121,840 1,121,840
- -----------------------------------------------------------------------------------------------
Vermont (State of) Housing Finance Agency;
Single Family Housing Series 1994 5 RB
6.88%, 11/01/16 (b) 667,272 - 667,272
===============================================================================================
667,272 1,121,840 1,789,112
===============================================================================================
VIRGIN ISLANDS -- 0.08%
Virgin Islands (Territory of) Public Finance
Authority (Gross Receipts Taxes Loan Notes);
Series 1999 A RB
6.13%, 10/01/29 (a) - 538,800 538,800
===============================================================================================
VIRGINIA -- 1.35%
Fauquier (County of) Individual Development
Authority; Hospital Series 2002 RB
5.50%, 10/01/17 539,120 - 539,120
- -----------------------------------------------------------------------------------------------
Fauquier (County of) Industrial Development
Authority (Fauquier Hospital Foundation, Inc.);
Hospital Series 2002 RB
5.25%, 10/01/31 - 1,017,390 1,017,390
- -----------------------------------------------------------------------------------------------
Fredericksburg (City of) Industrial Development
Authority (Medicorp. Health System); Series 2002
B RB
5.13%, 06/15/33 - 245,638 245,638
- -----------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
VIRGINIA -- (CONTINUED)
Henrico (County of) Economic Development
Authority (Virginia United Methodist Homes
Inc.); Refunding
Residential Care Facility Series 2002 A RB
$ 1,000 $ 1,000 $ 2,000 6.50%, 06/01/22
- -----------------------------------------------------------------------------------------------
Norton (City) Industrial Development Authority
(Norton Community Hospital); Refunding &
Improvement Hospital Series 2001 RB
- 1,000 1,000 6.00%, 12/01/22 (a)
- -----------------------------------------------------------------------------------------------
Virginia (State of) Commonwealth Transportation
Board (Federal Highway Reimbursement Notes);
Series 2002 RB
1,500 - 1,500 5.00%, 10/01/06
- -----------------------------------------------------------------------------------------------
Virginia (State of) Housing Development
Authority; Series 2000 D RB
1,500 - 1,500 5.70%, 04/01/11 (b)
- -----------------------------------------------------------------------------------------------
Virginia (State of) Resources Authority
(Goochland County Tuckahoe Creek Service
District Project); Water & Sewer System Series
2002 RB
- 1,000 1,000 5.00%, 11/01/35
===============================================================================================
===============================================================================================
WASHINGTON -- 1.60%
Clark (County of) School District No. 117;
Unlimited Tax Series 1995 GO
- 1,000 1,000 6.00%, 12/01/05 (c)(d)
- -----------------------------------------------------------------------------------------------
King (County of);
Sewer Series 1999 RB
- 1,000 1,000 5.50%, 01/01/22 (a)
- -----------------------------------------------------------------------------------------------
Unlimited Tax Series 1969 GO
- 490 490 5.50%, 07/01/07 (c)(d)
- -----------------------------------------------------------------------------------------------
Pend Oreille (County of) Public Utility District
No. 1; Electric Series 1996 B RB
- 1,400 1,400 6.30%, 01/01/17
- -----------------------------------------------------------------------------------------------
Pierce (County of) School District No. 416 White
River; Unlimited Tax Series 2000 GO
1,550 - 1,550 5.35%, 12/01/09
- -----------------------------------------------------------------------------------------------
Washington (State of) Health Care Facilities
Authority (Providence Health System Project);
Series 2001 RB
1,000 1,000 2,000 5.25%, 10/01/21 (a)
- -----------------------------------------------------------------------------------------------
Washington (State of) Public Power Supply System
(Nuclear Project No. 1); Refunding Series 1996 A
RB
- 2,000 2,000 5.75%, 07/01/12 (a)
- -----------------------------------------------------------------------------------------------
West Richland (City of); Water & Sewer Series
1994 RB
- 500 500 7.00%, 12/01/04 (c)(d)
===============================================================================================
===============================================================================================
WISCONSIN -- 1.62%
Adams-Friendship Area School District; Refunding
Unlimited Tax Series 1996 GO Wts.
1,340 - 1,340 6.50%, 04/01/15 (a)
- -----------------------------------------------------------------------------------------------
MARKET VALUE
-------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
VIRGINIA -- (CONTINUED)
Henrico (County of) Economic Development
Authority (Virginia United Methodist Homes
Inc.); Refunding
Residential Care Facility Series 2002 A RB
6.50%, 06/01/22 $ 985,470 $ 978,800 $ 1,964,270
- -----------------------------------------------------------------------------------------------
Norton (City) Industrial Development Authority
(Norton Community Hospital); Refunding &
Improvement Hospital Series 2001 RB
6.00%, 12/01/22 (a) - 1,057,940 1,057,940
- -----------------------------------------------------------------------------------------------
Virginia (State of) Commonwealth Transportation
Board (Federal Highway Reimbursement Notes);
Series 2002 RB
5.00%, 10/01/06 1,664,550 - 1,664,550
- -----------------------------------------------------------------------------------------------
Virginia (State of) Housing Development
Authority; Series 2000 D RB
5.70%, 04/01/11 (b) 1,627,245 - 1,627,245
- -----------------------------------------------------------------------------------------------
Virginia (State of) Resources Authority
(Goochland County Tuckahoe Creek Service
District Project); Water & Sewer System Series
2002 RB
5.00%, 11/01/35 - 998,320 998,320
==============================================================================================
4,816,385 4,298,088 9,114,473
==============================================================================================
WASHINGTON -- 1.60%
Clark (County of) School District No. 117;
Unlimited Tax Series 1995 GO
6.00%, 12/01/05 (c)(d) - 1,120,920 1,120,920
- -----------------------------------------------------------------------------------------------
King (County of);
Sewer Series 1999 RB
5.50%, 01/01/22 (a) - 1,047,340 1,047,340
- -----------------------------------------------------------------------------------------------
Unlimited Tax Series 1969 GO
5.50%, 07/01/07 (c)(d) - 557,311 557,311
- -----------------------------------------------------------------------------------------------
Pend Oreille (County of) Public Utility District
No. 1; Electric Series 1996 B RB
6.30%, 01/01/17 - 1,503,180 1,503,180
- -----------------------------------------------------------------------------------------------
Pierce (County of) School District No. 416 White
River; Unlimited Tax Series 2000 GO
5.35%, 12/01/09 1,754,848 - 1,754,848
- -----------------------------------------------------------------------------------------------
Washington (State of) Health Care Facilities
Authority (Providence Health System Project);
Series 2001 RB
5.25%, 10/01/21 (a) 1,029,540 1,030,790 2,060,330
- -----------------------------------------------------------------------------------------------
Washington (State of) Public Power Supply System
(Nuclear Project No. 1); Refunding Series 1996 A
RB
5.75%, 07/01/12 (a) - 2,249,040 2,249,040
- -----------------------------------------------------------------------------------------------
West Richland (City of); Water & Sewer Series
1994 RB
7.00%, 12/01/04 (c)(d) - 551,530 551,530
==============================================================================================
2,784,388 8,060,111 10,844,499
==============================================================================================
WISCONSIN -- 1.62%
Adams-Friendship Area School District; Refunding
Unlimited Tax Series 1996 GO Wts.
6.50%, 04/01/15 (a) 1,620,730 - 1,620,730
- -----------------------------------------------------------------------------------------------
PAR (000)
- ------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
WISCONSIN -- (CONTINUED)
Ladysmith-Hawkins School District; Refunding
Unlimited Tax Series 2002 GO
$ - $ 1,350 $ 1,350 4.50%, 04/01/19 (a)
- ---------------------------------------------------------------------------------------------
Muskego-Norway School District; Refunding
Unlimited Tax Series 2002 GO
- 1,000 1,000 5.00%, 04/01/21 (a)
- ---------------------------------------------------------------------------------------------
Wisconsin (State of); Unlimited Tax Series 2000
C GO
2,500 - 2,500 5.50%, 05/01/19
- ----------------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sinai Samaritan Medical
Center Inc.); Series 1996 RB
- 1,500 1,500 5.75%, 08/15/16 (a)
- ----------------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sisters of the Sorrowful
Mother Ministry Corp.); Series 1997 A RB
- 2,500 2,500 5.90%, 08/15/24 (a)
=============================================================================================
=============================================================================================
WYOMING -- 1.07%
Laramie (County of) (Memorial Hospital Project);
Hospital Series 1992 RB
- 250 250 6.70%, 05/01/12 (a)
- ---------------------------------------------------------------------------------------------
Natrona (County of) (Wyoming Medical Center
Project); Hospital Series 1995 RB
- 1,000 1,000 6.00%, 09/15/11 (a)
- ---------------------------------------------------------------------------------------------
Sweetwater (County of) (Idaho Power Co.
Project); Refunding Series 1996 A PCR
- 1,000 1,000 6.05%, 07/15/26
- ---------------------------------------------------------------------------------------------
Uinta (County of) (Amoco Corp. Project);
Refunding VRD Series 1998 PCR
4,850 - 4,850 1.25%, 07/01/26 (i)
=============================================================================================
=============================================================================================
TOTAL INVESTMENTS -- 99.33% (Cost
$632,745,485)
=============================================================================================
OTHER ASSETS LESS LIABILITIES -- 0.68%
=============================================================================================
ADJUSTMENTS -- (0.01)%
NET ASSETS -- 100.00%
MARKET VALUE
-----------------------------------------
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND COMBINING
WISCONSIN -- (CONTINUED)
Ladysmith-Hawkins School District; Refunding
Unlimited Tax Series 2002 GO
4.50%, 04/01/19 (a) $ - $ 1,319,598 $ 1,319,598
- ---------------------------------------------------------------------------------------------
Muskego-Norway School District; Refunding
Unlimited Tax Series 2002 GO
5.00%, 04/01/21 (a) - 1,015,350 1,015,350
- ---------------------------------------------------------------------------------------------
Wisconsin (State of); Unlimited Tax Series 2000
C GO
5.50%, 05/01/19 2,670,400 - 2,670,400
- ---------------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sinai Samaritan Medical
Center Inc.); Series 1996 RB
5.75%, 08/15/16 (a) - 1,651,860 1,651,860
- ---------------------------------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Sisters of the Sorrowful
Mother Ministry Corp.); Series 1997 A RB
5.90%, 08/15/24 (a) - 2,703,075 2,703,075
=============================================================================================
4,291,130 6,689,883 10,981,013
=============================================================================================
WYOMING -- 1.07%
Laramie (County of) (Memorial Hospital Project);
Hospital Series 1992 RB
6.70%, 05/01/12 (a) - 256,155 256,155
- ---------------------------------------------------------------------------------------------
Natrona (County of) (Wyoming Medical Center
Project); Hospital Series 1995 RB
6.00%, 09/15/11 (a) - 1,109,540 1,109,540
- ---------------------------------------------------------------------------------------------
Sweetwater (County of) (Idaho Power Co.
Project); Refunding Series 1996 A PCR
6.05%, 07/15/26 - 1,026,010 1,026,010
- ---------------------------------------------------------------------------------------------
Uinta (County of) (Amoco Corp. Project);
Refunding VRD Series 1998 PCR
1.25%, 07/01/26 (i) 4,850,000 - 4,850,000
=============================================================================================
4,850,000 2,391,705 7,241,705
=============================================================================================
TOTAL INVESTMENTS -- 99.33% (Cost
$632,745,485) 200,124,882 471,498,596 671,623,478
=============================================================================================
OTHER ASSETS LESS LIABILITIES -- 0.68% 460,378 4,124,629 4,585,007
=============================================================================================
ADJUSTMENTS -- (0.01)% - - (40,125)
NET ASSETS -- 100.00% $200,585,260 $475,623,225 $ 676,168,360 -
INVESTMENT ABBREVIATIONS:
CEP Credit Enhancement Provider
COP Certificate of Participation
FHA Federal Housing Administration
GNMA Government National Mortgage Association
GO General Obligation Bonds
Gtd. Guaranteed
IDR Industrial Development Revenue Bonds
Jr. Junior
LOC Letter of Credit
PCR Pollution Control Revenue Bonds
RAC Revenue Anticipation Certificates
RB Revenue Bonds
Sr. Senior
Sub. Subordinated
TAN Tax Allocation Notes
VRD Variable Rate Demand
Wts. Warrants
NOTES TO PRO FORMA SCHEDULE OF INVESTMENTS:
(a) Secured by bond insurance provided by one of the following
companies: Ambac Assurance Corp., American Capital Access Corp.,
Financial Guaranty Insurance Co., Financial Security Assurance, or
MBIA Insurance Co.
(b) Security subject to the alternative minimum tax.
(c) Advance refunded; 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 not registered under the Securities Act of 1933, as
amended (e.g., the security was purchased in a Rule 144A
transaction or a Regulation D transaction); the security may be
resold only pursuant to an exemption from registration under the
1933 Act, typically to qualified institutional buyers. AIM
Municipal Bond Fund has no rights to demand registration of these
securities. The aggregate market value of these securities at
01/31/03 was $2,023,295, which represented 0.43% of AIM Municipal
Bond Fund's net assets and 0.30% of the pro forma combining net
assets of AIM Municipal Bond Fund. These securities are considered
illiquid.
(f) Principal and interest payments are guaranteed by the letter of
credit agreement.
(g) Zero coupon bond issued at a discount. The interest rate shown
represents the yield to maturity at issue.
(h) Demand securities; payable upon demand by INVESCO Tax-Free Bond
Fund or AIM Municipal Bond Fund with usually no more than seven
calendar days' notice. Interest rates are redetermined weekly.
Rates shown are rates in effect on 01/31/03.
(i) Demand securities; payable upon demand by INVESCO Tax-Free Bond
Fund with usually no more than seven calendar days' notice.
Interest rates are redetermined daily. Rates shown are rates in
effect on 01/31/03.
* As of 1/31/03, all of the securities held by the INVESCO Tax-Free
Bond Fund would comply with the compliance guidelines and/or
investment restrictions of the AIM Municipal Bond Fund.
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
PRO-FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF INVESCO TAX-FREE BOND FUND INTO AIM MUNICIPAL BOND FUND
JANUARY 31, 2003
(UNAUDITED)
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND ADJUSTMENTS COMBINING
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at market value $200,124,882 $471,498,596 $ - $671,623,478
(cost $186,270,728 - INVESCO Tax-Free Bond Fund)
(cost $446,474,757 - AIM Municipal Bond Fund)
(cost $632,745,485 - Pro Forma Combining)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash 116,564 - - 116,564
- ------------------------------------------------------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 26,630 557,283 - 583,913
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and Interest 2,700,375 6,785,298 - 9,485,673
- ------------------------------------------------------------------------------------------------------------------------------------
Amount due from advisor - - 40,125 40,125
- ------------------------------------------------------------------------------------------------------------------------------------
Investment for deferred compensation plan 3,870 78,344 - 82,214
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets 31,884 37,624 - 69,508
====================================================================================================================================
Total assets 203,004,205 478,957,145 40,125 682,001,475
====================================================================================================================================
LIABILITIES:
Payables for:
Investments purchased 1,001,510 996,820 - 1,998,330
- ------------------------------------------------------------------------------------------------------------------------------------
Fund shares reacquired 1,133,499 1,239,018 - 2,372,517
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends 184,070 736,811 - 920,881
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred compensation plan 3,870 78,344 - 82,214
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued distribution fees 44,967 218,073 - 263,040
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued directors' / trustees' fees 1,362 1,028 - 2,390
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued merger costs - - 80,250 80,250
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued transfer agent fees - 13,113 - 13,113
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued operating expenses 49,667 50,713 - 100,380
====================================================================================================================================
Total liabilities 2,418,945 3,333,920 80,250 5,833,115
====================================================================================================================================
Net assets applicable to shares outstanding $200,585,260 $475,623,225 $ (40,125) $676,168,360
====================================================================================================================================
NET ASSETS:
Class A $ 1,113,394 $342,010,220 $ (20,360) $343,103,254
====================================================================================================================================
Class B $ 511,917 $106,973,053 $ (6,378) $107,478,592
====================================================================================================================================
Class C $ 1,686,181 $ 26,639,952 $ (1,681) $ 28,324,452
====================================================================================================================================
Investor Class $197,273,768 $ - $ (11,706) $197,262,062
====================================================================================================================================
CAPITAL STOCK OUTSTANDING, $0.01 PAR VALUE PER SHARE (INVESCO TAX-FREE BOND
FUND):
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE (AIM MUNICIPAL BOND FUND):
Class A: 71,762 42,220,183 137,500 42,357,683
====================================================================================================================================
Class B: 32,930 13,183,625 63,140 13,246,765
====================================================================================================================================
Class C: 95,980 3,289,473 208,194 3,497,667
====================================================================================================================================
Investor Class: 12,689,672 - 24,361,037 24,361,037
====================================================================================================================================
Class A:
Net asset value per share $ 15.52 $ 8.10 $ - $ 8.10
- ------------------------------------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $15.52 / 95.25% - INVESCO Tax-Free Bond Fund)
(Net asset value of $8.10 / 95.25% - AIM Municipal Bond Fund)
$ 16.29 $ 8.50 $ - $ 8.50
====================================================================================================================================
Class B:
Net asset value and offering price per share $ 15.55 $ 8.11 $ - $ 8.11
====================================================================================================================================
Class C:
Net asset value and offering price per share $ 17.57 $ 8.10 $ - $ 8.10
====================================================================================================================================
Investor Class:
Net asset value and offering price per share $ 15.55 $ - $ - $ 8.10
====================================================================================================================================
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF INVESCO TAX-FREE BOND FUND INTO AIM MUNICIPAL BOND FUND
FOR YEAR ENDED JANUARY 31, 2003
(UNAUDITED)
AIM AIM MUNICIPAL
INVESCO MUNICIPAL BOND FUND
TAX-FREE BOND PRO FORMA
BOND FUND FUND ADJUSTMENTS COMBINING
- ---------------------------------------------------------------------------------------------------------------------------
Investment Income:
Interest $ 9,992,653 $ 25,624,524 $ - $ 35,617,177
===========================================================================================================================
EXPENSES:
- ---------------------------------------------------------------------------------------------------------------------------
Advisory fees 1,064,980 2,065,394 (374,104) 2,756,270
- ---------------------------------------------------------------------------------------------------------------------------
Administrative services fees 97,194 114,458 (54,718) 156,934
- ---------------------------------------------------------------------------------------------------------------------------
Custodian fees 21,277 16,569 - 37,846
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A 1,575 847,214 (447) 848,342
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B 2,554 1,011,028 - 1,013,582
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class C 13,154 263,603 - 276,757
- ---------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Investor Class 479,035 - - 479,035
- ---------------------------------------------------------------------------------------------------------------------------
Reports to shareholders 66,955 14,730 (56,744) 24,941
- ---------------------------------------------------------------------------------------------------------------------------
Professional fees 33,070 11,475 14,469 59,014
- ---------------------------------------------------------------------------------------------------------------------------
Registration and filing fees 30,799 55,944 86,743
- ---------------------------------------------------------------------------------------------------------------------------
Directors' / trustees' fees 25,646 10,827 - 36,473
- ---------------------------------------------------------------------------------------------------------------------------
Transfer agent fees 258,598 243,567 (89,758) 412,407
- ---------------------------------------------------------------------------------------------------------------------------
Other 37,387 60,669 - 98,056
===========================================================================================================================
Total expenses 2,132,224 4,715,478 (561,302) 6,286,400
===========================================================================================================================
Less: Fees waived (369,664) - 369,664 -
- ---------------------------------------------------------------------------------------------------------------------------
Expenses paid indirectly (2,296) (6,413) - (8,709)
===========================================================================================================================
Net expenses 1,760,264 4,709,065 (191,638) 6,277,691
===========================================================================================================================
Net investment income 8,232,389 20,915,459 191,638 29,339,486
===========================================================================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 297,072 535,613 - 832,685
- ---------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities 4,692,788 6,090,493 - 10,783,281
===========================================================================================================================
Net gain from investment securities 4,989,860 6,626,106 - 11,615,966
===========================================================================================================================
Net increase in net assets resulting from operations $ 13,222,249 $ 27,541,565 $ 191,638 $ 40,955,452
===========================================================================================================================
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF INVESCO TAX-FREE BOND FUND INTO AIM MUNICIPAL BOND FUND
JANUARY 31, 2003
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Agreement and Plan") between AIM Municipal Bond Fund and INVESCO Tax-Free
Bond Fund and the consummation of the transactions contemplated therein to be
accounted for as a tax-free reorganization of investment companies. The
Agreement and Plan of Reorganization would be accomplished by an exchange of
shares of AIM Municipal Bond Fund for the net assets of INVESCO Tax-Free Bond
Fund and the distribution of AIM Municipal Bond Fund shares to INVESCO Tax-Free
Bond Fund shareholders. If the Agreement and Plan were to have taken place at
January 31, 2003, INVESCO Tax-Free Bond Fund - Class A shareholders would have
received 137,500 shares of AIM Municipal Bond Fund - Class A shares, INVESCO
Tax-Free Bond Fund - Class B shareholders would have received 63,140 shares of
AIM Municipal Bond Fund - Class B shares, INVESCO Tax-Free Bond Fund - Class C
shareholders would have received 208,194 shares of AIM Municipal Bond Fund -
Class C shares and INVESCO Tax-Free Bond Fund - Investor Class shareholders
would have received 24,361,037 shares of AIM Municipal Bond Fund - Investor
Class shares.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the investment advisory agreement of AIM Municipal Bond
Fund, the advisory fees based on pro forma combined assets for the year
ended January 31, 2003 were $2,756,270. The advisory fees were adjusted to
reflect the advisory fee rates in effect for AIM Municipal Bond Fund.
Correspondingly, the advisory fee waivers have been adjusted to reflect the
termination of the INVESCO Tax-Free Bond Fund expense limitation.
(b) Pursuant to the master administrative services agreement for AIM Municipal
Bond Fund, fees paid on pro forma combined assets for the year ended January
31, 2003 were $156,934. The administrative services fees were adjusted to
reflect the fees in effect under the administrative services agreement for
the AIM Municipal Bond Fund.
(c) Pursuant to the terms of the master distribution agreement for Class A share
of the AIM Municipal Bond Fund the fund pays AIM Distributors, Inc. a fee
calculated at 0.25% of the Class A average daily net assets. The Class A
distribution fees on the pro forma combined assets for the year ended
January 31, 2003 were $848,342. The distribution fees were adjusted to
reflect the distribution rate paid in accordance with the distribution
agreement for the pro forma combined assets of AIM Municipal Fund.
(d) Reports to shareholders expenses were reduced by $56,744 to eliminate the
effects of duplicative fixed costs of production of reports to shareholders.
(e) Professional fees were increased by $14,469 to reflect the audit fees on the
pro forma combined fixed costs of professional services fees.
(f) Transfer agency fees were reduced by $89,758 to reflect the fees on the pro
forma combined number of open accounts under the transfer agency and
services agreement for the AIM Municipal Bond Fund.
NOTE 3 - MERGER COSTS
Merger costs related to the Agreement and Plan are estimated at approximately
$80,250 and because these are non recurring costs they have not been included in
the unaudited pro forma statement of operations. These costs represent the
estimated expense of AIM Tax-Free Bond Fund carrying out its obligations under
the Agreement and Plan and consist of management's estimate of legal fees,
accounting fees, printing costs and mailing charges related to the proposed
merger. INVESCO Funds Group, Inc. will bear half of the costs of the Agreement
and Plan and INVESCO Tax-Free Bond Fund will bear the other half of the expenses
relating to the proposed Agreement and Plan.
PART C. OTHER INFORMATION
Item 15 Indemnification.
The Registrant's Amended and Restated Agreement and Declaration
of Trust, dated May 15, 2002, as amended, provides, among other
things (i) that trustees and officers of the Registrant, when
acting as such, shall not be personally liable for any act,
omission or obligation of the Registrant or any trustee or
officer (except for liabilities to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty); (ii) for the
indemnification by the Registrant of the trustees, officers,
employees and agents of the Registrant to the fullest extent
permitted by the Delaware Statutory Trust Act and Bylaws and
other applicable law; (iii) that shareholders of the Registrant
shall not be personally liable for the debts, liabilities,
obligations or expenses of the Registrant or any portfolio or
class; and (iv) for the indemnification by the Registrant, out
of the assets belonging to the applicable portfolio, of
shareholders and former shareholders of the Registrant in case
they are held personally liable solely by reason of being or
having been shareholders of the Registrant or any portfolio or
class and not because of their acts or omissions or for some
other reason.
A I M Advisors, Inc. ("AIM"), the Registrant and other
investment companies managed by AIM, their respective officers,
trustees, directors and employees (the "Insured Parties") are
insured under a joint Mutual Fund and Investment Advisory
Professional and Directors and Officers Liability Policy,
issued by ICI Mutual Insurance Company, with a $35,000,000
limit of liability.
Section 16 of the Master Investment Advisory Agreement between
the Registrant and AIM provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard
of obligations or duties hereunder on the part of AIM or any of
its officers, directors or employees, that AIM shall not be
subject to liability to the Registrant or to any series of the
Registrant, or to any shareholder of any series of the
Registrant for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any
security. Any liability of AIM to any series of the Registrant
shall not automatically impart liability on the part of AIM to
any other series of the Registrant. No series of the Registrant
shall be liable for the obligations of any other series of the
Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling
person in connection with the shares being registered hereby,
the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
Item 16. Exhibits.
1 (a) - (1) Amended and Restated Agreement and Declaration of
Trust of Registrant, dated May 15, 2002 was filed
electronically as an Exhibit to Post-Effective Amendment
No. 18, filed on May 22, 2002, and is hereby
incorporated by reference.
C-1
- (2) Amendment No. 1 dated June 11, 2002 to the Amended
and Restated Agreement and Declaration of Trust, dated
May 15, 2002 was filed electronically as an Exhibit to
Post-Effective Amendment No. 19, filed on June 13, 2002,
and is hereby incorporated by reference.
- (3) Amendment No. 2 dated August 8, 2002 to the Amended
and Restated Agreement and Declaration of Trust, dated
May 15, 2002 was filed electronically as an Exhibit to
Post-Effective Amendment No. 20, filed on August 28,
2002, and is hereby incorporated by reference.
- (4) Amendment No. 3, dated May 14, 2003, to the Amended
and Restated Agreement and Declaration of Trust, dated
May 15, 2002, was filed electronically as an Exhibit to
Post-Effective Amendment No. 22, filed on July 7, 2003,
and is hereby incorporated by reference.
- (5) Amendment No. 4, dated June 23, 2003, to the Amended
and Restated Agreement and Declaration of Trust, dated
May 15, 2002, was filed electronically as an Exhibit to
Post-Effective Amendment No. 22, filed on July 7, 2003,
and is hereby incorporated by reference.
2 - Amended and Restated Bylaws of Registrant, adopted
effective May 15, 2002 was filed electronically as an
Exhibit to Post-Effective Amendment No. 18, filed on May
22, 2002, and is hereby incorporated by reference.
3 - Voting Trust Agreements - None.
4 - (a) Form of Agreement and Plan of Reorganization by and
among the Registrant on behalf of AIM High Yield Fund,
INVESCO Bond Funds, Inc. on behalf of INVESCO High Yield
Fund, A I M Advisors, Inc. and INVESCO Funds Group, Inc.
is attached as Appendix I to the Combined Proxy Statement
and Prospectus relating to INVESCO High Yield Fund
contained in this Registration Statement.
- (b) Form of Agreement and Plan of Reorganization by and
among the Registrant on behalf of AIM Income Fund,
INVESCO Bond Funds, Inc. on behalf of INVESCO Select
Income Fund, A I M Advisors, Inc. and INVESCO Funds
Group, Inc. is attached as Appendix I to the Combined
Proxy Statement and Prospectus relating to INVESCO Select
Income Fund contained in this Registration Statement.
- (c) Form of Agreement and Plan of Reorganization by and
among the Registrant on behalf of AIM Municipal Bond
Fund, INVESCO Bond Funds, Inc. on behalf of INVESCO
Tax-Free Bond Fund, A I M Advisors, Inc. and INVESCO
Funds Group, Inc. is attached as Appendix I to the
Combined Proxy Statement and Prospectus relating to
INVESCO Tax-Free Bond Fund contained in this Registration
Statement.
- (d) Form of Agreement and Plan of Reorganization by and
among the Registrant on behalf of AIM Intermediate
Government Fund, INVESCO Bond Funds, Inc. on behalf of
INVESCO U.S. Government Securities Fund, A I M Advisors,
Inc. and INVESCO Funds Group, Inc. is attached as
Appendix I to the Combined Proxy Statement and Prospectus
relating to INVESCO U.S. Government Securities Fund
contained in this Registration Statement.
- (e) Form of Agreement and Plan of Reorganization by and
among the Registrant on behalf of AIM Money Market Fund,
INVESCO Money Market Funds, Inc. on behalf of INVESCO
Cash Reserves Fund, A I M Advisors, Inc. and INVESCO
Funds Group, Inc. is attached as Appendix I to the
Combined Proxy Statement and Prospectus relating to
INVESCO Cash Reserves Fund contained in this Registration
Statement.
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5 - Articles II, VI, VII, VIII and IX of the Amended and
Restated Agreement and Declaration of Trust and Articles
IV, V and VI of the Amended and Restated Bylaws define
the rights of holders of shares.
6 (a) - (1) Master Investment Advisory Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 14, filed on November 15, 2000, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated December 28, 2001, to Master
Investment Advisory Agreement dated June 1, 2000 was
filed electronically as an Exhibit to Post-Effective
Amendment No. 17, filed on December 21, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated August 29, 2002, to the Master
Investment Advisory Agreement, dated June 1, 2002 was
filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
- (4) Amendment No. 3, dated June 23, 2003, to the Master
Investment Advisory Agreement, dated June 1, 2000, was
filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
7 (a) - (1) Third Amended and Restated Master Distribution
Agreement, dated November 28, 2000, between the
Registrant (on behalf of its Class A Shares, Class C
Shares, AIM Cash Reserve Shares and Institutional Class
Shares) and A I M Distributors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment
No. 15, filed on October 12, 2001, and is hereby
incorporated by reference.
- (2) Amendment No. 1, dated December 28, 2001, to the
Third Amended and Restated Master Distribution Agreement,
dated November 28, 2000 (on behalf of its Class A Shares,
Class C Shares, AIM Cash Reserve Shares and Institutional
Class Shares) was filed electronically as an Exhibit to
Post-Effective Amendment No. 17, filed on December 21,
2001, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated June 3, 2002, to the Third
Amended and Restated Master Distribution Agreement, dated
November 28, 2000 (on behalf of its Class A Shares, Class
C Shares, Class R Shares, AIM Cash Reserve Shares and
Institutional Class Shares) was filed electronically as
an Exhibit to Post-Effective Amendment No. 19, filed on
June 13, 2002, and is hereby incorporated by reference.
- (4) Amendment No. 3, dated August 29, 2002, to the Third
Amended and Restated Master Distribution Agreement, dated
November 28, 2000 (on behalf of its Class A Shares, Class
C Shares, Class R Shares, AIM Cash Reserve Shares and
Institutional Class Shares) was filed electronically as
an Exhibit to Post-Effective Amendment No. 21, filed on
November 20, 2002, and is hereby incorporated by
reference.
- (5) Amendment No. 4, dated October 31, 2002, to the Third
Amended and Restated Master Distribution Agreement, dated
November 28, 2000 (on behalf of its Class A Shares, Class
A3 Shares, Class C Shares, Class R Shares, AIM Cash
Reserve Shares and Institutional Class Shares) was filed
electronically as an Exhibit to Post-Effective Amendment
No. 21, filed on November 20, 2002, and is hereby
incorporated by reference.
C-3
- (6) Amendment No. 5, dated June 23, 2003, to the Third
Amended and Restated Master Distribution Agreement, dated
November 28, 2000 (on behalf of its Class A Shares, Class
A3 Shares, Class C Shares, Class R Shares, AIM Cash
Reserve Shares and Institutional Class Shares) was filed
electronically as an Exhibit to Post-Effective Amendment
No. 22, filed on July 7, 2003, and is hereby incorporated
by reference.
- (7) Form of Amendment No. 6, dated _______________, to
the Third Amended and Restated Master Distribution
Agreement, dated November 28, 2000 (on behalf of its
Class A Shares, Class A3 Shares, Class C Shares, Class R
Shares, AIM Cash Reserve Shares and Institutional Class
Shares) was filed electronically as an Exhibit to
Post-Effective Amendment No. 22, filed on July 7, 2003,
and is hereby incorporated by reference.
(b) - (1) First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between the
Registrant (on behalf of its Class B Shares) and A I M
Distributors, Inc. was filed electronically as an Exhibit
to Post-Effective Amendment No. 15, filed on October 12,
2001, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated December 28, 2001, to the
First Amended and Restated Master Distribution Agreement,
dated December 31, 2000 (on behalf of its Class B Shares)
was filed electronically as an Exhibit to Post-Effective
Amendment No. 17, filed on December 21, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated June 23, 2003, to First
Amended and Restated Master Distribution Agreement, dated
December 31, 2000, between the Registrant (on behalf of
its Class B Shares) and A I M Distributors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
(c) - Form of Selected Dealer Agreement between A I M
Distributors, Inc. and selected dealers was filed
electronically as an Exhibit to Post-Effective Amendment
No. 15, filed on October 12, 2001, and is hereby
incorporated by reference.
(d) - Form of Bank Selling Group Agreement between A I M
Distributors, Inc. and banks was filed electronically as
an Exhibit to Post-Effective Amendment No. 10, filed on
November 18, 1998, and is hereby incorporated by
reference.
8 (a) - Form of AIM Funds Retirement Plan for Eligible
Directors/Trustees, as restated October 1, 2001 was filed
electronically as an Exhibit to Post-Effective Amendment
No. 16, filed on November 8, 2001, and is hereby
incorporated by reference.
(b) - Form of AIM Funds Director Deferred Compensation
Agreement, as amended March 7, 2000, September 28, 2001
and September 26, 2002 was filed electronically as an
Exhibit to Post-Effective Amendment No. 22, filed on July
7, 2003, and is hereby incorporated by reference.
9 (a) - (1) Second Amended and Restated Custody Agreement, dated
June 16, 1987, between Short-Term Investments Co. (on
behalf of its Limited Maturity Treasury Portfolio) and
The Bank of New York was filed electronically as an
Exhibit to Post-Effective Amendment No. 7, filed on
November 21, 1996, and is hereby incorporated by
reference.
- (2) Amendment, dated May 17, 1993, to Second Amended and
Restated Custody Agreement, dated June 16, 1987, between
Short-Term Investments Co. (on behalf of its Limited
Maturity Treasury Portfolio) and The Bank of New York was
filed electronically as an Exhibit to Post-Effective
Amendment No. 7, filed on November 21, 1996, and is
hereby incorporated by reference.
C-4
- (3) Assignment and Acceptance of Assignment of Custody
Agreement, dated October 15, 1993, between Registrant (on
behalf of its Limited Maturity Treasury Portfolio) and
Short-Term Investments Co. (on behalf of its Limited
Maturity Treasury Portfolio) was filed electronically as
an Exhibit to Post-Effective Amendment No. 7, filed on
November 21, 1996, and is hereby incorporated by
reference.
- (4) Letter Agreement, dated June 1, 2000, between
Registrant (on behalf of its AIM Municipal Bond Fund) and
The Bank of New York was filed electronically as an
Exhibit to Post-Effective Amendment No. 14, filed on
November 15, 2000, and is hereby incorporated by
reference.
- (5) Letter Agreement, dated August 30, 2000, between
Registrant (on behalf of its AIM Money Market Fund) and
The Bank of New York was filed electronically as an
Exhibit to Post-Effective Amendment No. 14, filed on
November 15, 2000, and is hereby incorporated by
reference.
(b) - (1) Master Custodian Contract, dated May 1, 2000, between
Registrant (on behalf of AIM High Yield Fund, AIM Income
Fund, AIM Intermediate Government Fund, AIM Short Term
Bond Fund and AIM Total Return Bond Fund) and State
Street Bank and Trust Company was filed electronically as
an Exhibit to Post-Effective Amendment No. 14, filed on
November 15, 2000, and is hereby incorporated by
reference.
- (2) Amendment, dated May 1, 2000, to the Custodian
Contract, dated May 1, 2000, between Registrant (on
behalf of its AIM High Yield Fund, AIM Income Fund, AIM
Intermediate Government Fund, AIM Short Term Bond Fund
and AIM Total Return Bond Fund) and State Street Bank and
Trust Company was filed electronically as an Exhibit to
Post-Effective Amendment No. 14, filed on November 15,
2000, and is hereby incorporated by reference.
- (3) Amendment, dated June 29, 2001, to the Custodian
Contract, dated May 1, 2000, between Registrant (on
behalf of its AIM High Yield Fund, AIM Income Fund, AIM
Intermediate Government Fund, AIM Short Term Bond Fund
and AIM Total Return Bond Fund) and State Street Bank and
Trust Company was filed electronically as an Exhibit to
Post-Effective Amendment No. 16, filed on November 8,
2001, and is hereby incorporated by reference.
- (4) Amendment, dated April 2, 2002, to the Custodian
Contract, dated May 1, 2000, between Registrant and State
Street Bank and Trust Company was filed electronically as
an Exhibit to Post-Effective Amendment No. 19, filed on
June 13, 2002, and is hereby incorporated by reference.
(c) - (1) Subcustodian Agreement with Texas Commerce Bank,
dated September 9, 1994, among Texas Commerce Bank
National Association, State Street Bank and Trust
Company, A I M Fund Services, Inc. and Registrant was
filed electronically as an Exhibit to Post-Effective
Amendment No. 7, filed on November 21, 1996, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated October 2, 1998, to the
Subcustodian Agreement with Texas Commerce Bank, dated
September 9, 1994, among Texas Commerce Bank National
Association, State Street Bank and Trust Company, A I M
Fund Services, Inc. and Registrant was filed
electronically as an Exhibit to Post-Effective Amendment
No. 12, filed on March 10, 2000, and is hereby
incorporated by reference.
C-5
- (3) Amendment No. 2, dated March 15, 2002, to the
Subcustodian Agreement with Texas Commerce Bank National
Association, dated September 9, 1994, among J P Morgan
Chase Bank (formerly known as The Chase Manhattan Bank,
successor-in-interest by merger to Chase Bank of Texas,
N.A. State Street Bank and Trust Company, A I M Fund
Services, Inc. and Registrant was filed electronically as
an Exhibit to Post-Effective Amendment No. 21, filed
November 20, 2002, and is hereby incorporated by
reference.
(d) - Foreign Assets Delegation Agreement, dated May 31, 2002,
between A I M Advisors, Inc. and Registrant was filed
electronically as an Exhibit to Post-Effective Amendment
No. 16, filed on November 8, 2001, and is hereby
incorporated by reference.
10 (a) - (1) Sixth Amended and Restated Master Distribution Plan,
dated October 31, 2002 for Registrant's Class A Shares,
Class A3 Shares, Class C Shares, Class R Shares and AIM
Cash Reserve Shares was filed electronically as an
Exhibit to Post-Effective Amendment No. 22, filed on
November 20, 2002, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated June 23, 2003, to the Sixth
Amended and Restated Master Distribution Plan, dated
October 31, 2002 for Registrant's Class A Shares, Class
A3 Shares, Class C Shares, Class R Shares and AIM Cash
Reserve Shares was filed electronically as an Exhibit to
Post-Effective Amendment No. 22, filed on July 7, 2003,
and is hereby incorporated by reference.
- (3) Form of Seventh Amended and Restated Master
Distribution Plan, dated _____________, for Registrant's
Class A Shares, Class A3 Shares, Class C Shares, Class R
Shares, AIM Cash Reserve Shares and Investor Class Shares
was filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
(b) - (1) First Amended and Restated Master Distribution Plan,
dated December 31, 2000, for Registrant's Class B Shares
was filed electronically as an Exhibit to Post-Effective
Amendment No. 15, filed on October 12, 2001, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated December 28, 2001, to the
First Amended and Restated Master Distribution Plan,
dated December 31, 2000, for Registrant's Class B Shares
was filed electronically as an Exhibit to Post-Effective
Amendment No. 17, filed on December 21, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated June 23, 2003, to the First
Amended and Restated Master Distribution Plan, dated
December 31, 2000, for Registrant's Class B Shares was
filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
(c) - Form of Shareholder Service Agreement to be used in
connection with Registrant's Master Distribution Plans
was filed electronically as an Exhibit to Post-Effective
Amendment No 15, filed on October 12, 2001, and is hereby
incorporated by reference.
(d) - Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's Master Distribution Plans
was filed electronically as an Exhibit to Post-Effective
Amendment No. 15, filed on October 12, 2001, and is
hereby incorporated by reference.
(e) - Form of Agency Pricing Agreement (for the Retail Classes)
to be used in connection with Registrant's Master
Distribution Plans was filed electronically as an Exhibit
to Post-Effective Amendment No. 20, filed on August 28,
2002, and is hereby incorporated by reference.
C-6
(f) - Forms of Service Agreements for Bank Trust Departments
and for Brokers for Bank Trust Departments to be used in
connection with Registrant's Master Distribution Plans
was filed electronically as an Exhibit to Post-Effective
Amendment No. 15, filed on October 12, 2001, and is
hereby incorporated by reference.
(g) - Form of Variable Group Annuity Contractholder Service
Agreement to be used in connection with Registrant's
Master Distribution Plans was filed electronically as an
Exhibit to Post-Effective Amendment No. 15, filed on
October 12, 2001, and is hereby incorporated by
reference.
(h) - Form of Shareholder Service Agreement for Shares of the
AIM Mutual Funds to be used in connection with
Registrant's Master Distribution Plans was filed
electronically as an Exhibit to Post-Effective Amendment
No. 14, filed on November 15, 2000, and is hereby
incorporated by reference.
(i) - Third Amended and Restated Multiple Class Plan of The AIM
Family of Funds(R), as amended and restated March 4, 2002
and further amended and restated October 31, 2002 and as
further amended and restated July 21, 2003, was filed
electronically as an Exhibit to Post-Effective Amendment
No. 22, filed on July 7, 2003, and is hereby incorporated
by reference.
11 - Opinion of Counsel and Consent of Ballard Spahr Andrews &
Ingersoll, LLP, as to the legality of the securities
being registered is filed herewith electronically.
12 - Opinion of Ballard Spahr Andrews & Ingersoll, LLP,
supporting the tax matters and consequences to
shareholders will be filed as part of a Post-Effective
Amendment to this Registration Statement.
13 (a) - (1) Amended and Restated Transfer Agency and Service
Agreement, dated December 29, 1997, between Registrant
and A I M Fund Services, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 9, filed on
July 10, 1998, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated January 1, 1999, to the
Amended and Restated Transfer Agency and Service
Agreement, dated December 29, 1997, between Registrant
and A I M Fund Services, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 11, filed on
October 14, 1999, and is hereby incorporated by
reference.
- (3) Amendment No. 2, dated July 1, 1999, to the Amended
and Restated Transfer Agency and Service Agreement, dated
December 29, 1997, between Registrant and A I M Fund
Services, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 11, filed on October 14,
1999, and is hereby incorporated by reference.
- (4) Amendment No. 3, dated July 1, 2000, to the Amended
and Restated Transfer Agency and Service Agreement, dated
December 29, 1997, between Registrant and A I M Fund
Services, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 14, filed on November 15,
2000, and is hereby incorporated by reference.
- (5) Amendment No. 4, dated January 1, 2002, to the
Amended and Restated Transfer Agency and Service
Agreement, dated December 29, 1997, between Registrant
and A I M Fund Services, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 18, filed on
May 22, 2002, and is hereby incorporated by reference.
C-7
- (6) Amendment No. 5, dated March 4, 2002, to the Amended
and Restated Transfer Agency and Service Agreement, dated
December 29, 1997, between Registrant and A I M Fund
Services, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 18, filed on May 22, 2002,
and is hereby incorporated by reference.
- (7) Amendment No. 6, dated October 31, 2002, to the
Amended and Restated Transfer Agency and Service
Agreement, dated December 29, 1997, between Registrant
and A I M Fund Services, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 21, filed on
November 20, 2002, and is hereby incorporated by
reference.
- (8) Amendment No. 7, dated May 14, 2003, to the Amended
and Restated Transfer Agency and Service Agreement, dated
December 29, 1997, between Registrant and A I M Fund
Services, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 22, filed on July 7, 2003,
and is hereby incorporated by reference.
- (9) Amendment No. 8, dated June 11, 2003, to the Amended
and Restated Transfer Agency ad Service Agreement, dated
December 29, 1997, between Registrant and A I M Fund
Services, Inc. was filed as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
(b) - (1) Master Administrative Services Agreement, dated June
1, 2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 14, filed on November 15, 2000, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated May 9, 2001, to Master
Administrative Services Agreement, dated June 1, 2000 was
filed electronically as an Exhibit to Post-Effective
Amendment No. 15, filed on October 12, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated December 28, 2001, to Master
Administrative Services Agreement, dated June 1, 2000 was
filed electronically as an Exhibit to Post-Effective
Amendment No. 17, filed on December 21, 2001, and is
hereby incorporated by reference.
- (4) Amendment No. 3, dated August 29, 2002, to Master
Administrative Services Agreement dated June 1, 2000 was
filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
- (5) Amendment No. 4, dated June 23, 2003, to the Master
Administrative Services Agreement, dated June 1, 2000,
was filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
(c) - Memorandum of Agreement dated June 1, 2000, regarding
securities lending, between Registrant, with respect to
all Funds, and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment
No. 14, filed on November 15, 2000, and is hereby
incorporated by reference.
(d) - Memorandum of Agreement, dated July 1, 2003, regarding
fee waivers, between Registrant and A I M Advisors, Inc.
(on behalf of AIM Short Term Bond Fund and AIM Total
Return Bond Fund) was filed electronically as an Exhibit
to Post-Effective Amendment No. 22, filed on July 7,
2003, and is hereby incorporated by reference.
(e) - Memorandum of Agreement, dated July 1, 2003, between
Registrant and A I M Distributors, Inc. (on behalf of AIM
Short Term Bond Fund and AIM Total Return Bond Fund) was
filed electronically as an Exhibit to Post-Effective
Amendment No. 22, filed on July 7, 2003, and is hereby
incorporated by reference.
C-8
(f) - Memorandum of Agreement, dated July 1, 2003, between
Registrant (on behalf of each Fund's Institutional Class)
and A I M Fund Services, Inc. was filed electronically as
an Exhibit to Post-Effective Amendment No. 22, filed on
July 7, 2003, and is hereby incorporated by reference.
(g) - Interfund Loan Agreement, dated September 18, 2001,
between Registrant and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment
No. 15, filed on October 12, 2001, and is hereby
incorporated by reference.
14 (a) - Consent of Ernst & Young, LLP is filed herewith
electronically.
(b) - Consent of PricewaterhouseCoopers LLP is filed herewith
electronically.
15 - Omitted Financial Statements - None.
16 - Manually signed copies of any power of attorney pursuant
to which the name of any person has been signed to the
registration statement - None.
17 - Form of Proxies relating to the Special Meeting of
Shareholders of INVESCO High Yield Fund, INVESCO Select
Income Fund, INVESCO Tax-Free Bond Fund, INVESCO U.S.
Government Securities Fund and INVESCO Cash Reserves Fund
are filed herewith electronically.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act [17 CRF
203.145c], the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (1) above will be filed as a part
of an amendment to the registration statement and will not be
used until the amendment is effective, and that, in determining
any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant undertakes to file an opinion of
counsel supporting the tax matters and consequences to
shareholders discussed in the prospectus in a post-effective
amendment to this registration statement.
C-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of Houston, State of Texas, on the 13th day of August, 2003.
Registrant: AIM INVESTMENT SECURITIES FUNDS
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
----------------------- ----------------------------- ---------------
/s/ ROBERT H. GRAHAM Chairman, Trustee & President August 13, 2003
----------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ FRANK S. BAYLEY Trustee August 13, 2003
-----------------------
(Frank S. Bayley)
/s/ BRUCE L. CROCKETT Trustee August 13, 2003
-----------------------
(Bruce L. Crockett)
/s/ ALBERT R. DOWDEN Trustee August 13, 2003
-----------------------
(Albert R. Dowden)
/s/ EDWARD K. DUNN, JR. Trustee August 13, 2003
-----------------------
(Edward K. Dunn, Jr.)
/s/ JACK M. FIELDS Trustee August 13, 2003
-----------------------
(Jack M. Fields)
/s/ CARL FRISCHLING Trustee August 13, 2003
-----------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Trustee August 13, 2003
-----------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Trustee August 13, 2003
-----------------------
(Lewis F. Pennock)
/s/ RUTH H. QUIGLEY Trustee August 13, 2003
-----------------------
(Ruth H. Quigley)
/s/ LOUIS S. SKLAR Trustee August 13, 2003
-----------------------
(Louis S. Sklar)
/s/ Mark H. Williamson Trustee & August 13, 2003
----------------------- Executive Vice President
(Mark H. Williamson)
/s/ DANA R. SUTTON Vice President & Treasurer August 13, 2003
----------------------- (Principal Financial and
(Dana R. Sutton) Accounting Officer)
EXHIBIT INDEX
<Table>
<Caption>
Exhibit
Number Description
- ------- -----------
11 Opinion of Counsel and Consent of Ballard Spahr Andrews
& Ingersoll, LLP as to the legality of the securities
being registered
14 (a) Consent of Ernst & Young LLP
14 (b) Consent of PricewaterhouseCoopers LLP
17 Form of Proxies
</Table>