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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811- 7890
------------------------------------------------------------------------
AIM Tax-Exempt Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
----------------------------
Date of fiscal year end: 3/31
----------------
Date of reporting period: 3/31/04
--------------
[COVER IMAGE]
AIM HIGH INCOME MUNICIPAL FUND
MARCH 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
YOUR GOALS. OUR SOLUTIONS.
--Registered Trademark--
[AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark--
AIM HIGH INCOME MUNICIPAL FUND SEEKS TO ACHIEVE A HIGH LEVEL OF CURRENT INCOME
THAT IS EXEMPT FROM FEDERAL INCOME TAXES.
o Unless otherwise stated, information presented is as of 3/31/04 and is based
on total net assets.
<Table>
ABOUT SHARE CLASSES o The fund is not managed to track credit quality of the individual
the performance of any particular securities. For non-rated
o Effective 9/30/03, Class B shares index, including the indexes securities in the portfolio the
are not available as an investment defined here, and consequently, the credit quality rating is assigned
for retirement plans maintained performance of the fund may deviate by A I M Advisors, Inc. using
pursuant to Section 401 of the significantly from the performance similar criteria.
Internal Revenue Code, including of the indexes.
401(k) plans, money purchase o Effective duration is a measure
pension plans and profit sharing o A direct investment cannot be of a bond fund's price sensitivity
plans. Plans that have existing made in an index. Unless otherwise to changes in interest rates. It
accounts invested in Class B shares indicated, index results include also takes into account mortgage
will continue to be allowed to make reinvested dividends, and they do prepayments, puts, adjustable
additional purchases. not reflect sales charges. coupons and potential call dates.
Performance of an index of funds
PRINCIPAL RISKS OF INVESTING IN THE FUND reflects fund expenses; performance o Weighted average maturity is the
of a market index does not. weighted average of the remaining
o Investing in higher- yielding, terms to maturity of the securities
lower-rated municipal bonds, OTHER INFORMATION underlying the collateral pool at
commonly known as junk bonds, has a the date of issue, using the
greater risk of price fluctuation o Revenue bonds are issued to balances of the securities as of
and loss of principal and income the issue date as the weighting
than higher-rated general finance public-works projects and factor.
obligation municipal bonds and U.S. are supported directly by the
government securities (such as U.S. project's revenues. General A description of the policies and
Treasury bills, notes and bonds), obligation bonds are backed by the procedures that the fund uses to
for which the government guarantees full faith and credit (including determine how to vote proxies
repayment of principal and interest the taxing and further borrowing relating to portfolio securities is
if held to maturity. power) of a state or municipality. available without charge, upon
Revenue bonds often are considered request, by calling 800-959-4246,
ABOUT INDEXES USED IN THIS REPORT more attractive, since many or on the AIM Web site,
public-works projects (water and AIMinvestments.com.
o The unmanaged Lehman Municipal sewer improvements, for example)
Bond Index, which represents the are necessities, and demand for
performance of investment-grade them remains constant regardless of
municipal bonds, is compiled by economic conditions. Shareholders
Lehman Brothers, a well-known may benefit from their consistent
global investment bank. income in the event of an economic
slowdown. Escrowed and pre-refunded
o The unmanaged Lipper High Yield bonds are bonds whose repayment is
Municipal Debt Fund Index guaranteed by the funds from a
represents an average of the 10 second bond issue, which are
largest high-yield municipal-bond usually invested in U.S. Treasury
funds tracked by Lipper, Inc., an bonds.
independent mutual fund performance
monitor. o Some organizations choose not to
have their bonds rated. Often the
o The unmanaged Standard & Poor's issuer of an unrated bond is a
Composite Index of 500 Stocks (the small entity or municipality that
S&P 500--Registered Trademark-- does not have extra money to pay
Index) is an index of common stocks for a rating.
frequently used as a general
measure of U.S. stock market o The average credit quality of the
performance. fund's holdings as of the close of
the reporting period represents the
weighted average quality rating of
the securities in the portfolio as
assigned by Nationally Recognized
Statistical Rating Organizations
based on assessment of the
</Table>
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE
FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING
SALES CHARGES AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
NOT FDIC INSURED -- MAY LOSE VALUE -- NO BANK GUARANTEE
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER in the AIM Family of Funds
--Registered Trademark--:
[PHOTO OF Despite a pause during the final month of the fiscal year
ROBERT H. ended March 31, 2004, the major stock market indexes here
GRAHAM] and abroad delivered positive performance for the year.
Within those indexes, however, there was broad variation in
returns. Take the S&P 500--Registered Trademark-- Index,
for example. The materials sector of that index, its best
performer, returned 46.28%. Health care, its
worst-performing sector, returned 13.08%. As is historically
the case, bond market returns were more modest, but positive
as well.
The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product (GDP) throughout the
fiscal year and the first estimate of GDP growth for the
first quarter of 2004 coming in at an annualized rate of
4.2%. Overseas, economic performance picked up during the
second half of 2003, and early in 2004 the International Monetary Fund observed
that an economic recovery appeared to be taking hold inall regions, most
strongly in emerging Asia.
Investors in the United States seem to have regained their confidence. They
added $15.84 billion to U.S. stock mutual funds in March 2004 and $7.66 billion
to bond funds. By contrast, money market funds, considered a safe haven because
of their emphasis on stability of net asset value, suffered $10.86 billion in
net outflows during the month. As the fiscal year closed, total mutual fund
assets stood at $7.63 trillion.
The durability of these trends is, of course, unpredictable, and we caution
our shareholders against thinking we will see a rerun of the markets' good
performance during the year covered by this report. That said, it is also true
that the economy appears to have the wind at its back in terms of fiscal,
monetary and tax stimulus, and corporate earnings have been strong.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry and AIM Investments have been the
subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We invite you to visit AIMinvestments.com, our
Web site, often. We will continue to post updates on these issues as information
becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations that address such important issues as
market timing and late trading. Along with the Investment Company Institute, the
industry trade group, we welcome these efforts. We believe comprehensive rule
making is necessary and is the best way to establish new industry
responsibilities designed to protect shareholders. We support practical rule
changes and structural modifications that are fair, enforceable and, most
importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
April 25, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FUND CONTINUES TO PROVIDE POSITIVE YOUR FUND
RETURNS, HIGH CURRENT INCOME
Because the airline and
For the fiscal year MARKET CONDITIONS tobacco sectors have
ended March 31, 2004, been highly volatile for
AIM High Income The economy and the some time, we limited
Municipal Fund Class A stock market showed the fund's exposure to
shares returned 7.30% at signs of health for the them. This low
net asset value. Had year ended March 31, allocation helped
front-end sales charges 2004. U.S. gross performance during the
been included, return domestic product, the early part of the fiscal
would have been lower. broadest measure of year, but caused the
Results for the fund's economic activity, fund to lag its
other share classes are expanded at an peer-group benchmark
shown in the table on annualized rate of 3.1%, later in the year, when
page 3. 8.2%, and 4.1% during both sectors made
the second, third, and extensive recoveries.
With this return, fourth quarters of 2003, These sectors continued
the fund outperformed and 4.2% in the first to be very volatile.
its broad-market quarter of 2004. The S&P Despite higher demand
benchmark, the Lehman 500--Registered for travel, airlines
Municipal Bond Index, Trademark-- Index, were unable to achieve
which returned 5.86% for widely viewed as pricing power due to a
the 12 months. The fund representative of the lack of high-fare
lagged the 8.54% return U.S. stock market, rose business travelers, and
of the Lipper High Yield 35.10% for the year rising fuel costs
Municipal Debt Fund ended March 31, 2004. increased airline
Index, which measures expenses where they were
the performance of The Federal Reserve unhedged. The tobacco
similar funds. reduced the influential business's performance
federal funds target was uneven due to
Both the rate to 1.00% on June litigation.
outperformance and the 25, 2003, to help
underperformance stimulate economic The health care
resulted from two major growth. The rate sector helped fund
factors: a lowering of remained at this 46-year results. Hospitals, in
the fund's duration in low for the remainder of particular, continued to
anticipation of rising the fund's fiscal year, make positive operating
interest rates, and a assisted by tepid improvements by reducing
low allocation to the inflation expectations costs and streamlining
highly volatile airline due to slow job growth operations.
and tobacco sectors. during most of the year.
Both measures helped Since the anticipation Community
protect against losses of inflation tends to Development Districts
during market selloffs erode bond prices, this benefited from low
such as in August 2003, circumstance was mortgage rates, which
but reduced the rate of favorable for bonds. encouraged many
gain during periods of first-time homebuyers to
recovery such as in A low supply of enter the market.
September. high-yield municipal However, as those low
bonds prevailed during interest rates enabled
the period. This helped renters to purchase
the fund and the market homes, the performance
in general by creating of the multi-family
stability in price and housing sector sagged,
coupon. Low interest and we reduced the
rates also aided the fund's exposure to that
fund in the form of sector.
price appreciation.
Among specific
holdings that helped
fund performance during
the year were the
following:
================================================================================
FUND PROVIDES CURRENT INCOME
<Table>
<Caption>
30-Day Taxable Equivalent Taxable Equivalent
Distribution 30-Day 30-Day 30-Day
Rate Distribution Rate Yield Yield
Class A 5.69% 8.75% 5.34% 8.22%
Class B 5.24 8.06 4.85 7.46
Class C 5.24 8.06 4.85 7.46
</Table>
================================================================================
<Table>
TOTAL NUMBER OF HOLDINGS 233
TOTAL NET ASSETS $158.0 MILLION
AVERAGE CREDIT QUALITY RATING BB
AVERAGE EFFECTIVE DURATION 6.47 YEARS
WEIGHTED AVERAGE MATURITY 21.16 YEARS
BOND HOLDINGS BY TYPE:
REVENUE 92.5%
GENERAL OBLIGATION 5.5%
OTHER 2.0%
</Table>
The fund's 30-day distribution rate reflects its most recent monthly dividend
distribution multiplied by 12 and divided by the most recent month-end maximum
offering price. The taxable-equivalent 30-day distribution rate is calculated in
the same manner as the 30-day distribution rate, with an adjustment for a
stated, assumed tax rate.
The 30-day yield is calculated using a formula defined by the Securities and
Exchange Commission. The formula is based on the portfolio's potential earnings
from dividends, interest and yield-to-maturity or yield-to-call of the bonds in
the portfolio, net of all expenses, calculated at maximum offering price, and
annualized. The taxable-equivalent 30-day yield is calculated in the same manner
as the 30-day yield, with an adjustment for a stated, assumed tax rate.
These taxable-equivalent yield and distribution rate figures assume the
highest federal income tax rate in effect on March 31, 2004--35.0%.
Had the advisor not waived fees and/or reimbursed expenses, 30-day yields
would have been 4.79%, 4.26% and 4.26% for Class A, Class B, and Class C shares,
respectively.
================================================================================
2
o The fund received a Continuing Care. Temple FRANKLIN RUBEN
boost from some University Hospital
Newport News owned and operated three Mr. Ruben is
(Virginia) Re- nursing homes. However, [RUBEN lead manager of
development and all three suffered PHOTO] AIM High Income
Housing Authority losses because of the Municipal Fund.
bonds, which hospital's inexperience He began his investment
underwent credit in that business. Temple career in 1985 and
improvements after decided to close all of joined AIM in 1997. He
they were them and default on the holds both a B.S. in
purchased, and debt. The value of the accounting and an M.S.
which we sold at a bonds eroded steeply, in finance from The
good profit. and bondholders University of Texas at
commenced a lawsuit to Dallas, and completed
o Positive contributions recover lost value. the Cash Management
to fund performance Executive Education
also came from some Over the year, we Program at Duke
hospital facilities made some adjustments in University.
revenue bonds for the fund's portfolio. We
Palmetto Health increased the number of SHARON A. COPPER
Alliance, issued by holdings as fund assets
the South Carolina increased. Since Ms. Copper is
Jobs & Economic interest rates have [COPPER portfolio manager
Development remained so low for so PHOTO] of AIM High
Authority. These many months, we--and Income Municipal
unrated bonds were many others--anticipated Fund. She began her
pre-refunded in that rates might begin career in the investment
August 2003, and at rising if the industry in 1985 and
the end of the improvement in economic joined AIM in 1992. She
fund's fiscal year growth continues. received a B.B.A. in
their value had Therefore, we continued marketing with a minor
risen our defensive strategy in finance from
substantially. of lowering the fund's Southeastern Louisiana
duration and reducing University and an M.B.A.
Inevitably, there its weighted average in finance from the
were also some maturity by selling the University of St.
holdings whose lower-coupon securities Thomas.
performance did not and replacing them with
turn out as well as higher-yielding bonds RICHARD A. BERRY
anticipated. and bonds with shorter
maturities. Mr. Berry,
o We purchased some Los [BERRY Chartered Financial
Angeles (California) IN CLOSING PHOTO] Analyst, is
Regional Airport portfolio manager
Improvement Corp. We were pleased to have of AIM High Income
Lease Revenue bonds, provided positive Municipal Fund. He has
but lost confidence performance during the been in the investment
in them because of fiscal year and to have industry since 1968 and
the negative met the fund's joined AIM in 1987. He
performance of objectives of received both a B.B.A.
American Airlines maintaining a stable and an M.B.A. in finance
(the lessee), and dividend and relatively from Texas Christian
especially because stable net asset value. University.
the airline
management approved,
but failed to Assisted by the Municipal
disclose, a very Bond Team
generous retirement
plan for top
executives that [RIGHT ARROW GRAPHIC]
would be unaffected
even in case of FOR A PRESENTATION OF YOUR
bankruptcy, while FUND'S LONG-TERM PERFORMANCE
asking for wage and RECORD, PLEASE TURN THE
work-rule PAGE.
concessions from
other employees. The
bonds declined in
value and were sold
at a loss.
o A default occurred
on bonds issued by
Montgomery County
(Pennsylvania) -
Temple
See important fund and index
disclosures inside front cover.
================================================================================
TOP FIVE HOLDINGS
- --------------------------------------------------------------------------------
<Table>
<Caption>
% OF
ISSUER COUPON MATURITY TOTAL NET ASSETS
- ------ ------ -------- ----------------
1. Onondaga (County of) Industrial 7.00% 11/1/30 1.3%
Development Agency
2. Overland Park (City of) Development Corp. 7.38 1/1/32 1.3
3. Illinois (State of) Development Finance Authority 1.10 8/1/26 1.2
4. New Jersey (State of) Health Care Facilities 7.25 7/1/27 1.1
Financing Authority
5. Beaver (County of) Industrial Development 7.63 5/1/25 1.1
Authority
</Table>
================================================================================
FUND VS. INDEXES
Total returns, 3/31/03-3/31/04, excluding applicable front-end or contingent
deferred sales charges. If sales charges were included, returns would be lower.
Class A Shares 7.30%
Class B Shares 6.51
Class C Shares 6.51
Lehman Municipal Bond Index
(Broad Market Index) 5.86
Lipper High Yield Municipal
Debt Fund Index (Peer Group Index) 8.54
Source: Lipper, Inc.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
================================================================================
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
Past performance cannot ============================================================================================
guarantee comparable
future results. RESULTS OF A $10,000 INVESTMENT
Your fund's total return 1/2/98--3/31/04 Index data from 12/31/97 [MOUNTAIN CHART]
includes reinvested
dividends, applicable AIM HIGH INCOME AIM HIGH INCOME AIM HIGH INCOME LIPPER HIGH LEHMAN
sales charges, fund MUNICIPAL FUND MUNICIPAL FUND MUNICIPAL FUND YIELD MUNICIPAL MUNICIPAL
expenses and management DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES DEBT FUND INDEX BOND INDEX
fees. Index results ---------- --------------- --------------- --------------- --------------- ----------
include reinvested 1/2/98 9525 10000 10000 10000 10000
dividends, but they do 3/31/1998 9623 10080 10078 10137 10115
not reflect sales 6/30/1998 9819 10255 10252 10298 10269
charges, fund expenses 9/30/1998 10087 10526 10523 10532 10584
or management fees. 12/31/1998 10124 10535 10532 10556 10648
Results for Class B 3/31/1999 10201 10607 10604 10641 10742
shares are calculated as 6/30/1999 10117 10490 10487 10523 10553
if a hypothetical 9/30/1999 9836 10178 10175 10403 10511
shareholder had 12/31/1999 9353 9657 9665 10171 10429
liquidated his entire 3/31/2000 9407 9703 9701 10298 10734
investment in the fund 6/30/2000 9419 9694 9702 10341 10896
at the close of the 9/30/2000 9528 9797 9793 10548 11160
reporting period and 12/31/2000 9707 9947 9955 10651 11648
paid the applicable 3/31/2001 9888 10135 10132 10859 11906
contingent deferred 6/30/2001 10120 10338 10335 10990 11983
sales charges. 9/30/2001 10346 10550 10547 11222 12320
Performance shown in the 12/31/2001 10375 10559 10556 11117 12245
chart and table does not 3/31/2002 10524 10690 10687 11184 12360
reflect deduction of 6/30/2002 10783 10933 10930 11477 12812
taxes a shareholder 9/30/2002 11070 11204 11201 11746 13421
would pay on fund 12/31/2002 11122 11237 11234 11752 13421
distributions or sale of 3/31/2003 11239 11334 11330 11807 13582
fund shares. Performance 6/30/2003 11540 11616 11613 12183 13932
of the indexes does not 9/30/2003 11595 11651 11648 12274 13943
reflect the effects of 12/31/2003 11773 11805 11803 12553 14134
taxes. 3/31/2004 12057 12069 12067 12816 14378
In evaluating this Source: Lipper, Inc.
chart, please note that ==============================================================================================
the chart uses a
logarithmic scale along The performance data quoted Had the advisor not waived fees
the vertical axis (the represent past performance and and/or reimbursed expenses,
value scale). This means cannot guarantee comparable future performance would have been lower.
that each scale results; current performance may be
increment always lower or higher. Please visit After-tax returns include sales
represents the same AIMinvestments.com for the most charges and are calculated using
percent change in price; recent month-end performance. the historical highest individual
in a linear chart each Performance figures reflect federal marginal income tax rate;
scale increment always reinvested distributions, changes they do not reflect the effect of
represents the same in net asset value and the effect state and local taxes. Actual
absolute change in of the maximum applicable sales after-tax returns depend on the
price. In this example, charge unless otherwise stated. investor's tax situation and may
the scale increment Investment return and principal differ from those shown. After-tax
between $5,000 and value will fluctuate so that you returns shown are not relevant to
$10,000 is the same as may have a gain or loss when you investors who hold their shares in
that between $10,000 and sell shares. tax-deferred accounts such as
$20,000. In a linear 401(k)s or IRAs.
chart, the latter scale Class A share performance
increment would be twice reflects the maximum 4.75% sales
as large. The benefit of charge, and Class B and Class C
using a logarithmic share performance reflects the
scale is that it better applicable contingent deferred
illustrates performance sales charge (CDSC) for the period
during the fund's early involved. The CDSC on Class B
years before reinvested shares declines from 5% beginning
distributions and at the time of purchase to 0% at
compounding create the the beginning of the seventh year.
potential for the The CDSC on Class C shares is 1%
original investment to for the first year after purchase.
grow to very large The performance of the fund's share
numbers. Had the chart classes will differ due to
used a linear scale different sales charge structures
along its vertical axis, and class expenses.
you would not be able to
see as clearly the
movements in the value
of the fund and the
indexes during the
fund's early years. We
use a logarithmic scale
in financial reports of
funds that have more
than five years of
performance history.
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/04, including applicable sales charges
AFTER TAXES ON
DISTRIBUTIONS
AFTER TAXES ON AND SALE OF
CLASS A SHARES BEFORE TAXES DISTRIBUTIONS FUND SHARES
- -------------- ------------ -------------- --------------
Inception (1/2/98) 3.04% 3.04% 3.40%
5 Years 2.40 2.40 2.86
1 Year 2.21 2.21 3.51
CLASS B SHARES
Inception (1/2/98) 3.06% 3.06% 3.33%
5 Years 2.30 2.30 2.70
1 Year 1.51 1.51 2.88
CLASS C SHARES
Inception (1/2/98) 3.06% 3.05% 3.33% [ARROW
5 Years 2.61 2.61 2.96 BUTTON For More Information Visit
1 Year 5.51 5.51 5.48 IMAGE] AIMinvestments.com
</Table>
================================================================================
4
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2004
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-98.04%
ARIZONA-2.28%
Pima (County of) Industrial Development
Authority; Health Care Facilities Series
2000 A RB
8.25%, 11/15/22 $ 640 $ 658,144
- --------------------------------------------------------------------
8.50%, 11/15/32 400 414,736
- --------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Desert Heights Charter School);
Educational Facilities Series 2003 IDR
7.25%, 08/01/19 830 841,080
- --------------------------------------------------------------------
Pima (County of) Industrial Development
Authority (Radisson City Center Project);
Refunding Series 2002 RB
6.50%, 12/01/09 (Acquired 03/12/04; Cost
$364,730)(a) 365 362,781
- --------------------------------------------------------------------
7.00%, 12/01/12 (Acquired 03/28/02; Cost
$800,000)(a) 800 796,312
- --------------------------------------------------------------------
Scottsdale (City of) Industrial Development
Authority (Scottsdale Healthcare); Hospital
Series 2001 IDR
5.80%, 12/01/31 500 529,590
====================================================================
3,602,643
====================================================================
CALIFORNIA-2.18%
California (State of) Educational Facilities
Authority (Fresno Pacific University);
Series 2000 A RB
6.75%, 03/01/19 1,000 1,105,120
- --------------------------------------------------------------------
California (State of) Educational Facilities
Authority (Keck Graduate Institute); Series
2000 RB
6.75%, 06/01/30 390 425,595
- --------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Hospice of Napa
Valley Project); Series 2004 A RB
7.00%, 01/01/34 900 922,923
- --------------------------------------------------------------------
California (State of) Statewide Communities
Development Authority (Notre Dame de Namor
University); Series 2003 RB
6.50%, 10/01/23 1,000 995,080
====================================================================
3,448,718
====================================================================
COLORADO-9.90%
Antelope Heights Metropolitan District;
Limited Tax Series 2003 GO
8.00%, 12/01/23 500 503,650
- --------------------------------------------------------------------
Bradburn Metropolitan District No. 3; Limited
Tax Series 2003 GO
7.50%, 12/01/33 500 501,925
- --------------------------------------------------------------------
Bromley Park Metropolitan District No. 2;
Limited Tax Series 2002 B GO
8.05%, 12/01/32 500 511,490
- --------------------------------------------------------------------
Bromley Park Metropolitan District No. 2;
Limited Tax Series 2003 GO
8.05%, 12/01/32 750 761,482
- --------------------------------------------------------------------
Buckhorn Valley Metropolitan District No. 2;
Limited Tax Series 2003 GO
7.00%, 12/01/23 500 503,595
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
COLORADO-(CONTINUED)
Colorado (State of) Educational & Cultural
Facilities Authority (Academy Charter
School Project); Series 2000 RB
7.13%, 12/15/30 $1,195 $ 1,294,663
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Compass Montessori Project); Series
2002 R-1 RB
8.00%, 02/15/32 1,000 1,030,860
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Denver
Arts School Project); Series 2003 RB
8.00%, 05/01/34 500 502,680
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Excel
Academy Project); Series 2003 RB
7.30%, 12/01/23 570 557,431
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Littleton Academy Building Project);
Series 2002 RB
6.00%, 01/15/22 500 502,410
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Peak
to Peak Project); Series 2001 RB
7.63%, 08/15/31 500 531,125
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Pioneer Charter Project); Series
2003 RB
7.75%, 10/15/33 750 752,460
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter School-Platte
Academy Project); Series 2002 A RB
7.25%, 03/01/22 500 519,910
- --------------------------------------------------------------------
7.25%, 03/01/32 500 516,800
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-University Lab School Project);
Series 2001 RB
6.13%, 06/01/21 150 153,160
- --------------------------------------------------------------------
6.25%, 06/01/31 500 510,045
- --------------------------------------------------------------------
Colorado (State of) Educational & Cultural
Facilities Authority (Charter
School-Pioneer Project); Series 2003 RB
7.00%, 11/01/23 500 496,540
- --------------------------------------------------------------------
Colorado (State of) Health Facilities
Authority (Portercare Adventist Health);
Hospital Series 2001 RB
6.50%, 11/15/31 500 553,070
- --------------------------------------------------------------------
Conservatory Metropolitan District (Arapahoe
County); Limited Tax Series 2003 GO
7.50%, 12/01/27 750 746,182
- --------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
COLORADO-(CONTINUED)
Denver (City of) Health & Hospital Authority;
Health Care Facilities Series 2001 A RB
6.00%, 12/01/31 $ 500 $ 505,145
- --------------------------------------------------------------------
Montrose (County of) (The Volunteers of
America Homestead at Montrose); Health Care
Facilities Series 2003 A RB
5.75%, 02/01/15 250 252,195
- --------------------------------------------------------------------
6.75%, 02/01/22 200 203,372
- --------------------------------------------------------------------
7.00%, 02/01/25 800 816,392
- --------------------------------------------------------------------
Saddle Rock (City of) South Metropolitan
District No. 2 (Mill Levy Obligation);
Limited Tax Series 2000 GO
7.20%, 12/01/19 585 620,246
- --------------------------------------------------------------------
Table Rock Metropolitan District; Limited Tax
Series 2003 GO
7.00%, 12/01/33 750 760,672
- --------------------------------------------------------------------
University of Northern Colorado Auxiliary
Facilities System; Refunding & Improvement
Series 2001 RB
5.00%, 06/01/23(b) 1,000 1,040,790
====================================================================
15,648,290
====================================================================
DISTRICT OF COLUMBIA-0.46%
District of Columbia Tobacco Settlement
Financing Corp.; Asset-Backed Series 2001
RB
6.50%, 05/15/33 750 721,567
====================================================================
FLORIDA-7.52%
Beacon Lakes Community Development District;
Special Assessment Series 2003 A RB
6.90%, 05/01/35 750 773,842
- --------------------------------------------------------------------
Concorde Estates Community Development
District; Capital Improvement Series 2004 B
RB
5.00%, 05/01/11 500 495,720
- --------------------------------------------------------------------
Cory Lakes Community Development District;
Special Assessment Series 2001 A RB
8.38%, 05/01/17 475 536,232
- --------------------------------------------------------------------
Cory Lakes Community Development District;
Special Assessment Series 2001 B RB
8.38%, 05/01/17 370 394,583
- --------------------------------------------------------------------
Fishhawk Community Development District;
Special Assessment Series 1996 GO
7.63%, 05/01/18 780 831,581
- --------------------------------------------------------------------
Fishhawk Community Development District II;
Special Assessment Series 2003 B RB
5.00%, 11/01/07 900 901,278
- --------------------------------------------------------------------
Islands at Doral Southwest Community
Development District; Special Assessment
Series 2003 RB
6.38%, 05/01/35 500 525,350
- --------------------------------------------------------------------
Lee (County of) Industrial Development
Authority (Cypress Cove at HealthPark);
Health Care Facilities Series 2002 A RB
6.75%, 10/01/32 1,250 1,282,125
- --------------------------------------------------------------------
Miami Beach (City of) Health Facilities
Authority (Mount Sinai Medical Center);
Hospital Series 2001 A RB
6.70%, 11/15/19 1,000 1,038,460
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
FLORIDA-(CONTINUED)
Orange (County of) Housing Finance Authority
(Palm West Apartments Project); Multifamily
Housing Series 1999 B RB
6.50%, 03/01/34 $1,000 $ 892,130
- --------------------------------------------------------------------
Orlando (City of) Urban Community Development
District; Capital Improvement Special
Assessment Series 2001 A RB
6.95%, 05/01/33 1,000 1,062,380
- --------------------------------------------------------------------
Poinciana Community Development District;
Special Assessment Series 2000 A GO
7.13%, 05/01/31 1,000 1,064,340
- --------------------------------------------------------------------
Reunion East Community Development District;
Special Assessment Series 2002 A GO
7.38%, 05/01/33 1,000 1,078,200
- --------------------------------------------------------------------
Seven Oaks Community Development District II;
Special Assessment Series 2003 B RB
5.30%, 11/01/08 615 617,325
- --------------------------------------------------------------------
Sumter (County of) Industrial Development
Authority (Wecare Nursing Center Project);
Health Care Facilities Series 1999 A RB
6.75%, 04/01/29(c)(d) 1,405 397,320
====================================================================
11,890,866
====================================================================
GEORGIA-3.66%
Atlanta (City of) (Atlantic Station Project);
Tax Allocation Series 2001 RB
7.90%, 12/01/24 750 791,452
- --------------------------------------------------------------------
7.75%, 12/01/14 750 787,717
- --------------------------------------------------------------------
Fulton (County of) (Canterbury Court
Project); Residential Care Facilities
Series 2004 A RB
6.13%, 02/15/26 500 494,790
- --------------------------------------------------------------------
6.13%, 02/15/34 200 194,276
- --------------------------------------------------------------------
Fulton (County of) Housing Authority (Azalea
Manor Project); Multifamily Housing Series
1998 RB
6.50%, 02/01/28 (Acquired 02/18/98; Cost
$780,000)(a)(c) 780 569,400
- --------------------------------------------------------------------
Fulton (County of) Housing Authority
(Washington Court Project); Multifamily
Housing Series 1998 RB
6.40%, 02/01/19(c) 700 511,000
- --------------------------------------------------------------------
6.50%, 02/01/28 225 164,250
- --------------------------------------------------------------------
Rockdale (County of) Development Authority
(Visy Paper, Inc. Project); Solid Waste
Disposal Series 1993 RB
7.50%, 01/01/26(e) 1,500 1,505,205
- --------------------------------------------------------------------
Savannah (City of) Economic Development
Authority (Marshes of Skidaway); First
Mortgage Series 2003 A RB
7.40%, 01/01/24 750 766,830
====================================================================
5,784,920
====================================================================
ILLINOIS-6.00%
Chicago (City of) (Chatham Ridge
Redevelopment Project); Tax Increment
Allocation Series 2002 RB
5.95%, 12/15/12 275 282,199
- --------------------------------------------------------------------
6.05%, 12/15/13 475 486,680
- --------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
ILLINOIS-(CONTINUED)
Chicago (City of) (Lake Shore East Project);
Special Assessment Series 2003 RB
6.63%, 12/01/22 $ 500 $ 504,505
- --------------------------------------------------------------------
6.75%, 12/01/32 500 502,690
- --------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (American College of Surgeons);
VRD Series 1996 RB (LOC-Northern Trust Co.)
1.10%, 08/01/26(f)(g) 1,952 1,952,000
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority; Series 2003 A RB
7.00%, 11/15/32 800 812,208
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Bethesda Home & Retirement);
Series 1999 A RB
6.25%, 09/01/14 500 518,920
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Lifelink Corp. Obligation
Group); Refunding Series 1998 RB
5.70%, 02/15/24 850 547,077
- --------------------------------------------------------------------
5.85%, 02/15/20 350 225,218
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Lutheran Senior Ministries
Obligation Group); Series 2001 A RB
7.38%, 08/15/31 1,000 1,007,930
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (SwedishAmerican Hospital);
Series 2000 RB
6.88%, 11/15/30 695 757,640
- --------------------------------------------------------------------
Illinois (State of) Health Facilities
Authority (Villa of St. Benedict); Series
2003 A-1 RB
6.90%, 11/15/33 500 505,190
- --------------------------------------------------------------------
Metropolitan Pier & Exposition Authority
(McCormick Place Expansion); Dedicated
State Tax Series 2002 A RB
5.00%, 12/15/28(b) 1,250 1,292,750
- --------------------------------------------------------------------
St. Charles (City of) (Tri-City Center
Associates Ltd. Project); Series 1993 IDR
(LOC-Old Kent Bank)
7.50%, 11/01/13 (Acquired 01/12/98; Cost
$90,438)(a)(f) 85 85,050
====================================================================
9,480,057
====================================================================
INDIANA-0.66%
Petersburg (City of) (Indiana Power &
Lighting Project); Refunding Series 1991
PCR
5.75%, 08/01/21 1,000 1,038,720
====================================================================
IOWA-1.29%
Des Moines (City of) (Luther Park Apartments
Inc. Project); Sr. Housing Series 2004 RB
6.00%, 12/01/23 500 495,905
- --------------------------------------------------------------------
Polk (County of) (Luther Park Health Center
Inc. Project); Health Care Facilities
Series 2003 RB
6.50%, 10/01/20 750 763,972
- --------------------------------------------------------------------
Scott (County of) (Ridgecrest Village
Project); Series 2000 A RB
7.25%, 11/15/26 750 781,815
====================================================================
2,041,692
====================================================================
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
KANSAS-2.10%
Hutchinson (City of) (Wesley Towers Inc.);
Refunding & Improvement Health Care
Facilities Series 1999 A RB
6.25%, 11/15/19 $ 750 $ 726,000
- --------------------------------------------------------------------
Lawrence (City of) (Holiday Inn Project);
Refunding Commercial Development Sr. Series
1997 A RB
8.00%, 07/01/16 40 37,428
- --------------------------------------------------------------------
Olathe (City of) (Aberdeen Village Inc.); Sr.
Living Facilities Series 2000 A RB
7.00%, 05/15/20 200 205,404
- --------------------------------------------------------------------
7.50%, 05/15/24 330 340,649
- --------------------------------------------------------------------
Overland Park (City of) Development Corp.
(First Tier-Overland Park Project); Series
2001 A RB
7.38%, 01/01/32 2,000 2,016,880
====================================================================
3,326,361
====================================================================
KENTUCKY-0.87%
Jefferson (County of) (Beverly Enterprises
Inc. Project); Refunding Health Facilities
Series 1999 RB
5.88%, 08/01/07 435 437,275
- --------------------------------------------------------------------
Kenton (County of) Airport Board (Delta
Airlines Project); Special Facilities
Series 1992 B RB
7.25%, 02/01/22 500 449,790
- --------------------------------------------------------------------
Newport (City of) Public Properties Corp.
(Public Parking & Plaza); First Mortgage
Series 2000 A-1 RB
8.50%, 01/01/27 500 487,445
====================================================================
1,374,510
====================================================================
MARYLAND-3.11%
Anne Arundel (County of) (Parole Town Center
Project); Tax Increment Financing Series
2002 RB
5.00%, 07/01/12 500 506,540
- --------------------------------------------------------------------
Baltimore (City of) (Strathdale Manor
Project); Special Obligations Series 2003
RB
7.00%, 07/01/33 968 989,509
- --------------------------------------------------------------------
Howard (County of); Retirement Community
Series 2000 A RB
7.88%, 05/15/10(h)(i) 780 1,017,019
- --------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority (Medstar
Health); Refunding Hospital Series 2004 RB
5.38%, 08/15/24 750 745,815
- --------------------------------------------------------------------
5.50%, 08/15/33 500 505,475
- --------------------------------------------------------------------
Maryland (State of) Health & Higher
Educational Facilities Authority
(University of Maryland Medical System);
Series 2000 RB
6.75%, 07/01/30 1,000 1,146,310
====================================================================
4,910,668
====================================================================
MASSACHUSETTS-0.64%
Massachusetts (State of) Development Finance
Agency (Briarwood); Series 2001 B RB
7.50%, 12/01/16 500 520,285
- --------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
MASSACHUSETTS-(CONTINUED)
Massachusetts (State of) Health & Educational
Facilities Authority (Christopher House);
Refunding Series 1999 A RB
6.88%, 01/01/29 $ 500 $ 489,690
====================================================================
1,009,975
====================================================================
MICHIGAN-3.07%
Garden City Hospital Finance Authority
(Garden City Hospital Obligated Group);
Refunding Hospital Series 1998 A RB
5.75%, 09/01/17 500 415,260
- --------------------------------------------------------------------
Gogebic (County of) Hospital Finance
Authority (Grand View Health System Inc.);
Refunding Series 1999 RB
5.88%, 10/01/16 920 923,202
- --------------------------------------------------------------------
Mecosta (County of) General Hospital;
Refunding Unlimited Tax Series 1999 GO
6.00%, 05/15/18 500 489,350
- --------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(Detroit Academy of Arts & Science); Public
School Series 2001 A RB
7.90%, 10/01/21 500 521,335
- --------------------------------------------------------------------
Michigan (State of) Municipal Bond Authority
(YMCA Service Learning Academy); Public
School Series 2001 RB
7.75%, 10/01/31 500 517,040
- --------------------------------------------------------------------
Michigan (State of) Strategic Fund (Detroit
Edison Pollution Control); Refunding
Limited Obligation Series 2001 C PCR
5.45%, 09/01/29 500 526,395
- --------------------------------------------------------------------
Wenonah Park Properties Inc. (Bay City
Hotel); Series 2002 RB
7.50%, 04/01/33 1,000 961,300
- --------------------------------------------------------------------
7.88%, 04/01/22 500 503,775
====================================================================
4,857,657
====================================================================
MINNESOTA-8.97%
Buhl (City of) Nursing Home (Forest Health
Services Project); Series 2003 A RB
6.40%, 08/01/23 575 578,990
- --------------------------------------------------------------------
6.75%, 08/01/27 500 502,780
- --------------------------------------------------------------------
Duluth (City of) Economic Development
Authority (Benedictine Health System-St.
Mary's); Health Care Facilities Series 2004
RB
4.75%, 02/15/28 1,000 976,220
- --------------------------------------------------------------------
Edina (City of) (Volunteers of America Care
Centers Project); Health Care Facilities
Series 2002 A RB
6.63%, 12/01/22 250 266,057
- --------------------------------------------------------------------
6.63%, 12/01/30 250 261,015
- --------------------------------------------------------------------
Fairmont (City of) (The Homestead-GEAC LLC
Project); Housing Facilities Series 2002
A-1 RB
7.25%, 04/01/22 915 924,937
- --------------------------------------------------------------------
Glencoe (City of) (Glencoe Regional Health
Services Project); Health Care Facilities
Series 2001 RB
7.40%, 04/01/21 250 272,617
- --------------------------------------------------------------------
7.50%, 04/01/31 500 541,915
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
MINNESOTA-(CONTINUED)
Minneapolis (City of) (Ebenezer Society
Project); Health Care Facility Series 1993
A RB
7.00%, 07/01/12 $ 100 $ 100,601
- --------------------------------------------------------------------
Minneapolis (City of) (Shelter Care
Foundation); Health Care Facility Series
1999 A RB
6.00%, 04/01/10 755 746,786
- --------------------------------------------------------------------
Minneapolis (City of) (St. Anthony Falls
Project); Refunding Tax Increment Series
2004 RB
5.75%, 02/01/27 605 595,501
- --------------------------------------------------------------------
Moorhead (City of) Economic Development
Authority (Housing Development-Eventide
Project); Refunding Multifamily Housing
Series 1998 A RB
6.00%, 06/01/18 500 502,850
- --------------------------------------------------------------------
Oakdale (City of) (Oak Meadows Project); Sr.
Housing Series 1997 RB
6.75%, 04/01/15 600 604,356
- --------------------------------------------------------------------
Ramsey (City of) (Pact Charter School
Project); Lease Series 2004 A RB
6.50%, 12/01/22 925 920,440
- --------------------------------------------------------------------
6.75%, 12/01/33 150 149,124
- --------------------------------------------------------------------
Rochester (City of) (Samaritan Bethany Inc.
Project); Refunding Health Care & Housing
Series 2003 A RB
5.38%, 08/01/12 165 172,276
- --------------------------------------------------------------------
5.50%, 08/01/13 195 197,125
- --------------------------------------------------------------------
6.25%, 08/01/19 1,100 1,142,053
- --------------------------------------------------------------------
St. Cloud (City of) Housing & Redevelopment
Authority (Sterling Heights Apartments
Project); Multifamily Housing Series 2002
RB
7.00%, 10/01/23(e) 495 490,332
- --------------------------------------------------------------------
7.45%, 10/01/32(e) 155 153,374
- --------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (New Spirit Charter School
Project); Lease Series 2002 A RB
7.50%, 12/01/31 890 874,096
- --------------------------------------------------------------------
St. Paul (City of) Housing & Redevelopment
Authority (Community of Peace Academy
Project); Lease Series 2001 A RB
7.38%, 12/01/19 900 968,328
- --------------------------------------------------------------------
St. Paul (City of) Port Authority (Radisson
Kellogg Project); Hotel Facilities Series
1999 2 RB
7.38%, 08/01/29 1,225 1,251,325
- --------------------------------------------------------------------
Woodbury (City of) (Math Science Academy
Project); Refunding Lease Series 2002 A RB
7.38%, 12/01/24 250 244,273
- --------------------------------------------------------------------
7.50%, 12/01/31 750 730,718
====================================================================
14,168,089
====================================================================
MISSOURI-2.83%
Des Peres (City of) (West County Center
Project); Refunding Tax Increment Series
2002 A RB
5.75%, 04/15/20 1,000 1,017,660
- --------------------------------------------------------------------
Fenton (City of) (Gravois Bluffs Project);
Refunding & Improvement Tax Increment
Series 2001 RB
7.00%, 10/01/21 1,050 1,139,481
- --------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
MISSOURI-(CONTINUED)
Hazelwood Transportation Development District
(370 Missouri Bottom Road/Taussig Road);
Tax Increment Series 2002 RB
7.00%, 05/01/22 $ 750 $ 784,523
- --------------------------------------------------------------------
7.20%, 05/01/33 500 524,560
- --------------------------------------------------------------------
St. Louis (City of) Industrial Development
Authority (Ranken-Jordan Project); Health
Facilities Series 2003 A IDR
6.50%, 11/15/23 1,000 1,007,010
====================================================================
4,473,234
====================================================================
NEVADA-1.24%
Boulder City (Boulder City Hospital Inc.
Project); Refunding Hospital Series 1998 RB
5.85%, 01/01/22 1,000 869,400
- --------------------------------------------------------------------
Clark (County of) (Nevada Power Co. Project);
Refunding Series 1992 C IDR
7.20%, 10/01/22 550 562,320
- --------------------------------------------------------------------
University of Nevada (Community College
System); Series 2002 A RB
5.40%, 07/01/31(b) 500 530,675
====================================================================
1,962,395
====================================================================
NEW HAMPSHIRE-1.63%
New Hampshire (State of) Business Finance
Authority (Alice Peck Day Health System);
Series 1999 A RB
6.88%, 10/01/19 1,050 1,059,471
- --------------------------------------------------------------------
New Hampshire (State of) Health & Educational
Facilities Authority (Huntington at
Nashua); Series 2003 A RB
6.88%, 05/01/23 750 753,960
- --------------------------------------------------------------------
6.88%, 05/01/33 750 747,878
- --------------------------------------------------------------------
New Hampshire (State of) Higher Educational &
Health Facilities Authority (Daniel Webster
College); Series 1994 RB
7.63%, 07/01/04(h)(i) 10 10,357
====================================================================
2,571,666
====================================================================
NEW JERSEY-3.52%
New Jersey (State of) Economic Development
Authority (Cedar Crest Village Inc.
Facility); Retirement Community Services
Series 2001 A RB
7.25%, 11/15/21 500 519,725
- --------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project); Special Facilities Series 2000 RB
7.00%, 11/15/30(e) 500 440,725
- --------------------------------------------------------------------
7.20%, 11/15/30(e) 425 383,852
- --------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Continental Airlines, Inc.
Project); Special Facilities Series 2003 RB
9.00%, 06/01/33(e) 500 513,345
- --------------------------------------------------------------------
New Jersey (State of) Economic Development
Authority (Seashore Gardens Project); First
Mortgage Series 2001 RB
8.00%, 04/01/23 800 823,208
- --------------------------------------------------------------------
8.00%, 04/01/31 500 511,235
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
NEW JERSEY-(CONTINUED)
New Jersey (State of) Health Care Facilities
Financing Authority (Pascack Valley
Hospital Association); Series 2003 RB
6.50%, 07/01/23 $ 500 $ 522,870
- --------------------------------------------------------------------
New Jersey (State of) Health Care Facilities
Financing Authority (Raritan Bay Medical
Center); Series 1994 RB
7.25%, 07/01/14 50 51,753
- --------------------------------------------------------------------
7.25%, 07/01/27 1,750 1,792,350
====================================================================
5,559,063
====================================================================
NEW YORK-4.11%
Monroe (County of) Industrial Development
Agency (Woodland Village Project); Civic
Facility Series 2000 RB
8.55%, 11/15/32 1,000 1,081,410
- --------------------------------------------------------------------
New York (City of) Industrial Development
Agency (Staten Island University Hospital
Project); Civic Facility Series 2002 C RB
6.45%, 07/01/32 390 400,234
- --------------------------------------------------------------------
Onondaga (County of) Industrial Development
Agency (Solvay Paperboard LLC Project);
Refunding Solid Waste Disposal Facility
Series 1998 IDR 7.00%, 11/01/30(e) 2,000 2,100,120
- --------------------------------------------------------------------
Orange (County of) Industrial Development
Agency (Arden Hill Life Care Center
Newburgh); Civic Facility Series 2001 C RB
7.00%, 08/01/31 550 550,633
- --------------------------------------------------------------------
Suffolk (County of) Industrial Development
Agency (Spellman High Voltage Facility);
Series 1997 A IDR
6.38%, 12/01/17(e) 350 314,139
- --------------------------------------------------------------------
Syracuse (City of) Industrial Development
Agency (Jewish Home); First Mortgage Series
2001 A RB
7.38%, 03/01/21 350 362,082
- --------------------------------------------------------------------
7.38%, 03/01/31 500 513,905
- --------------------------------------------------------------------
Westchester (County of) Industrial
Development Agency (Hebrew Hospital Sr.
Housing Inc.); Continuing Care Retirement
Series 2000 A RB
7.00%, 07/01/21 600 637,836
- --------------------------------------------------------------------
7.38%, 07/01/30 500 534,135
====================================================================
6,494,494
====================================================================
NORTH CAROLINA-0.49%
North Carolina (State of) Medical Care
Commission (Arbor Acres United Methodist
Community Project); First Mortgage Health
Care Facilities Series 2002 RB
6.38%, 03/01/32 500 513,185
- --------------------------------------------------------------------
North Carolina (State of) Medical Care
Commission (Forest at Duke Project); First
Mortgage Retirement Facilities Series 2002
RB
6.38%, 09/01/32 250 256,275
====================================================================
769,460
====================================================================
NORTH DAKOTA-0.29%
Grand Forks (City of) (4000 Valley Square
Project); Special Term Sr. Housing Series
1997 RB
6.38%, 12/01/34 485 465,144
====================================================================
</Table>
F-5
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
OHIO-2.67%
Cuyahoga (County of) (Canton Inc. Project);
Hospital Facilities Series 2000 RB
7.50%, 01/01/30 $ 750 $ 838,620
- --------------------------------------------------------------------
Cuyahoga (County of) Port Authority; Special
Assessment Tax Increment Series 2001 RB
7.35%, 12/01/31 1,000 1,064,240
- --------------------------------------------------------------------
Franklin (County of) (Ohio Presbyterian);
Health Care Facilities Series 2001 A RB
7.13%, 07/01/29 500 541,230
- --------------------------------------------------------------------
Lucas (County of) (Sunset Retirement
Communities); Refunding & Improvement
Health Care Facilities Series 2000 A RB
6.50%, 08/15/20 500 532,245
- --------------------------------------------------------------------
Lucas (County of) (Sunset Retirement
Communities); Refunding & Improvement
Health Care Facilities Series 2000 A RB
6.55%, 08/15/24 500 532,740
- --------------------------------------------------------------------
Madison (County of) (Madison County Hospital
Project); Refunding Hospital Improvement
Series 1998 RB
6.25%, 08/01/18 745 709,069
====================================================================
4,218,144
====================================================================
OKLAHOMA-0.42%
Oklahoma (State of) Development Finance
Authority (Comanche County Hospital
Project); Series 2002 B RB
6.60%, 07/01/31 625 656,231
====================================================================
OREGON-1.00%
Yamhill (County of) Hospital Authority
(Friendsview Retirement Community); Series
2003 RB
7.00%, 12/01/21 1,555 1,574,469
====================================================================
PENNSYLVANIA-9.37%
Allegheny (County of) Hospital Development
Authority (Covenant at South Hills); Series
2001 A RB
8.63%, 02/01/21 500 510,875
- --------------------------------------------------------------------
8.75%, 02/01/31 500 503,555
- --------------------------------------------------------------------
Allegheny (County of) Hospital Development
Authority (Villa Saint Joseph of Baden);
Health Care Facilities Series 1998 RB
6.00%, 08/15/28 500 466,125
- --------------------------------------------------------------------
Beaver (County of) Industrial Development
Authority (Cleveland Electric Project);
Refunding Series 1995 PCR
7.63%, 05/01/25 1,600 1,721,088
- --------------------------------------------------------------------
Blair (County of) Industrial Development
Authority (Village of Pennsylvania State
Project); Series 2002 A RB
6.90%, 01/01/22 500 513,845
- --------------------------------------------------------------------
7.00%, 01/01/34 500 513,815
- --------------------------------------------------------------------
Chartiers Valley (City of) Industrial &
Commercial Development Authority (Asbury
Health Center); Refunding First Mortgage
Series 1999 RB
6.38%, 12/01/19 1,000 1,013,910
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
PENNSYLVANIA-(CONTINUED)
Clarion (County of) Industrial Development
Authority (Beverly Enterprises Inc.
Project); Refunding Series 2001 RB
7.38%, 12/01/08 (Acquired 02/22/01; Cost
$500,000)(a) $ 500 $ 508,675
- --------------------------------------------------------------------
Crawford (County of) Hospital Authority
(Wesbury United Methodist Community); Sr.
Living Facilities Series 1999 RB
6.25%, 08/15/29 750 751,553
- --------------------------------------------------------------------
Cumberland (County of) Industrial Development
Authority (Woods Cedar Run); Refunding
First Mortgage Series 1998 A RB
6.50%, 11/01/18(c)(d) 1,000 712,470
- --------------------------------------------------------------------
Cumberland (County of) Municipal Authority
(Wesley Affiliated Services, Inc.);
Retirement Community Series 2002 A RB
7.13%, 01/01/25 700 706,986
- --------------------------------------------------------------------
Lancaster (County of) Hospital Authority
(Health Center-Saint Anne's Home); Series
1999 RB
6.63%, 04/01/28 500 501,935
- --------------------------------------------------------------------
Lancaster (County of) Industrial Development
Authority (Garden Spot Village Project);
Series 2000 A RB
7.60%, 05/01/22 250 260,363
- --------------------------------------------------------------------
7.63%, 05/01/31 500 519,660
- --------------------------------------------------------------------
Lawrence (County of) Industrial Development
Authority (Shenango Presbyterian Center);
Health & Housing Facilities Sr. Series 2001
B RB
7.50%, 11/15/31 1,000 1,002,110
- --------------------------------------------------------------------
Lehigh (County of) General Purpose Authority
(Bible Fellowship Church Home Inc.); First
Mortgage Series 2001 RB
7.63%, 11/01/21 250 271,885
- --------------------------------------------------------------------
7.75%, 11/01/33 750 814,133
- --------------------------------------------------------------------
Montgomery (County of) Higher Education &
Health Authority (Philadelphia Geriatric
Center); Series 1999 A RB
7.38%, 12/01/30 1,340 1,366,854
- --------------------------------------------------------------------
Montgomery (County of) Higher Education &
Health Authority (Philadelphia Geriatric
Center); Series 1999 D RB
7.38%, 12/01/04(h)(i) 110 115,537
- --------------------------------------------------------------------
Montgomery (County of) Higher Education &
Health Authority (Temple Continuing Care
Center); Series 1999 RB
6.63%, 07/01/19(c)(d) 1,250 252,113
- --------------------------------------------------------------------
6.75%, 07/01/29(c)(d) 460 92,414
- --------------------------------------------------------------------
North Penn (City of) Health Hospital &
Education Authority (Maple Village
Project); Hospital Series 2000 A RB
8.00%, 10/01/32 300 301,128
- --------------------------------------------------------------------
Pennsylvania (State of) Higher Educational
Facilities Authority (Student Association
Inc. Project); Student Housing Series 2000
A RB
6.75%, 09/01/20 500 531,555
- --------------------------------------------------------------------
6.75%, 09/01/32 320 337,584
- --------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
PENNSYLVANIA-(CONTINUED)
Philadelphia (City of) Industrial Development
Authority (Cathedral Village Project);
Series 2003 A IDR
6.88%, 04/01/34 $ 500 $ 510,675
====================================================================
14,800,843
====================================================================
SOUTH CAROLINA-2.26%
South Carolina (State of) Jobs-Economic
Development Authority (Palmetto Health
Alliance); Hospital Facilities Improvement
Series 2000 A RB
7.38%, 12/15/10(h)(i) 800 1,022,784
- --------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (Palmetto Health
Alliance); Refunding Hospital Facilities
Series 2003 A RB
6.13%, 08/01/23 1,500 1,586,580
- --------------------------------------------------------------------
South Carolina (State of) Jobs-Economic
Development Authority (Westley Commons
Project); Health Facilities First Mortgage
Series 2000 RB
7.75%, 10/01/15 700 674,317
- --------------------------------------------------------------------
8.00%, 10/01/31 300 281,433
====================================================================
3,565,114
====================================================================
SOUTH DAKOTA-0.32%
South Dakota (State of) Health & Educational
Facilities Authority (Westhills Village
Retirement Community); Series 2003 RB
5.65%, 09/01/23 500 509,095
====================================================================
TENNESSEE-0.64%
Shelby (County of) Health, Educational &
Housing Facilities Board (Germantown
Village); Residential Care Series 2003 A RB
7.00%, 12/01/23 1,000 1,015,920
====================================================================
TEXAS-9.44%
Abilene (City of) Health Facilities
Development Corp. (Sears Methodist
Retirement); Retirement Facilities Series
2003 A RB
7.00%, 11/15/33 1,000 1,053,680
- --------------------------------------------------------------------
Atlanta (City of) Hospital Authority;
Hospital Facility Series 1999 RB
6.70%, 08/01/19 500 486,885
- --------------------------------------------------------------------
Bexar (County of) Health Facilities
Development Corp. (Army Retirement
Residence Project); Series 2002 RB
6.30%, 07/01/32 500 526,770
- --------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(American Opportunity Housing); Multifamily
Housing Sr. Series 2002 A-1 RB
6.85%, 12/01/23 750 763,523
- --------------------------------------------------------------------
Bexar (County of) Housing Finance Corp.
(Villa Madrid/Cumberland Apartments);
Multifamily Housing Series 1998 A RB
7.25%, 05/01/16 200 197,300
- --------------------------------------------------------------------
Grand Prairie (City of) Housing Finance Corp.
(Independent Sr. Living Center); Series
2003 RB
7.63%, 01/01/20 1,000 983,220
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
TEXAS-(CONTINUED)
Harris (County of); Refunding Limited Tax
Series 2002 GO
5.13%, 08/15/31(b) $ 370 $ 386,469
- --------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (Memorial Hermann Health
Care Project); Hospital Series 2001 A RB
6.38%, 06/01/29 500 569,960
- --------------------------------------------------------------------
Harris (County of) Health Facilities
Development Corp. (St. Luke's Episcopal
Hospital); Series 2001 A RB
5.63%, 02/15/18 750 804,758
- --------------------------------------------------------------------
Houston (City of) Airport System (Continental
Airlines, Inc. Project); Special Facilities
Series 2001 E RB
6.75%, 07/01/29(e) 500 422,195
- --------------------------------------------------------------------
Houston (City of) Health Facilities
Development Corp. (Buckingham Sr. Living
Community); Retirement Facilities Series
2004 A RB
7.00%, 02/15/23 300 306,369
- --------------------------------------------------------------------
7.00%, 02/15/26 750 757,620
- --------------------------------------------------------------------
7.13%, 02/15/34 450 456,062
- --------------------------------------------------------------------
Meadow Parc Development Inc. (Meadow Parc
Apartments Project); Multifamily Housing
Series 1998 RB
6.50%, 12/01/30 1,200 1,114,224
- --------------------------------------------------------------------
Midlothian (City of) Development Authority;
Tax Increment Contract Series 1999 RB
6.70%, 11/15/23 900 925,506
- --------------------------------------------------------------------
Midlothian (City of) Development Authority;
Tax Increment Contract Series 2001 RB
7.88%, 11/15/26 1,000 1,114,540
- --------------------------------------------------------------------
Richardson (City of) Hospital Authority
(Richardson Medical Center); Unrefunded
Hospital Series 1993 RB
6.75%, 12/01/23 1,000 1,025,800
- --------------------------------------------------------------------
Gulf Coast Waste Disposal Authority (Valero
Energy Corp. Project); Series 2001 RB
6.65%, 04/01/32(e) 900 976,986
- --------------------------------------------------------------------
University of Texas Financing System; Series
2001 C RB
5.00%, 08/15/20 1,000 1,057,940
- --------------------------------------------------------------------
Woodhill Public Facility Corp. (Woodhill
Apartments Project); Multifamily Housing
Series 1999 RB
7.50%, 12/01/29 1,000 989,740
====================================================================
14,919,547
====================================================================
VERMONT-0.28%
Vermont (State of) Educational & Health
Buildings Financing Agency (Copley Manor
Project); Health Care Facilities Series
1999 RB
6.25%, 04/01/29(c)(d) 1,000 448,910
====================================================================
VIRGINIA-1.42%
Hampton (City of) Redevelopment & Housing
Authority (Olde Hampton Hotel Association);
Refunding First Mortgage Series 1998 A RB
6.50%, 07/01/16 500 437,370
- --------------------------------------------------------------------
</Table>
F-7
<Table>
<Caption>
PAR MARKET
(000) VALUE
- --------------------------------------------------------------------
VIRGINIA-(CONTINUED)
Henrico (County of) Economic Development
Authority (Virginia United Methodist Homes
Inc.); Refunding Residential Care
Facilities Series 2002 A RB
6.50%, 06/01/22 $ 750 $ 768,315
- --------------------------------------------------------------------
Lynchburg (City of) Industrial Development
Authority (The Summit); Residential Care
Facilities Mortgage Series 2002 A RB
6.25%, 01/01/28 500 501,035
- --------------------------------------------------------------------
Peninsula Ports Authority (Virginia Baptist
Homes Foundation, Inc.); Residential Care
Facilities Series 2003 A RB
7.38%, 12/01/23 500 538,785
====================================================================
2,245,505
====================================================================
WISCONSIN-3.08%
Wisconsin (State of) Health & Educational
Facilities Authority (Community Memorial
Hospital Inc. Project); Series 2003 RB
7.13%, 01/15/22 1,190 1,217,739
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (FH Healthcare
Development Inc. Project); Series 1999 RB
6.25%, 11/15/20 1,250 1,335,463
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (New Castle Place Inc.
Project); Series 2001 A RB
7.00%, 12/01/31 250 255,778
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
PAR MARKET
(000) VALUE
WISCONSIN-(CONTINUED)
Wisconsin (State of) Health & Educational
Facilities Authority (Oakwood Village
Project); Series 2000 A RB
7.63%, 08/15/30 $1,000 $ 1,042,140
- --------------------------------------------------------------------
Wisconsin (State of) Health & Educational
Facilities Authority (Tomah Memorial
Hospital Inc. Project); Refunding Series
2003 RB
6.00%, 07/01/15 100 102,484
- --------------------------------------------------------------------
6.13%, 07/01/16 150 153,522
- --------------------------------------------------------------------
6.63%, 07/01/28 750 757,950
====================================================================
4,865,076
====================================================================
WYOMING-0.32%
Teton (County of) Hospital District (St.
John's Medical Center); Series 2002 RB
6.75%, 12/01/22 500 512,770
====================================================================
TOTAL INVESTMENTS-98.04% (Cost $153,955,983) 154,931,813
====================================================================
OTHER ASSETS LESS LIABILITIES-1.96% 3,090,524
====================================================================
NET ASSETS-100.00% $158,022,337
____________________________________________________________________
====================================================================
</Table>
Investment Abbreviations:
<Table>
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
Sr. - Senior
VRD - Variable Rate Demand
</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 03/31/04 was $2,322,218, which represented 1.47% of the
Fund's net assets. Unless otherwise indicated, these securities are not
considered to be illiquid.
(b) Principal and interest payments are secured by bond insurance provided
by one of the following companies: Ambac Assurance Corp., Financial
Guaranty Insurance Co., or MBIA Insurance Corp.
(c) Defaulted security. The issuer is currently in default with certain
covenants of the debt provisions. The aggregate market value of these
securities at 03/31/04 was $2,983,627 which represented 1.93% of the
Fund's total investments.
(d) Security considered to be illiquid. The market value of this security
considered illiquid at 03/31/04 represented 1.20% of the Fund's net
assets.
(e) Security subject to the alternative minimum tax.
(f) Principal and interest payments are guaranteed by the letter of credit
agreement.
(g) Demand security; payable upon demand by the Fund at specified time
intervals no greater than thirteen months. Interest rate is redetermined
weekly. Rate shown is the rate in effect on 03/31/04.
(h) Security has an irrevocable call or mandatory put by the issuer.
Maturity date reflects such call or put.
(i) Advance refunded; secured by an escrow fund of U.S. Treasury
obligations.
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$153,955,983) $154,931,813
- -----------------------------------------------------------
Receivables for:
Investments sold 50,000
- -----------------------------------------------------------
Fund shares sold 549,896
- -----------------------------------------------------------
Interest 3,157,512
- -----------------------------------------------------------
Amount due from advisor 3,584
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 31,977
- -----------------------------------------------------------
Other assets 30,480
===========================================================
Total assets 158,755,262
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 179,329
- -----------------------------------------------------------
Dividends 410,016
- -----------------------------------------------------------
Deferred compensation and retirement plans 34,797
- -----------------------------------------------------------
Accrued distribution fees 71,908
- -----------------------------------------------------------
Accrued transfer agent fees 16,076
- -----------------------------------------------------------
Accrued operating expenses 20,799
===========================================================
Total liabilities 732,925
===========================================================
Net assets applicable to shares outstanding $158,022,337
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $166,717,651
- -----------------------------------------------------------
Undistributed net investment income 196,999
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (9,868,143)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 975,830
===========================================================
$158,022,337
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 94,657,311
___________________________________________________________
===========================================================
Class B $ 45,026,408
___________________________________________________________
===========================================================
Class C $ 18,338,618
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 10,843,216
___________________________________________________________
===========================================================
Class B 5,152,841
___________________________________________________________
===========================================================
Class C 2,099,349
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 8.73
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $8.73 divided
by 95.25%) $ 9.17
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 8.74
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 8.74
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF OPERATIONS
For the year ended March 31, 2004
<Table>
INVESTMENT INCOME:
Interest $9,433,379
========================================================================
EXPENSES:
Advisory fees 875,584
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 7,539
- ------------------------------------------------------------------------
Distribution fees
Class A 215,946
- ------------------------------------------------------------------------
Class B 440,025
- ------------------------------------------------------------------------
Class C 155,498
- ------------------------------------------------------------------------
Transfer agent fees 100,291
- ------------------------------------------------------------------------
Trustees' fees 12,614
- ------------------------------------------------------------------------
Other 151,935
========================================================================
Total expenses 2,009,432
- ------------------------------------------------------------------------
Less: Fees waived and expense offset arrangements (759,584)
========================================================================
Net expenses 1,249,848
========================================================================
Net investment income 8,183,531
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (811,834)
========================================================================
Change in net unrealized appreciation of investment
securities 2,348,504
========================================================================
Net gain from investment securities 1,536,670
========================================================================
Net increase in net assets resulting from operations $9,720,201
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-10
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,183,531 $ 7,412,903
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (811,834) (605,000)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 2,348,504 977,784
==========================================================================================
Net increase in net assets resulting from operations 9,720,201 7,785,687
==========================================================================================
Distributions to shareholders from net investment income:
Class A (5,191,768) (4,437,153)
- ------------------------------------------------------------------------------------------
Class B (2,322,122) (2,087,123)
- ------------------------------------------------------------------------------------------
Class C (817,780) (649,224)
==========================================================================================
Decrease in net assets resulting from distributions (8,331,670) (7,173,500)
==========================================================================================
Share transactions-net:
Class A 15,806,626 6,735,334
- ------------------------------------------------------------------------------------------
Class B 1,926,983 6,719,088
- ------------------------------------------------------------------------------------------
Class C 4,707,289 2,151,183
==========================================================================================
Net increase in net assets resulting from share
transactions 22,440,898 15,605,605
==========================================================================================
Net increase in net assets 23,829,429 16,217,792
==========================================================================================
NET ASSETS:
Beginning of year 134,192,908 117,975,116
==========================================================================================
End of year (including undistributed net investment income
of $196,999 and $277,866 for 2004 and 2003,
respectively) $158,022,337 $134,192,908
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM High Income Municipal Fund (the "Fund") is a series portfolio of AIM
Tax-Exempt 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 three
separate portfolios, each authorized to issue 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 that is exempt from federal income
taxes.
Under the Trust's organizational documents, the Fund's officers and trustees
are indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
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. Generally accepted accounting principles
require adjustments to be made to the net assets of the Fund at period end, and
as such, the net asset value for shareholder transactions may be different than
the net asset value reported in these financial statements. 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.
F-11
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. Some of the factors which
may be considered in determining fair value are fundamental analytical data
relating to the investment; the nature and duration of any restrictions on
transferability or disposition; trading in similar securities by the same
issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
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.
The Fund's investments include lower-rated and unrated debt securities
which may be more susceptible to adverse economic conditions than
investment grade holdings.
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. 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
Subchapter M 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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
In addition, the Fund intends to invest in such municipal securities to
allow it to qualify to pay "exempt interest dividends", as defined in the
Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO 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 following annual rates based on the
average daily net assets of the Fund:
<Table>
<Caption>
AVERAGE NET ASSETS ANNUAL RATE
- ---------------------------------------------------------
First $500 million 0.60%
- ---------------------------------------------------------
Over $500 million up to and including $1
billion 0.55%
- ---------------------------------------------------------
Over $1 billion up to and including $1.5
billion 0.50%
=========================================================
Over $1.5 billion 0.45%
_________________________________________________________
=========================================================
</Table>
The Fund's advisor has voluntarily agreed to waive advisory fees or
reimburse expenses of Class A, Class B and Class C shares to the extent
necessary to limit Total Annual Fund Operating Expenses (excluding certain items
discussed below) to 0.55%, 1.30% and 1.30%, respectively. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to exceed the caps stated above: (i) interest; (ii)
taxes; (iii) extraordinary items (these are expenses that are not anticipated to
arise from the Fund's day-to-day operations), as defined in the Financial
Accounting Standard's Board's Generally Accepted Accounting Principles or as
approved by the Fund's board of trustees; (iv) expenses related to a merger or
reorganization, as approved by the Fund's board of trustees; and (v) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. This
expense limitation agreement is in effect through March 31, 2005. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time without
further notice to investors. For the year ended March 31, 2004, AIM waived fees
of $757,903.
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 March 31, 2004, AIM was paid
$50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended March 31, 2004, AISI retained $47,808 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,
Class B 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
F-12
Class C shares. Of these amounts, up to 0.25% of the average daily net assets of
the Class A, Class B or Class C shares may be paid to furnish continuing
personal shareholder services to customers who purchase and own shares of such
classes. 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 year ended March 31, 2004,
the Class A, Class B and Class C shares paid $215,946, $440,025 and $155,498,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") 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. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended March 31, 2004, AIM Distributors advised the Fund that it retained $76,844
in front-end sales commissions from the sale of Class A shares and $22,504, $215
and $11,019 from Class A, Class B and Class C shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from balances in Demand Deposit Accounts (DDA) used by
the transfer agency for clearing shareholder transactions and custodian credits
resulting from periodic overnight cash balances at the custodian. For the year
ended March 31, 2004, the Fund received reductions in transfer agency fees from
AISI (an affiliate of AIM) of $1,681 under an expense offset arrangement, which
resulted in a reduction of the Fund's total expenses of $1,681.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust 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 and INVESCO Funds in which their deferral
accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2004, the Fund paid legal fees of $3,642 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended March 31, 2004, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------
Distributions paid from:
Ordinary income $ 8,023 $ 5,355
- --------------------------------------------------------------
Ordinary income -- tax exempt 8,323,647 7,168,145
==============================================================
$8,331,670 $7,173,500
______________________________________________________________
==============================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 263,105
- -----------------------------------------------------------
Unrealized appreciation -- investments 975,675
- -----------------------------------------------------------
Temporary book/tax differences (67,998)
- -----------------------------------------------------------
Capital loss carryforward (9,866,096)
- -----------------------------------------------------------
Shares of beneficial interest 166,717,651
===========================================================
Total net assets $158,022,337
___________________________________________________________
===========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is
F-13
attributable primarily to the tax deferral of losses on wash sales, the tax
treatment of market discount on bonds and the tax treatment of defaulted bonds.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
March 31, 2007 $ 11,394
- ----------------------------------------------------------
March 31, 2008 995,895
- ----------------------------------------------------------
March 31, 2009 3,558,416
- ----------------------------------------------------------
March 31, 2010 3,255,459
- ----------------------------------------------------------
March 31, 2011 972,821
- ----------------------------------------------------------
March 31, 2012 1,072,111
==========================================================
Total capital loss carryforward $9,866,096
__________________________________________________________
==========================================================
The ability to use capital loss carryforwards may be
limited under the Internal Revenue Code and related
regulations.
</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 year ended
March 31, 2004 was $39,895,383 and $17,267,319, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 5,919,655
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (4,943,980)
===========================================================
Net unrealized appreciation of investment
securities $ 975,675
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $153,956,138.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of market discount on
bonds, on March 31, 2004, undistributed net investment income was increased by
$67,272, and undistributed net realized gain (loss) was decreased by $67,272.
This reclassification had no effect on the net assets of the Fund.
NOTE 9--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 CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,559,971 $ 48,198,718 3,898,601 $ 33,779,729
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,369,885 11,908,459 1,618,049 14,056,371
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,435,960 12,470,550 1,040,669 9,025,377
======================================================================================================================
Issued as reinvestment of dividends:
Class A 264,540 2,292,514 234,534 2,033,306
- ----------------------------------------------------------------------------------------------------------------------
Class B 114,284 991,423 107,996 937,454
- ----------------------------------------------------------------------------------------------------------------------
Class C 57,564 499,279 43,482 377,408
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 110,157 951,710 35,825 309,734
- ----------------------------------------------------------------------------------------------------------------------
Class B (110,109) (951,710) (35,737) (309,734)
======================================================================================================================
Reacquired:
Class A (4,117,232) (35,636,316) (3,394,049) (29,387,435)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,156,985) (10,021,189) (918,345) (7,965,003)
- ----------------------------------------------------------------------------------------------------------------------
Class C (954,494) (8,262,540) (836,817) (7,251,602)
======================================================================================================================
2,573,541 $ 22,440,898 1,794,208 $ 15,605,605
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
F-14
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 MARCH 31,
------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.64 $ 8.59 $ 8.59 $ 8.72 $ 10.04
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.51 0.54 0.55(a) 0.54 0.56
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.10 0.03 (0.01) (0.11) (1.32)
==========================================================================================================================
Total from investment operations 0.61 0.57 0.54 0.43 (0.76)
==========================================================================================================================
Less dividends from net investment income (0.52) (0.52) (0.54) (0.56) (0.56)
==========================================================================================================================
Net asset value, end of period $ 8.73 $ 8.64 $ 8.59 $ 8.59 $ 8.72
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 7.30% 6.81% 6.41% 5.12% (7.79)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $94,657 $77,998 $70,873 $62,820 $38,645
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.55%(c) 0.55% 0.55% 0.55% 0.50%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.07%(c) 1.05% 1.07% 1.17% 1.28%
==========================================================================================================================
Ratio of net investment income to average net assets 5.91%(c) 6.22% 6.26%(a) 6.23% 5.95%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 12% 14% 30% 15% 51%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) As required, effective April 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortization of discounts on debt securities. Had the Fund not amortized
discounts on debt securities, the net investment income per share would
have been $0.54 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 April 1, 2001 have not been restated to reflect this
change in presentation.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the Unites States of America, and does not include sales
charges.
(c) Ratios are based on average daily net assets of $86,378,352.
<Table>
<Caption>
CLASS B
------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.65 $ 8.60 $ 8.61 $ 8.72 $ 10.04
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.45 0.47 0.48(a) 0.47 0.48
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.10 0.04 (0.02) (0.10) (1.32)
==========================================================================================================================
Total from investment operations 0.55 0.51 0.46 0.37 (0.84)
==========================================================================================================================
Less dividends from net investment income (0.46) (0.46) (0.47) (0.48) (0.48)
==========================================================================================================================
Net asset value, end of period $ 8.74 $ 8.65 $ 8.60 $ 8.61 $ 8.72
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 6.51% 6.02% 5.47% 4.44% (8.54)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,026 $42,699 $35,811 $25,730 $20,298
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.30%(c) 1.30% 1.31% 1.30% 1.26%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.82%(c) 1.80% 1.83% 1.92% 2.04%
==========================================================================================================================
Ratio of net investment income to average net assets 5.16%(c) 5.47% 5.50%(a) 5.48% 5.19%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 12% 14% 30% 15% 51%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) As required, effective April 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortization of discounts on debt securities. Had the Fund not amortized
discounts 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 remained the same. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to April 1, 2001 have not been restated to
reflect this change in presentation.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the Unites States of America, and does not include sales
charges.
(c) Ratios are based on average daily net assets of $44,002,466.
F-15
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.65 $ 8.60 $ 8.61 $ 8.72 $10.04
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.45 0.47 0.48(a) 0.47 0.48
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.10 0.04 (0.02) (0.10) (1.32)
========================================================================================================================
Total from investment operations 0.55 0.51 0.46 0.37 (0.84)
========================================================================================================================
Less dividends from net investment income (0.46) (0.46) (0.47) (0.48) (0.48)
========================================================================================================================
Net asset value, end of period $ 8.74 $ 8.65 $ 8.60 $ 8.61 $ 8.72
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 6.51% 6.02% 5.47% 4.43% (8.54)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,339 $13,496 $11,292 $6,797 $4,100
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.30%(c) 1.30% 1.31% 1.30% 1.26%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.82%(c) 1.80% 1.83% 1.92% 2.04%
========================================================================================================================
Ratio of net investment income to average net assets 5.16%(c) 5.47% 5.50%(a) 5.48% 5.19%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 12% 14% 30% 15% 51%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) As required, effective April 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortization of discounts on debt securities. Had the Fund not amortized
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 April 1, 2001 have not been restated to reflect this change in
presentation.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the Unites States of America, and does not include sales
charges.
(c) Ratios are based on average daily net assets of $15,549,830.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. AIM succeeded IFG as the investment
advisor to the INVESCO Funds other than INVESCO Variable Investment Funds, Inc.
("IVIF") on November 25, 2003, and succeeded IFG as the investment advisor to
IVIF on April 30, 2004.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to a wide range of issues, including issues of
"market timing" and "late trading." Both AIM and IFG are the subject of a number
of such inquiries, as described below.
Regulatory Actions and Inquiries Concerning IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham also currently holds the positions of
Chief Operating Officer and Senior Vice President of A I M Management Group Inc.
("AIM Management"), the parent of AIM, and the position of Senior Vice President
of AIM. As of April 23, 2004, Mr. Cunningham was granted a voluntary
administrative leave of absence with pay. In addition, on December 2, 2003, the
State of Colorado filed civil proceedings against IFG. Neither the Fund nor any
of the other AIM or INVESCO Funds has been named as a defendant in any of these
proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints made substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief; civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and other related issues
concerning the INVESCO Funds. These regulators include the Florida Department of
Financial Services, the Commissioner of Securities for the State of Georgia, the
Office of the State Auditor for the State of West Virginia, the Office of the
Secretary of State for West Virginia, the Colorado Securities Division and the
Bureau of Securities of the State of New Jersey. IFG has also
F-16
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
received more limited inquiries from the United States Department of Labor
("DOL"), the NASD, Inc. ("NASD"), the SEC and the United States Attorney's
Office for the Southern District of New York concerning certain specific INVESCO
Funds, entities and/or individuals. IFG is providing full cooperation with
respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and other related issues
concerning the AIM Funds. AIM has received requests for information and
documents concerning these and related matters from the SEC, the Massachusetts
Secretary of the Commonwealth, the Office of the State Auditor for the State of
West Virginia and the Department of Banking for the State of Connecticut. In
addition, AIM has received subpoenas concerning these and related matters from
the NYAG, the United States Attorney's Office for the District of Massachusetts,
the Commissioner of Securities for the State of Georgia, the Office of the
Secretary of State for West Virginia and the Bureau of Securities of the State
of New Jersey. AIM has also received more limited inquiries from the DOL, the
NASD, the SEC and the United States Attorney's Office for the Southern District
of New York concerning certain specific AIM Funds, entities and/or individuals.
AIM is providing full cooperation with respect to these inquiries.
Response of AMVESCAP
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP found, in its ongoing review of these matters,
that shareholders were not always effectively protected from the potential
adverse impact of market timing and illegal late trading through intermediaries.
These findings were based, in part, on an extensive economic analysis by outside
experts who have been retained by AMVESCAP to examine the impact of these
activities. In light of these findings, AMVESCAP has publicly stated that any
AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities
will receive full restitution. AMVESCAP has informed regulators of these
findings. In addition, AMVESCAP has retained separate outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry. At the direction of the trustees of the AIM and INVESCO Funds,
AMVESCAP will pay all of the expenses incurred by the AIM and INVESCO Funds
related to market timing, including expenses incurred in connection with the
pending regulatory complaints against IFG alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM.
For the period ended March 31, 2004, AMVESCAP has assumed $16,862 of expenses
incurred by the Fund in connection with these matters, including legal, audit,
shareholder servicing, communication and trustee expenses.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, including
but not limited to A I M Capital Management, Inc., AIM Funds Management Inc.,
INVESCO Global Asset Management (N.A.), Inc., INVESCO Institutional (N.A.), Inc.
("IINA") and INVESCO Senior Secured Management, Inc., from serving as an
investment advisor to any investment company registered under the Investment
Company Act of 1940 (a "registered investment company"), including the Fund. The
Fund has been informed by AIM that, if AIM is so barred, AIM will seek exemptive
relief from the SEC to permit it to continue to serve as the Fund's investment
advisor. There can be no assurance that such exemptive relief will be granted.
Any settlement with the regulators could also include terms which would bar Mr.
Cunningham from serving as an officer or director of any registered investment
company.
Private Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain INVESCO Funds, certain AIM Funds, IFG, AIM, AIM
Management, AMVESCAP, certain related entities and certain of their officers,
including Mr. Cunningham) making allegations substantially similar to the
allegations in the regulatory complaints against IFG described above. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violation of various provisions of the Federal and state securities laws;
(ii) violation of various provisions of the Employee Retirement Income Security
Act ("ERISA"); (iii) breach of fiduciary duty; and/or (iv) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as compensatory damages; restitution; rescission; accounting for
wrongfully gotten gains, profits and compensation; injunctive relief;
disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled
that all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. Some of the cases against IFG
and the other AMVESCAP defendants have already been transferred to the District
of Maryland in accordance with the Panel's directive. AIM and IFG anticipate
that in time most or all of the actions pending against them and the other
AMVESCAP defendants alleging market timing and/or late trading will be
transferred to the multidistrict litigation.
Other Private Actions
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
F-17
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Certain other civil class action lawsuits have been filed against various
parties (including, depending on the lawsuit, certain INVESCO Funds, certain AIM
Funds, IFG and AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) breach of duty; and (iii) common law
negligence and gross negligence. These lawsuits have been filed in both Federal
and state courts and seek such remedies as compensatory and punitive damages;
interest; and attorneys' fees and costs.
Additional lawsuits or regulatory actions arising out of the circumstances
above and presenting similar allegations and requests for relief may be served
or filed against the Fund, IFG, AIM, AIM Management, IINA, AIM Distributors,
INVESCO Distributors, AMVESCAP and related entities and individuals in the
future.
As a result of the above developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM High Income Municipal Fund
and the Board of Trustees of AIM Tax-Exempt Funds:
We have audited the accompanying statement of assets and liabilities of AIM High
Income Municipal Fund (a portfolio of AIM Tax-Exempt Funds), including the
schedule of investments, as of March 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three 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 the year
ended March 31, 2000 were audited by other auditors whose report dated May 1,
2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. Our procedures included confirmation of
securities owned as of March 31, 2004, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
High Income Municipal Fund as of March 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
May 17, 2004
F-19
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM High Income Municipal Fund, an
investment portfolio of AIM Tax-Exempt Funds, a Delaware statutory trust, was
held on October 21, 2003. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 106,909,944 465,963
Frank S. Bayley.............................. 106,916,840 459,067
James T. Bunch............................... 106,923,423 452,484
Bruce L. Crockett............................ 106,922,853 453,054
Albert R. Dowden............................. 106,918,120 457,787
Edward K. Dunn, Jr........................... 106,917,764 458,143
Jack M. Fields............................... 106,911,143 464,764
Carl Frischling.............................. 106,908,116 467,791
Robert H. Graham............................. 106,922,853 453,054
Gerald J. Lewis.............................. 106,906,715 469,192
Prema Mathai-Davis........................... 106,917,630 458,277
Lewis F. Pennock............................. 106,918,783 457,124
Ruth H. Quigley.............................. 106,907,470 468,437
Louis S. Sklar............................... 106,917,893 458,014
Larry Soll, Ph.D............................. 106,914,215 461,692
Mark H. Williamson........................... 106,923,423 452,484
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Tax-Exempt Funds.
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of April 30, 2004
The address of each trustee and officer of AIM Tax-Exempt Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 112
portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 111 portfolios in the AIM and INVESCO Funds
complex. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); Director and
President Vice Chairman, AMVESCAP PLC and Chairman, 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), AIM Investment 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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), and
Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed Products;
Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile 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 Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of April 30, 2004
The address of each trustee and officer of AIM Tax-Exempt Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 112
portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 111 portfolios in the AIM and INVESCO Funds
complex. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP Cortland Trust, Inc.
Trustee (registered
investment company)
- ------------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California) General Chemical
Trustee Group, Inc.
Formerly: Associate Justice of the California Court of
Appeals
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations, Hines None
Trustee Interests Limited Partnership (real estate development
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General N/A
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Vice President,
Officer A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2004 Managing Director, Chief Fixed Income Officer and Senior N/A
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money Market Research and N/A
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M Advisors, N/A
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc. N/A
Vice President and
Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing Director and Chief N/A
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Director and Executive Vice President, A I M Management N/A
Vice President Group, Inc., Director and Senior Vice President, A I M
Advisors, Inc., and Director, Chairman, President, Director
of Investments, Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. The Bank of New York
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 100 Church Street
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 New York, NY 10286-0001
Philadelphia, PA 19103-7599 New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's year end as to the federal tax status of dividends paid by the Fund
during its fiscal year ended March 31, 2004.
AIM High Income Municipal Fund Class A, Class B and Class C paid ordinary
dividends in the amount of $0.522, $0.3938 and $0.3938 per share, respectively,
during its tax year ended March 31, 2004. Of this amount, 99.90% qualified as
tax-exempt interest dividends for federal income tax purposes.
For the purpose of preparing your annual federal income tax returns, however,
you should report the amounts as reflected on the appropriate Statement of
Tax-Exempt Income.
<Table>
<Caption>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(6) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(7)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund AIM ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
* Domestic equity and income fund
</Table>
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) Effective April 30, 2003, AIM
Worldwide Spectrum Fund was renamed AIM Global Value Fund. (7) Effective
November 24, 2003, INVESCO International Blue Chip Value Fund was renamed
INVESCO International Core Equity Fund.
If used after June 20, 2004, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment
management industry since 1976 and manages $148 billion in assets for
approximately 11 million shareholders, including individual investors, corporate
clients and financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of
the world's largest independent financial services companies with $381 billion
in assets under management. Data as of March 31, 2004.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
THOROUGHLY BEFORE INVESTING.
<Table>
Mutual Retirement Annuities College Separately Offshore Alternative Cash
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
[AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark--
YOUR GOALS. OUR SOLUTIONS.
--Registered Trademark--
AIMinvestments.com HIM-AR-1
[COVER ART]
AIM TAX-EXEMPT CASH FUND
MARCH 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
YOUR GOALS. OUR SOLUTIONS.
--Registered Trademark--
AIM INVESTMENTS LOGO APPEARS HERE
--Servicemark--
AIM TAX-EXEMPT CASH FUND SEEKS TO EARN THE HIGHEST LEVEL OF CURRENT INCOME
EXEMPT FROM FEDERAL TAXES THAT IS CONSISTENT WITH THE PRESERVATION OF CAPITAL
AND LIQUIDITY.
o Unless otherwise stated, information presented is as of 3/31/04 and is based
on total net assets.
ABOUT INFORMATION THROUGHOUT THIS REPORT An investment in the fund is not
insured or guaranteed by the Federal
o Investor Class shares are closed to Deposit Insurance Corporation or any
most investors. For more information on other government agency. Although the
who may continue to invest in the fund seeks to preserve the value of
Investor Class shares, please see the your investment at $1.00 per share, it
prospectus. is possible to lose money by investing
in the fund.
o The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P A description of the policies and
500 --Registered Tradmark-- Index) is procedures that the Fund uses to
an index of common stocks frequently determine how to vote proxies relating
used as a general measure of U.S. stock to portfolio securities is available
market performance. without charge, upon request, by
calling 800-959-4246, or on the AIM
o The fund is not managed to track the Web site, AIMinvestments.com.
performance of any particular index,
including the index defined in this
report, and consequently, the
performance of the fund may deviate
significantly from the performance of
the index.
PERFORMANCE QUOTED IS PAST PERFORMANCE AND CANNOT GUARANTEE COMPARABLE FUTURE
RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. VISIT AIMINVESTMENTS.COM
FOR THE MOST RECENT MONTH-END PERFORMANCE.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
NOT FDIC INSURED -- MAY LOSE VALUE -- NO BANK GUARANTEE
AIMINVESTMENTS.COM
TO OUR SHAREHOLDERS
Dear Shareholder:
[PHOTO OF This is the report on AIM Tax-Exempt Cash Fund for the
ROBERT H. fiscal year ended March 31, 2004.
GRAHAM]
The U.S. economy and stock market were healthy for most
of the fiscal year. Growth of gross domestic product (GDP)
was positive each quarter of the fiscal year, with the
initial estimate of GDP growth for the first quarter of 2004
coming in at an annualized rate of 4.2%. Though the S&P 500
--Registered Trademark-- faltered during March 2004, it
produced a return of 35.10% for the full fiscal year.
The influential federal funds target rate stood at 1.25%
as the fiscal year opened. In June, the U.S. Federal Reserve
(the Fed) lowered that rate to 1.00%, its lowest level since
1958 and the level where it stayed through the close of the
fiscal year. On lowering the rate in June, the Fed said it
favored a more expansive monetary policy because the economy
had not yet exhibited sustainable growth. In mid-March, shortly before the
fiscal year ended, when the Fed again left rates at that level, it noted its
belief that its accommodative stance on monetary policy was helping support
economic activity. Observing that inflation remained in check and that resource
use was slack, the Fed said it thought it could be patient about changing its
accommodative policy.
YOUR FUND
Historically low interest rates have kept yields on bank savings accounts and
money market funds, including AIM Tax-Exempt Cash Fund, quite low. As of the
close of the fiscal year, the seven-day SEC yield for the fund's Class A shares
stood at 0.36%. On a taxable-equivalent basis, based on net asset value and
adjusted for the 35.00% highest marginal federal tax rate in effect on March 31,
2004, the yield was 0.55%. For the fund's Investor Class shares, seven-day SEC
yield stood at 0.47%; taxable-equivalent yield stood at 0.72%. Had the advisor
and distributor not waived fees and/or reimbursed expenses, the seven-day yield
would have been 0.21% for Class A shares. The seven-day yield represents
annualized results for the period, net of fees and expenses, and excludes any
realized capital gains or losses.
During the fiscal year, the fund maintained a weighted average maturity
(WAM) between 40 and 51 days. At the close of the fiscal year, the WAM stood at
46 days. A short WAM enables the fund to respond quickly to any changes in the
interest rate environment. The fund also maintained its strict discipline of
purchasing only securities of superior credit quality. Net assets of the fund
stood at $95.7 million.
IN CLOSING
As you are aware, the mutual fund industry and AIM Investments have been the
subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We invite you to visit AIMinvestments.com, our
Web site, often. We will continue to post updates on these issues as information
becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
Along with the Investment Company Institute, the industry trade group, we
welcome these efforts. We believe comprehensive rule making is necessary and is
the best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
April 25, 2004
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2004
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
ALABAMA-21.06%
Birmingham (City of) Jefferson Civic Center
Authority; Refunding & Capital Outlay
Special Tax Series 1996 RB
4.50%, 09/01/04(b) AAA Aaa $ 375 $ 380,275
- --------------------------------------------------------------------------------------
Birmingham (City of) Public Park and
Recreation Board (Children's Zoo Project);
VRD Series 2002 RB (LOC-AmSouth Bank)
1.17%, 05/01/07(c)(d) -- VMIG-1 1,675 1,675,000
- --------------------------------------------------------------------------------------
Homewood (City of) Medical Clinic Board
(Lakeshore Foundation Project); Lease VRD
Series 2000 RB (LOC-AmSouth Bank)
1.17%, 11/01/24(c)(d) A-1 -- 390 390,000
- --------------------------------------------------------------------------------------
Montgomery (City of) Industrial Development
Board (Industrial Partners Project);
Refunding VRD Series 1989 IDR (LOC-SunTrust
Bank)
1.08%, 01/01/07(c)(d) -- Aa2 635 635,000
- --------------------------------------------------------------------------------------
Ridge (City of) Improvement District; Special
Assessment Improvement VRD Series 2000 RB
(LOC-AmSouth Bank)
1.05%, 10/01/25(c)(d) -- VMIG-1 1,335 1,335,000
- --------------------------------------------------------------------------------------
Tuscaloosa (City of) Educational Building
Authority (Stillman College Project);
Refunding Capital Improvement VRD Series
2002 A RB (LOC-AmSouth Bank)
1.17%, 10/01/23(c)(d) -- VMIG-1 15,745 15,745,000
======================================================================================
20,160,275
======================================================================================
ARIZONA-0.44%
Maricopa (County of) Unified School District
No.41 (Gilbert); Series 1997 COP
4.90%, 07/01/04(e)(f) AAA Aaa 100 100,962
- --------------------------------------------------------------------------------------
Tempe (City of) Union High School District
No.213; Unlimited Tax Series 1994 GO
6.00%, 07/01/04(e)(f) AAA Aaa 315 322,075
======================================================================================
423,037
======================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
COLORADO-1.45%
Adams & Arapahoe (Counties of) Joint School
District No. 28J (Aurora); Refunding
Unlimited Tax Series 1991 A GO
6.70%, 12/01/04(e) AAA Aaa $ 200 $ 207,478
- --------------------------------------------------------------------------------------
Arvada (City of); VRD Series 2001 RB
1.15%, 11/01/20(b)(g) A-1+ -- 900 900,000
- --------------------------------------------------------------------------------------
Moffat (County of) (Colorado-Ute Electric
Association); VRD Series 1984 PCR
1.23%, 07/01/10(b)(d) A-1+ VMIG-1 185 185,000
- --------------------------------------------------------------------------------------
University of Northern Colorado (Auxiliary
Facilities System); Refunding & Improvement
Series 1994 RB
5.30%, 06/01/04(b) AAA Aaa 100 100,703
======================================================================================
1,393,181
======================================================================================
CONNECTICUT-0.21%
Connecticut (State of); Unlimited Tax Series
2000 B GO
4.70%, 06/15/04 AA Aa3 200 201,486
======================================================================================
FLORIDA-1.65%
Lee (County of); Water & Sewer Series 1999 A
RB
3.65%, 10/01/04(b) AAA Aaa 295 298,670
- --------------------------------------------------------------------------------------
Seminole (County of) Industrial Development
Authority (Florida Living Nursing); Health
Facility Mult-Modal VRD Series 1991 IDR
(LOC-Bank of America N.A.)
1.22%, 02/01/11(c)(d) -- VMIG-1 1,100 1,100,000
- --------------------------------------------------------------------------------------
Titusville (City of); Water & Sewer Series
1994 RB
6.00%, 10/01/04(e)(f) AAA Aaa 170 177,513
======================================================================================
1,576,183
======================================================================================
GEORGIA-0.52%
Floyd (County of) Development Authority
(Shorter College Project); VRD Series 1998
RB (LOC-SunTrust Bank)
1.17%, 06/01/17(c)(d) A-1+ -- 500 500,000
======================================================================================
</Table>
F-1
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
HAWAII-0.16%
Hawaii (County of); Refunding Unlimited Tax
Series 1999 B GO
4.50%, 05/15/04(b) AAA Aaa $ 150 $ 150,646
======================================================================================
IDAHO-0.42%
University of Idaho; Refunding Student Fee
Series 2003 RB
3.00%, 04/01/04(b) AAA Aaa 400 400,000
======================================================================================
ILLINOIS-5.66%
Chicago (City of); Equipment Unlimited Tax
Series 1996 GO
5.60%, 01/01/05(b) AAA Aaa 100 103,281
- --------------------------------------------------------------------------------------
Cook (County of); Unlimited Tax Series 1992 C
GO
5.80%, 11/15/04(b) AAA Aaa 200 205,749
- --------------------------------------------------------------------------------------
Cook (County of) High School District No.209
(Proviso Township); Limited Tax Series 2002
GO
2.75%, 12/01/04(b) AAA Aaa 100 101,128
- --------------------------------------------------------------------------------------
East Peoria (City of) (Radnor/East Peoria
Partnership Project); Multi-Family Housing
VRD Series 1983 RB
(LOC-Bank of America NT & SA)
1.18%, 06/01/08(c)(d) -- Aa1 2,310 2,310,000
- --------------------------------------------------------------------------------------
Illinois (State of); Unlimited Tax Series
1995 GO
5.25%, 07/01/04(b) AAA Aaa 100 101,025
- --------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (American College of Surgeons);
VRD Series 1996 RB
(LOC-Northern Trust Co.)
1.10%, 08/01/26(c)(d) A-1+ -- 69 69,000
- --------------------------------------------------------------------------------------
Illinois (State of) Development Finance
Authority (National University of Health
Sciences); Series 2003 B RAN (LOC-Bank One
N.A.)
4.20%, 08/16/04(c) SP-1 -- 400 404,297
- --------------------------------------------------------------------------------------
Peoria (City of) (Easter Seal Center
Project); Health Care Facility VRD Series
1997 RB (LOC-Bank One Peoria)
1.10%, 05/01/07(c)(d)(h) -- -- 1,050 1,050,000
- --------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
ILLINOIS-(CONTINUED)
Regional Transportation Authority; Series
1994 A RB
6.25%, 06/01/04(e)(f) AAA Aaa $ 100 $ 102,844
- --------------------------------------------------------------------------------------
6.25%, 06/01/04(e)(f) AAA Aaa 250 257,140
- --------------------------------------------------------------------------------------
Refunding Series 1997 RB
5.00%, 06/01/04(b) AAA Aaa 300 301,943
- --------------------------------------------------------------------------------------
Skokie (City of); Unlimited Tax Series 1997
GO
4.80%, 12/01/04(e)(f) -- Aa1 195 199,702
- --------------------------------------------------------------------------------------
St. Louis (City of) Regional Airport
Authority; Unlimited Tax Series 2004 GO
2.75%, 12/01/04(b) AAA Aaa 205 207,233
======================================================================================
5,413,342
======================================================================================
INDIANA-0.42%
Indiana (State of) Bond Bank (Midyear Funding
Program Notes); Series 2003 A RN
1.25%, 04/15/04 SP-1+ MIG-1 400 400,038
======================================================================================
IOWA-1.59%
Algona (City of) (George A. Hormel & Co.
Project); VRD Series 1985 IDR (LOC-U.S.
Bank N.A.)
1.18%, 05/01/05(c)(d) -- P-1 200 200,000
- --------------------------------------------------------------------------------------
Iowa (State of) Finance Authority (YMCA
Project); Economic Development VRD Series
2000 RB
(LOC-Wells Fargo Bank N.A.)
1.12%, 06/01/10(c)(d)(h) -- -- 920 920,000
- --------------------------------------------------------------------------------------
Iowa (State of) School Corps.; School Cash
Anticipation Program Series 2003 A Wts.
2.00%, 06/18/04(b) -- MIG-1 200 200,443
- --------------------------------------------------------------------------------------
Waterloo (City of); Refunding Unlimited Tax
Series 2002 GO
3.25%, 06/01/04(b) -- Aaa 200 200,676
======================================================================================
1,521,119
======================================================================================
KENTUCKY-2.75%
Kentucky (State of) Area Development
Districts Financing Trust Lease Program
(Acquisition-Ewing); VRD Series 2000 RB
(LOC-First Union National Bank)
1.11%, 06/01/33(c)(d) A-1 -- 2,635 2,635,000
======================================================================================
</Table>
F-2
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
LOUISIANA-0.22%
Louisiana (State of); Unlimited Tax Series
1995 A GO
6.75%, 05/15/04(e) AAA Aaa $ 210 $ 211,434
======================================================================================
MARYLAND-3.87%
Baltimore (County of) (Blue Circle Inc.
Project); Economic Development VRD Series
1992 RB (LOC-Danske Bank A.S.)
1.15%, 12/01/17(c)(d) -- VMIG-1 2,900 2,900,000
- --------------------------------------------------------------------------------------
Howard (County of) (Owen Brown Joint
Venture); Refunding VRD Series 1990 RB
(LOC-Bank of America N.A.)
1.13%, 05/01/11(c)(g) -- P-1 500 500,000
- --------------------------------------------------------------------------------------
Washington Suburban Sanitation District;
Unlimited Tax Series 1996 GO
7.88%, 06/01/04 AAA Aaa 300 303,412
======================================================================================
3,703,412
======================================================================================
MASSACHUSETTS-1.01%
Massachusetts (State of); Consolidated Loan
Unlimited Tax Series 1997 B GO
5.00%, 06/01/04(e)(f) AAA Aaa 250 251,616
- --------------------------------------------------------------------------------------
Massachusetts (State of); Refunding Unlimited
Tax Series 1995 A GO
6.25%, 07/01/04 AA- Aa2 250 253,175
- --------------------------------------------------------------------------------------
Massachusetts (State of) Water Resources
Authority; Series 1994 A RB
6.00%, 08/01/04(e)(f) AAA Aaa 350 360,898
- --------------------------------------------------------------------------------------
Middleborough (City of); Limited Tax Series
1999 A GO
5.20%, 01/15/05(b) -- Aaa 100 103,241
======================================================================================
968,930
======================================================================================
MICHIGAN-6.07%
Caledonia Charter Township; Public
Improvement Special Assessment Limited Tax
Series 2001 GO
6.00%, 11/01/04(b) AAA Aaa 375 385,653
- --------------------------------------------------------------------------------------
Eaton Rapids (City of) Public Schools;
Unlimited Tax Series 1995 GO
5.50%, 05/01/04(e)(f) AAA Aaa 250 253,396
- --------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
MICHIGAN-(CONTINUED)
Michigan (State of) Municipal Bond Authority
(Clean Water Revolving Fund); Series 1998
RB
5.00%, 10/01/04 AAA Aaa $ 125 $ 127,449
- --------------------------------------------------------------------------------------
Michigan (State of) Strategic Fund (260 Brown
Street Associates Project); Limited Tax
Obligation VRD Series 1985 RB (LOC-Comerica
Bank)
1.05%, 10/01/15(c)(g) -- VMIG-1 830 830,000
- --------------------------------------------------------------------------------------
Oakland (County of) Economic Development
Corp. (Rochester College Project); Limited
Obligation VRD Series 2001 RB
(LOC-Bank One Michigan)
1.12%, 08/01/21(c)(d) -- VMIG-1 3,989 3,989,000
- --------------------------------------------------------------------------------------
Ottawa (County of) (Holland Area Sewage
Disposal System); Refunding Limited Tax
Series 2001 GO
3.45%, 06/01/04 -- Aa1 225 225,872
======================================================================================
5,811,370
======================================================================================
MINNESOTA-0.13%
Ramsey (County of) (Capital Improvement
Plan); Unlimited Tax Series 1999 A GO
4.20%, 02/01/05 AAA Aaa 125 128,145
======================================================================================
MISSISSIPPI-3.79%
Laurel (City of) Water and Sewer System;
Series 2003 RB
5.00%, 12/01/04(b) AAA -- 135 138,386
- --------------------------------------------------------------------------------------
Mississippi (State of) Business Finance Corp.
(Mississippi College Project); VRD Series
2003 RB (LOC-AmSouth Bank) 1.17%,
07/01/23(c)(d)(i) (Cost $3,000,000;
Acquired 09/29/03) -- VMIG-1 3,000 3,000,000
- --------------------------------------------------------------------------------------
Mississippi (State of) Development Bank
(Meridian Water & Sewer System); Refunding
Special Obligation Series 2003 A RB
3.25%, 07/01/04(b) AAA -- 100 100,530
- --------------------------------------------------------------------------------------
Olive Branch (City of); Refunding Unlimited
Tax Series 2003 GO
1.10%, 05/01/04(b) -- Aaa 285 285,000
- --------------------------------------------------------------------------------------
South Panola School District; Unlimited Tax
Series 1998 GO
6.50%, 05/01/04(b) AAA -- 100 100,441
======================================================================================
3,624,357
======================================================================================
</Table>
F-3
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
MONTANA-1.24%
Great Falls (City of) (Safeway Inc. Project);
Refunding VRD Series 1991 IDR (LOC-Deutsche
Bank A.G.)
1.20%, 06/01/04(c)(j) A-1+ -- $ 300 $ 300,000
- --------------------------------------------------------------------------------------
Havre (City of) (Safeway Inc. Projects);
Refunding VRD Series 1991 IDR (LOC-Deutsche
Bank A.G.)
1.20%, 06/01/04(c)(j) A-1+ -- 885 885,000
======================================================================================
1,185,000
======================================================================================
NEBRASKA-0.33%
Douglas (County of) School District No. 001;
Unlimited Tax Series 1999 GO
4.90%, 12/09/04(e)(f) AAA NRR 300 313,913
======================================================================================
NEVADA-0.45%
Clark (County of) School District; Limited
Tax Series 1996 GO
6.00%, 06/15/04(b) AAA Aaa 175 176,757
- --------------------------------------------------------------------------------------
Washoe (County of) School District; Limited
Tax Series 1998 GO
4.00%, 06/01/04(b) AAA Aaa 250 251,219
======================================================================================
427,976
======================================================================================
NEW HAMPSHIRE-0.46%
Londonderry (Town of); Unlimited Tax Series
2003 GO
3.25%, 07/01/04(b) -- Aaa 438 440,103
======================================================================================
NEW JERSEY-0.42%
Sussex (County of) (County College);
Unlimited Tax Series 2003 GO
2.05%, 05/01/04(b) AAA Aaa 405 405,340
======================================================================================
NEW MEXICO-5.80%
Carlsbad (City of); Refunding & Improvement
Joint Water & Sewer Series 1998 RB
4.00%, 06/01/04(b) -- Aaa 200 200,942
- --------------------------------------------------------------------------------------
New Mexico (State of) Hospital Equipment Loan
Council (Dialysis Clinic Inc. Project); VRD
Series 2000 RB (LOC- SunTrust Bank)
1.12%, 07/01/25(c)(d) -- VMIG-1 5,000 5,000,000
- --------------------------------------------------------------------------------------
Silver City; VRD Series 1995 A RB
(LOC-LaSalle National Bank) 1.25%,
11/15/10(c)(d) -- P-1 350 350,000
======================================================================================
5,550,942
======================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
NEW YORK-0.75%
New York (City of); Unlimited Tax Series 1994
B1 GO
7.20%, 08/15/04(e)(f) NRR NRR $ 450 $ 464,705
- --------------------------------------------------------------------------------------
New York (State of) Dormitory Authority
(University of Rochester); Series 1998 A RB
4.20%, 07/01/04(b) AAA Aaa 250 252,006
======================================================================================
716,711
======================================================================================
NORTH CAROLINA-2.19%
Carteret (County of) Industrial Facilities &
Pollution Control Financing Authority
(TexasGulf Inc. Project); VRD Series 1985
PCR (LOC-BNP Paribas)
1.16%, 10/01/05(c)(d) -- Aa2 2,100 2,100,000
======================================================================================
NORTH DAKOTA-3.76%
Fargo (City of) (Cass Oil Co. Project);
Commercial Development VRD Series 1984 RB
(LOC-U.S. Bank N.A.)
1.17%, 12/01/14(c)(d) A-1+ -- 3,600 3,600,000
======================================================================================
OHIO-1.34%
Columbus (City of); Refunding Unlimited Tax
Series 1998 B GO
5.00%, 05/15/04 AAA Aaa 200 200,942
- --------------------------------------------------------------------------------------
Copley Fairlawn (City of) School District;
Refunding & Improvement Unlimited Tax
Series 2002 GO
2.00%, 12/01/04(b) -- Aaa 300 301,784
- --------------------------------------------------------------------------------------
Hamilton (City of) Local School District;
School Facilities Construction &
Improvement Unlimited Tax Series 2001 GO
3.60%, 12/01/04(b) AAA Aaa 120 121,943
- --------------------------------------------------------------------------------------
Ohio (State of) (Common Schools); Capital
Facilities Unlimited Tax Series 1999 A GO
5.25%, 06/15/04 AA+ Aa1 250 252,113
- --------------------------------------------------------------------------------------
Ohio (State of) (Highway Capital Improvement
Fund); Unlimited Tax Series 1999 D GO
4.25%, 05/01/04 AAA Aa1 400 401,057
======================================================================================
1,277,839
======================================================================================
</Table>
F-4
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
OKLAHOMA-5.64%
Muskogee (City of) Industrial Trust (Muskogee
Mall Ltd. Special Project); VRD Series 1985
IDR (LOC-The Boatmen's National Bank of St.
Louis) 1.25%, 12/01/15(c)(d) -- VMIG-1 $ 5,100 $ 5,100,000
- --------------------------------------------------------------------------------------
Oklahoma (State of) Industries Authority
(Oklahoma County Facilities Project); Lease
Series 2003 A IDR
2.25%, 07/01/04(b) AAA Aaa 300 300,924
======================================================================================
5,400,924
======================================================================================
OREGON-1.40%
Beaverton (City of); Refunding Water Series
2004 RB
2.00%, 04/01/04(b) AAA Aaa 525 525,000
- --------------------------------------------------------------------------------------
Oregon (State of) Department of
Administrative Services; Series 2003 RB
2.50%, 09/01/04 AAA Aaa 300 301,868
- --------------------------------------------------------------------------------------
Washington (County of) Unified Sewerage
Agency; Sewer Sub. Lien Series One 1992 RB
6.13%, 10/01/04(e)(f) AAA Aaa 500 512,524
======================================================================================
1,339,392
======================================================================================
PENNSYLVANIA-5.29%
Allegheny (County of) Industrial Development
Authority (Carnegie Museums of Pittsburgh);
VRD Series 2002 IDR (LOC-Citizens Bank of
Pennsylvania)
1.15%, 08/01/32(c)(d) -- VMIG-1 1,000 1,000,000
- --------------------------------------------------------------------------------------
Conewago Valley School District; Unlimited
Tax Series 2003 GO
1.05%, 09/01/04(b) -- Aaa 380 380,000
- --------------------------------------------------------------------------------------
Franklin (County of) Industrial Development
Authority (Chambersburg Hospital Obligated
Group); Health Care VRD Series 2000 IDR
1.12%, 12/01/24(b)(d) A-1 -- 1,600 1,600,000
- --------------------------------------------------------------------------------------
Geisinger Authority Health System
(Pennsylvania State Geisinger Health
System); Series 1998 A RB
4.50%, 08/15/04 AA- Aa3 500 506,082
- --------------------------------------------------------------------------------------
Jeannette (City of) School District;
Refunding Unlimited Tax Series 2004 A GO
2.00%, 12/15/04(b) AAA Aaa 150 150,892
- --------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
PENNSYLVANIA-(CONTINUED)
Monroeville (City of); Unlimited Tax Series
2003 GO
2.00%, 06/01/04(b) -- Aaa $ 105 $ 105,164
- --------------------------------------------------------------------------------------
Pennsylvania (State of): Unlimited Tax First
Series 1996 GO
5.38%, 05/15/04(b) AAA Aaa 200 201,035
- --------------------------------------------------------------------------------------
Philadelphia (City of); Refunding Water &
Wastewater Series 1995 RB
6.75%, 08/01/04(b) AAA Aaa 455 463,586
- --------------------------------------------------------------------------------------
Plum Boro (City of) School District;
Unlimited Tax Series 1998 GO
4.15%, 09/15/04(e)(f) AAA Aaa 500 507,015
- --------------------------------------------------------------------------------------
Slippery Rock (City of) Area School District;
Unlimited Tax Series 2001 A GO
3.75%, 10/01/04(b) AAA Aaa 150 151,933
======================================================================================
5,065,707
======================================================================================
SOUTH CAROLINA-0.89%
Bennettsville (City of) Combined Utilities
System; Refunding & Improvement Series 2004
RB
2.00%, 02/01/05(b) AAA Aaa 290 292,152
- --------------------------------------------------------------------------------------
Dorchester (County of) Waterworks & Sewer
System; Refunding & Improvement Series 2003
RB
2.00%, 10/01/04(b) AAA Aaa 560 562,582
======================================================================================
854,734
======================================================================================
SOUTH DAKOTA-0.15%
South Dakota State University; Housing &
Auxiliary Facilities Series 2003 RB
2.00%, 04/01/04(b) AAA Aaa 140 140,000
======================================================================================
TENNESSEE-2.40%
Gatlinburg (City of); Refunding Water & Sewer
Series 2003 RB
2.00%, 04/01/04(b) -- Aaa 500 500,000
- --------------------------------------------------------------------------------------
Hawkins (County of) Industrial Development
Board (Leggett & Platt Inc.); Refunding VRD
Series 1988 B IDR (LOC-Wachovia Bank)
1.20%, 10/01/27(c)(d)(h) -- -- 1,450 1,450,000
- --------------------------------------------------------------------------------------
Savannah Valley Utility District (Hamilton
County); Refunding & Improvement Waterworks
Series 2003 RB
2.50%, 06/01/04(b) AAA Aaa 180 180,445
- --------------------------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
TENNESSEE-(CONTINUED)
Weakley (County of); Refunding School
Unlimited Tax Series 2003 GO
2.00%, 05/01/04(b) -- Aaa $ 165 $ 165,110
======================================================================================
2,295,555
======================================================================================
TEXAS-9.88%
Amarillo (City of) Health Facilities Corp.
(Panhandle Pooled Health Care); VRD Series
1985 RB (LOC-BNP Paribas)
1.10%, 05/31/25(c)(d) -- VMIG-1 3,439 3,439,000
- --------------------------------------------------------------------------------------
Austin (City of); Refunding Utility System
Series 1997 A RB
5.75%, 11/15/04(b) AAA Aaa 100 102,773
- --------------------------------------------------------------------------------------
Bexar (County of); Refunding Limited Tax
Series 2002 GO
4.50%, 06/15/04 AA Aa2 400 402,811
- --------------------------------------------------------------------------------------
Carrollton & Farmers Branch (Cities of)
Independent School District; Unlimited Tax
Series 1995 GO
5.00%, 02/15/05(e)(f) AAA Aaa 500 516,900
- --------------------------------------------------------------------------------------
Del Mar College District; Limited Tax Series
2003 GO
2.00%, 08/15/04(b) AAA Aaa 100 100,336
- --------------------------------------------------------------------------------------
El Paso (City of); Limited Tax Series 1998 B
GO Ctfs.
4.25%, 08/15/04(b) AAA Aaa 200 202,285
- --------------------------------------------------------------------------------------
Gulf Coast Water Authority (Mainland
Project); Refunding Water System Contract
Series 2002 RB
3.00%, 08/15/04(b) AAA Aaa 100 100,682
- --------------------------------------------------------------------------------------
Harris (County of) (Criminal Justice Center);
Limited Tax Series 1996 GO
7.50%, 10/01/04 AA+ Aa1 150 154,728
- --------------------------------------------------------------------------------------
Harris (County of); Permanent Improvement
Limited Tax Series 1984 C GO
9.00%, 12/01/04(e) NRR Aaa 300 315,559
- --------------------------------------------------------------------------------------
Houston (City of) Community College System;
Student Fee Series 1999 RB
4.75%, 04/15/04(b) AAA Aaa 100 100,134
- --------------------------------------------------------------------------------------
Humble (City of) Independent School District;
Refunding Unlimited Tax Series 2002 A GO
(CEP-Texas Permanent School Fund)
3.00%, 02/15/05 AAA Aaa 500 508,419
- --------------------------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
TEXAS-(CONTINUED)
North Harris & Montgomery (Counties of)
Community College District; Refunding
Building Limited Tax Series 2003 GO
2.00%, 08/15/04(b) AAA Aaa $ 500 $ 501,752
- --------------------------------------------------------------------------------------
North Texas (Region of) Municipal Water
District (Muddy Creek); Regional Wastewater
Systems Series 2003 RB
5.00%, 06/01/04(b) AAA Aaa 280 281,800
- --------------------------------------------------------------------------------------
Round Rock (City of) Independent School
District; Unlimited Tax Series 2000 GO
(CEP-Texas Permanent School Fund)
6.50%, 08/01/04 AAA Aaa 325 330,934
- --------------------------------------------------------------------------------------
Shenandoah (City of); Limited Tax Series 2003
GO. Ctfs.
2.00%, 08/15/04(b) AAA -- 305 305,956
- --------------------------------------------------------------------------------------
Tarrant (County of) College District;
Refunding Limited Tax Series 2001 A GO
4.75%, 02/15/05 AAA Aa1 375 386,697
- --------------------------------------------------------------------------------------
Texas (State of) University Systems;
Constitutional Appropriation Series 1998 RB
5.00%, 08/15/04 AA Aa1 100 101,400
- --------------------------------------------------------------------------------------
Texas (State of); Series 2003 TRAN
2.00%, 08/31/04 SP-1+ MIG-1 1,200 1,204,189
- --------------------------------------------------------------------------------------
Trinity River Industrial Development
Authority (Radiation Sterilizers); VRD
Series 1985 A IDR (LOC- American National
Bank & Trust)
1.10%, 11/01/05(c)(g) A-1 -- 250 250,000
- --------------------------------------------------------------------------------------
Upper Trinity Regional Water District
(Lakeview Regional Water Reclamation
System); Regional Wastewater Series 2003 RB
5.25%, 08/01/04(b) AAA Aaa 145 146,939
======================================================================================
9,453,294
======================================================================================
VERMONT-1.83%
Vermont (State of) Industrial Development
Authority (Central Vermont Public Service
Corp.); Hydroelectric VRD Series 1984 IDR
(LOC-Citizens Bank of Massachusetts)
1.05%, 12/01/13(c)(g) A-1+ -- 1,755 1,755,000
======================================================================================
</Table>
F-6
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
VIRGINIA-0.93%
Clarke (County of) Industrial Development
Authority (Winchester Medical Center Inc.);
Hospital Facilities VRD Series 2000 IDR
1.08%, 01/01/30(b)(d) A-1+ VMIG-1 $ 675 $ 675,000
- --------------------------------------------------------------------------------------
Hampton (City of); Unlimited Tax Series 1995
GO
6.00%, 01/15/05(e)(f) NRR NRR 200 211,785
======================================================================================
886,785
======================================================================================
WASHINGTON-2.43%
Issaquah (City of); Refunding Water Series
2003 RB
2.00%, 12/01/04(b) -- Aaa 200 200,990
- --------------------------------------------------------------------------------------
King (County of) School District No.409
(Tahoma); Refunding Unlimited Tax Series
2004 GO
2.00%, 12/01/04(b) -- Aaa 300 301,839
- --------------------------------------------------------------------------------------
Snohomish (County of) Public Utility District
No. 001; Refunding Water Series 2002 RB
2.70%, 12/01/04(b) AAA Aaa 100 101,025
- --------------------------------------------------------------------------------------
Snohomish (County of); Limited Tax Series
1995 GO
5.75%, 12/01/04(e)(f) AAA Aaa 150 154,617
- --------------------------------------------------------------------------------------
Tacoma (City of) Metropolitan Park District;
Unlimited Tax Series 2003 A GO
2.00%, 12/01/04(b) AAA Aaa 350 352,010
- --------------------------------------------------------------------------------------
University of Washington Housing & Dining
System; Refunding Series 2004 RB
2.00%, 12/01/04(b) AAA Aaa 215 216,253
- --------------------------------------------------------------------------------------
Washington (State of); Refunding Motor
Vehicle Fuel Unlimited Tax Series 2001 R-B
GO
5.00%, 09/01/04(b) AAA Aaa 600 609,711
- --------------------------------------------------------------------------------------
Washington (State of) Public Power Supply
System (Nuclear Project No.2); Refunding
Series 1994 A RB
4.80%, 07/01/04(b) AAA Aaa 390 393,472
======================================================================================
2,329,917
======================================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- --------------------------------------------------------------------------------------
<Caption>
WISCONSIN-1.08%
Germantown (City of) School District;
Refunding Unlimited Tax Series 2004 GO
2.00%, 04/01/04(b) -- Aaa $ 115 $ 115,000
- --------------------------------------------------------------------------------------
Sun Prairie (City of) Area School District;
Refunding Unlimited Tax Series 2004 A GO
2.00%, 03/01/05(b) -- Aaa 150 151,087
- --------------------------------------------------------------------------------------
West Bend (City of); Promissory Notes
Unlimited Tax Series 2004 GO
2.00%, 03/01/05(b) -- Aaa 190 191,412
- --------------------------------------------------------------------------------------
Wisconsin (State of); Refunding Unlimited Tax
3rd Series 2003 GO
1.25%, 11/01/04 AA- Aa3 375 375,000
- --------------------------------------------------------------------------------------
Wisconsin Heights School District; Unlimited
Tax Series 1994 GO
5.30%, 04/01/04(e)(f) AAA Aaa 200 200,000
======================================================================================
1,032,499
======================================================================================
TOTAL INVESTMENTS-100.08% (Cost
$95,793,586)(k) 95,793,586
======================================================================================
OTHER ASSETS LESS LIABILITIES-(0.08%) (77,942)
======================================================================================
NET ASSETS-100.00% $95,715,644
______________________________________________________________________________________
======================================================================================
</Table>
F-7
Investment Abbreviations:
<Table>
CEP - Credit Enhancement Provider
COP - Certificate of Participation
Ctfs. - Certificates
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
NRR - Not Re-Rated
PCR - Pollution Control Revenue Bonds
RAN - Revenue Anticipation Notes
RB - Revenue Bonds
RN - Revenue Notes
Sub. - Subordinate
TRAN - Tax and Revenue Anticipation 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"), except as indicated in note (h) below.
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 Independent Auditors.
(b) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Guaranty
Insurance Co., Financial Security Assurance Inc., or MBIA Insurance Corp.
(c) Principal and interest payments are guaranteed by the letter of credit
agreement.
(d) Demand security; payable upon demand by the Fund at specified time intervals
no greater than thirteen months. Interest rate is redetermined weekly. Rate
shown is the rate in effect on 03/31/04.
(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) Demand security; payable upon demand by the Fund at specified time intervals
no greater than thirteen months. Interest rate is redetermined monthly. Rate
shown is the rate in effect on 03/31/04.
(h) Unrated; determined by the investment advisor to be of comparable quality to
the rated securities in which the Fund may invest, pursuant to guidelines
for the determination of quality adopted by the Board of Trustees and
followed by the investment advisor.
(i) 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 this security. The
market value of this security at 03/31/04 represented 3.13% of the Fund's
net assets. This security is not considered to be illiquid.
(j) Demand security; payable upon demand by the Fund at specified time intervals
no greater than thirteen months. Interest rate is redetermined
semi-annually. Rate shown is the rate in effect on 03/31/04.
(k) Also represents cost for federal income tax purposes.
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$95,793,586) $95,793,586
- -----------------------------------------------------------
Cash 6,617
- -----------------------------------------------------------
Receivables for:
Fund shares sold 209,375
- -----------------------------------------------------------
Interest 388,991
- -----------------------------------------------------------
Amount due from advisor 13,053
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 60,839
- -----------------------------------------------------------
Other assets 35,341
===========================================================
Total assets 96,507,802
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 518,193
- -----------------------------------------------------------
Fund shares reacquired 165,795
- -----------------------------------------------------------
Dividends 5,582
- -----------------------------------------------------------
Deferred compensation and retirement plans 65,046
- -----------------------------------------------------------
Accrued distribution fees 6,078
- -----------------------------------------------------------
Accrued transfer agent fees 12,538
- -----------------------------------------------------------
Accrued operating expenses 18,926
===========================================================
Total liabilities 792,158
===========================================================
Net assets applicable to shares outstanding $95,715,644
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $95,694,112
- -----------------------------------------------------------
Undistributed net investment income 21,532
===========================================================
$95,715,644
___________________________________________________________
===========================================================
NET ASSETS:
Class A $75,546,941
===========================================================
Investor Class $20,168,703
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 75,539,635
___________________________________________________________
===========================================================
Investor Class 20,193,633
___________________________________________________________
===========================================================
Net asset value, offering and redemption price
per share for each class $ 1.00
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF OPERATIONS
For the year ended March 31, 2004
<Table>
INVESTMENT INCOME:
Interest $ 992,762
=======================================================================
EXPENSES:
Advisory fees 300,788
- -----------------------------------------------------------------------
Administrative services fees 50,000
- -----------------------------------------------------------------------
Custodian fees 5,615
- -----------------------------------------------------------------------
Distribution fees -- Class A 192,099
- -----------------------------------------------------------------------
Transfer agent fees 57,159
- -----------------------------------------------------------------------
Trustees' fees 11,666
- -----------------------------------------------------------------------
Registration and filing fees 64,591
- -----------------------------------------------------------------------
Professional fees 54,774
- -----------------------------------------------------------------------
Other 22,959
=======================================================================
Total expenses 759,651
=======================================================================
Less: Fees waived and expense offset arrangements (116,224)
- -----------------------------------------------------------------------
Net expenses 643,427
=======================================================================
Net investment income 349,335
=======================================================================
Net increase in net assets resulting from operations $ 349,335
_______________________________________________________________________
=======================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-10
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 349,335 $ 461,278
========================================================================================
Net increase in net assets resulting from operations 349,335 461,278
========================================================================================
Distributions to shareholders from net investment income:
Class A (306,807) (461,278)
- ----------------------------------------------------------------------------------------
Investor Class (42,557) --
========================================================================================
Decrease in net assets resulting from distributions (349,364) (461,278)
========================================================================================
Share transactions-net:
Class A 9,205,234 11,346,083
- ----------------------------------------------------------------------------------------
Investor Class 20,168,381 --
========================================================================================
Net increase in net assets resulting from share
transactions 29,373,615 11,346,083
========================================================================================
Net increase in net assets 29,373,586 11,346,083
========================================================================================
NET ASSETS:
Beginning of year 66,342,058 54,995,975
========================================================================================
End of year (including undistributed net investment income
of $21,532 and $26,143 for 2004 and 2003, respectively) $95,715,644 $66,342,058
________________________________________________________________________________________
========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-11
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Tax-Exempt Cash Fund (the "Fund") is a series portfolio of AIM Tax-Exempt
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 three separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. 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 earn the highest level of
current income exempt from federal income taxes that is consistent with the
preservation of capital and liquidity.
Under the Trusts's organizational documents, the Fund's officers and
trustees are indemnified against certain liabilities that may arise out of
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 premiums or accretion of any discounts.
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 -- 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
Subchapter M 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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO 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 0.35% of the Fund's
average daily net assets. The Fund's advisor has voluntarily agreed to waive
advisory fees or reimburse expenses of Class A and Investor Class shares to the
extent necessary to limit Total Annual Fund Operating Expenses (excluding
certain items discussed below) to 0.77% and 0.67%, respectively. In determining
the advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to exceed the caps stated above: (i) interest; (ii)
taxes; (iii) extraordinary items (these are expenses that are not anticipated to
arise from the Fund's day-today operations), as defined in the Financial
Accounting Standards Board's Generally Accepted Accounting Principles or as
approved by the Fund's board of trustees; (iv) expenses related to a merger or
reorganization, as approved by the Fund's board of trustees; and (v) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. This
expense limitation agreement is in effect through November 3, 2004. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time
without further notice to investors.
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 March 31, 2004, AIM was paid
$50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended March 31, 2004, AISI retained $38,861 for such
services.
F-12
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 and Investor Class 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 and
Investor Class shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation up to a maximum annual rate of 0.25%
of the Fund's average daily net assets of Class A and Investor Class shares. Of
these amounts, up to 0.25% of the average daily net assets of the Class A and
Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own the shares of such classes. 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. AIM Distributors has contractually agreed to waive 0.15% of
the Rule 12b-1 plan fees on Class A shares. Pursuant to the Plans, for the year
ended March 31, 2004, the Class A shares paid $76,840 after AIM Distributors
waived plan fees of $115,259.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") 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. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
March 31, 2004, AIM Distributors retained $962 in front-end sales commissions
from the sale of Class A shares.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from balances in Demand Deposit Accounts (DDA) used by
the transfer agency for clearing shareholder transactions. For the year ended
March 31, 2004, the Fund received reductions in transfer agency fees from AISI
(an affiliate of AIM) of $965 under an expense offset arrangement, which
resulted in a reduction of the Fund's total expenses of $965.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust 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 and INVESCO Funds in which their deferral
accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2004, the Fund paid legal fees of $3,498 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (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. Under certain circumstances, a loan will be secured
by collateral. To the extend that the loan is required to be secured by
collateral, the collateral is marked daily to ensure that the market value is at
least 102% of the outstanding principal value of the loan. The Fund did not
borrow or lend under the facility during the year ended March 31, 2004.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary income -- taxable $ -- $ 28,586
- ------------------------------------------------------------
Ordinary income -- tax exempt 349,364 432,692
============================================================
</Table>
<Table>
<Caption>
Total distributions $349,364 $461,278
____________________________________________________________
============================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 77,398
- -----------------------------------------------------------
Temporary book/tax differences (55,866)
- -----------------------------------------------------------
Shares of beneficial interest 95,694,112
===========================================================
Total net assets $95,715,644
___________________________________________________________
===========================================================
</Table>
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
trustee retirement plan expenses.
NOTE 7--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of expenses related to the
plan of reorganization, on March 31, 2004, undistributed net investment income
was decreased by $4,582 and shares of beneficial interest increased by $4,582.
This reclassification had no effect on the net assets of the Fund.
F-13
NOTE 8--SHARE INFORMATION
The Fund currently offers two different classes of shares: Class A shares and
Investor Class shares. Class A and Investor Class shares are sold at net asset
value. Under some circumstances, Class A shares are subject to CDSC.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2004 2003
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 113,505,979 $ 113,505,979 92,849,952 $ 92,849,952
- --------------------------------------------------------------------------------------------------------------------------
Investor Class* 17,037,545 17,037,545 -- --
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 238,643 238,643 410,319 410,319
- --------------------------------------------------------------------------------------------------------------------------
Investor Class* 40,055 40,055 -- --
==========================================================================================================================
Issued in connection with acquisitions:**
Investor Class* 22,988,184 22,962,932 -- --
==========================================================================================================================
Reacquired:
Class A (104,539,388) (104,539,388) (81,914,188) (81,914,188)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class* (19,872,151) (19,872,151) -- --
==========================================================================================================================
29,398,867 $ 29,373,615 11,346,083 $ 11,346,083
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Investor Class shares commenced sales on September 30, 2003.
** As of the opening of business on November 03, 2003, the Fund acquired all of
the net assets of INVESCO Tax-Free Money Fund pursuant to a plan of
reorganization approved by INVESCO Tax-Free Money Fund shareholders on
October 21, 2003. The acquisition was accomplished by a tax-free exchange of
22,988,184 shares of the Fund for 22,988,184 shares of INVESCO Tax-Free Money
Fund outstanding as of the close of business October 31, 2003. INVESCO
Tax-Free Money Fund net assets at that date of $22,962,932, were combined
with those of the Fund. The aggregate net assets of the Fund immediately
before the acquisition were $82,488,165.
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
------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.004 0.01 0.02 0.04 0.03
- --------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.004) (0.01) (0.02) (0.04) (0.03)
====================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(a) 0.41% 0.77% 1.84% 3.76% 3.05%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $75,547 $66,342 $54,996 $63,480 $60,440
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.76%(b) 0.79% 0.79% 0.76% 0.80%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers 0.91%(b) 0.94% 0.94% 0.91% 0.95%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of net investment income to average net assets 0.40%(b) 0.76% 1.85% 3.68% 2.99%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America.
(b) Ratios are based on average daily net assets of $76,839,432.
F-14
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
----------------------
SEPTEMBER 30, 2003
(DATE SALES COMMENCED)
TO MARCH 31, 2004
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
- --------------------------------------------------------------------------------------
Net investment income 0.002
- --------------------------------------------------------------------------------------
Less dividends from net investment income (0.002)
======================================================================================
Net asset value, end of period $ 1.00
______________________________________________________________________________________
======================================================================================
Total return(a) 0.23%
______________________________________________________________________________________
======================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,169
______________________________________________________________________________________
======================================================================================
Ratio of expenses to average net assets 0.67%(b)
______________________________________________________________________________________
======================================================================================
Ratio of net investment income to average net assets 0.49%(b)
______________________________________________________________________________________
======================================================================================
</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
$18,200,225.
NOTE 10--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. AIM succeeded IFG as the investment
advisor to the INVESCO Funds other than INVESCO Variable Investment Funds, Inc.
("IVIF") on November 25, 2003, and succeeded IFG as the investment advisor to
IVIF on April 30, 2004.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to a wide range of issues, including issues of
"market timing" and "late trading." Both AIM and IFG are the subject of a number
of such inquiries, as described below.
Regulatory Actions and Inquiries Concerning IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham also currently holds the positions of
Chief Operating Officer and Senior Vice President of A I M Management Group Inc.
("AIM Management"), the parent of AIM, and the position of Senior Vice President
of AIM. As of April 23, 2004, Mr. Cunningham was granted a voluntary
administrative leave of absence with pay. In addition, on December 2, 2003, the
State of Colorado filed civil proceedings against IFG. Neither the Fund nor any
of the other AIM or INVESCO Funds has been named as a defendant in any of these
proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints made substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief; civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and other related issues
concerning the INVESCO Funds. These regulators include the Florida Department of
Financial Services, the Commissioner of Securities for the State of Georgia, the
Office of the State Auditor for the State of West Virginia, the Office of the
Secretary of State for West Virginia, the Colorado Securities Division and the
Bureau of Securities of the State of New Jersey. IFG has also received more
limited inquiries from the United States Department of Labor ("DOL"), the NASD,
Inc. ("NASD"), the SEC and the United States Attorney's Office for the Southern
District of New York concerning certain specific INVESCO Funds, entities and/or
individuals. IFG is providing full cooperation with respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and other related issues
concerning the AIM Funds. AIM has received requests for information and
documents concerning these and related matters from the SEC, the Massachusetts
Secretary of the Commonwealth, the Office of the State Auditor for the State of
West Virginia and the Department of Banking for the State of Connecticut. In
addition, AIM has received subpoenas concerning these and related matters from
the NYAG, the United States Attorney's Office for the District of Massachusetts,
the Commissioner of Securities for the State of Georgia, the Office of the
Secretary of State for West Virginia and the Bureau of Securities of the State
of New Jersey. AIM has also received more limited inquiries from the DOL, the
NASD, the SEC and the United States Attorney's Office for the Southern District
of New York concerning certain specific AIM Funds, entities and/or individuals.
AIM is providing full cooperation with respect to these inquiries.
F-15
NOTE 10--LEGAL PROCEEDINGS (CONTINUED)
Response of AMVESCAP
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP found, in its ongoing review of these matters,
that shareholders were not always effectively protected from the potential
adverse impact of market timing and illegal late trading through intermediaries.
These findings were based, in part, on an extensive economic analysis by outside
experts who have been retained by AMVESCAP to examine the impact of these
activities. In light of these findings, AMVESCAP has publicly stated that any
AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities
will receive full restitution. AMVESCAP has informed regulators of these
findings. In addition, AMVESCAP has retained separate outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry. At the direction of the trustees of the AIM and INVESCO Funds,
AMVESCAP will pay all of the expenses incurred by the AIM and INVESCO Funds
related to market timing, including expenses incurred in connection with the
pending regulatory complaints against IFG alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM.
For the period ended March 31, 2004, AMVESCAP has assumed $15,478 of expenses
incurred by the Fund in connection with these matters, including legal, audit,
shareholder servicing, communication and trustee expenses.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, including
but not limited to A I M Capital Management, Inc., AIM Funds Management Inc.,
INVESCO Global Asset Management (N.A.), Inc., INVESCO Institutional (N.A.), Inc.
("IINA") and INVESCO Senior Secured Management, Inc., from serving as an
investment advisor to any investment company registered under the Investment
Company Act of 1940 (a "registered investment company"), including the Fund. The
Fund has been informed by AIM that, if AIM is so barred, AIM will seek exemptive
relief from the SEC to permit it to continue to serve as the Fund's investment
advisor. There can be no assurance that such exemptive relief will be granted.
Any settlement with the regulators could also include terms which would bar Mr.
Cunningham from serving as an officer or director of any registered investment
company.
Private Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain INVESCO Funds, certain AIM Funds, IFG, AIM, AIM
Management, AMVESCAP, certain related entities and certain of their officers,
including Mr. Cunningham) making allegations substantially similar to the
allegations in the regulatory complaints against IFG described above. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violation of various provisions of the Federal and state securities laws;
(ii) violation of various provisions of the Employee Retirement Income Security
Act ("ERISA"); (iii) breach of fiduciary duty; and/or (iv) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as compensatory damages; restitution; rescission; accounting for
wrongfully gotten gains, profits and compensation; injunctive relief;
disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled
that all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. Some of the cases against IFG
and the other AMVESCAP defendants have already been transferred to the District
of Maryland in accordance with the Panel's directive. AIM and IFG anticipate
that in time most or all of the actions pending against them and the other
AMVESCAP defendants alleging market timing and/or late trading will be
transferred to the multidistrict litigation.
Other Private Actions
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Certain other civil class action lawsuits have been filed against various
parties (including, depending on the lawsuit, certain INVESCO Funds, certain AIM
Funds, IFG and AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) breach of duty; and (iii) common law
negligence and gross negligence. These lawsuits have been filed in both Federal
and state courts and seek such remedies as compensatory and punitive damages;
interest; and attorneys' fees and costs.
Additional lawsuits or regulatory actions arising out of the circumstances
above and presenting similar allegations and requests for relief may be served
or filed against the Fund, IFG, AIM, AIM Management, IINA, AIM Distributors,
INVESCO Distributors, AMVESCAP and related entities and individuals in the
future.
As a result of the above developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Tax-Exempt Cash Fund
and the Board of Trustees of AIM Tax-Exempt Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Tax-Exempt Cash Fund (a portfolio of AIM Tax-Exempt Funds), including the
schedule of investments, as of March 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four 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 the year
ended March 31, 2000 were audited by other auditors whose report dated May 1,
2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. Our procedures included confirmation of
securities owned as of March 31, 2004, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Tax-Exempt Cash Fund as of March 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
May 17, 2004
F-17
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Tax-Exempt Cash Fund, an investment
portfolio of AIM Tax-Exempt Funds, a Delaware statutory trust, was held on
October 21, 2003. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 106,909,944 465,963
Frank S. Bayley.............................. 106,916,840 459,067
James T. Bunch............................... 106,923,423 452,484
Bruce L. Crockett............................ 106,922,853 453,054
Albert R. Dowden............................. 106,918,120 457,787
Edward K. Dunn, Jr........................... 106,917,764 458,143
Jack M. Fields............................... 106,911,143 464,764
Carl Frischling.............................. 106,908,116 467,791
Robert H. Graham............................. 106,922,853 453,054
Gerald J. Lewis.............................. 106,906,715 469,192
Prema Mathai-Davis........................... 106,917,630 458,277
Lewis F. Pennock............................. 106,918,783 457,124
Ruth H. Quigley.............................. 106,907,470 468,437
Louis S. Sklar............................... 106,917,893 458,014
Larry Soll, Ph.D............................. 106,914,215 461,692
Mark H. Williamson........................... 106,923,423 452,484
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Tax-Exempt Funds.
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of April 30, 2004
The address of each trustee and officer of AIM Tax-Exempt Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 112
portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 111 portfolios in the AIM and INVESCO Funds
complex. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); Director and
President Vice Chairman, AMVESCAP PLC and Chairman, 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), AIM Investment 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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), and
Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed Products;
Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile 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 Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of April 30, 2004
The address of each trustee and officer of AIM Tax-Exempt Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 112
portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 111 portfolios in the AIM and INVESCO Funds
complex. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California)
Trustee
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations, Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Vice President,
Officer A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2004 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money Market Research and
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.
Vice President and Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing Director and Chief
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Director and Executive Vice President, A I M Management
Vice President Group, Inc., Director and Senior Vice President, A I M
Advisors, Inc., and Director, Chairman, President, Director
of Investments, Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.
- -------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President,
Secretary and Chief Legal
Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. The Bank of New York
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 100 Church Street
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 New York, NY 10286-0001
Philadelphia, PA 19103-7599 New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end as to the federal tax status of dividends paid by the
Fund during its fiscal year ended March 31, 2004.
AIM Tax-Exempt Cash Fund paid ordinary dividends in the amount of $0.0041 per
Class A share and $0.0023 per Investor Class share during its tax year ended
March 31, 2004. Of this amount, 100.00% qualified as tax-exempt interest
dividends for federal income tax purposes.
For the purpose of preparing your annual federal income tax returns, however,
you should report the amounts as reflected on the Statement of Tax-Exempt
Income.
<Table>
<Caption>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(6) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(7)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund AIM ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
* Domestic equity and income fund
</Table>
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) Effective April 30, 2003, AIM
Worldwide Spectrum Fund was renamed AIM Global Value Fund. (7) Effective
November 24, 2003, INVESCO International Blue Chip Value Fund was renamed
INVESCO International Core Equity Fund.
If used after June 20, 2004, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment
management industry since 1976 and manages $148 billion in assets for
approximately 11 million shareholders, including individual investors, corporate
clients and financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of
the world's largest independent financial services companies with $381 billion
in assets under management. Data as of March 31, 2004.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
THOROUGHLY BEFORE INVESTING.
<Table>
Mutual Retirement Annuities College Separately Offshore Alternative Cash
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
[AIM Investments Logo]
--Servicemark--
[Your goals. Our solutions.]
--Registered Trademark--
AIMINVESTMENTS.COM TEC-AR-1
[COVER IMAGE]
AIM TAX-FREE INTERMEDIATE FUND
MARCH 31, 2004
ANNUAL REPORT TO SHAREHOLDERS
YOUR GOALS. OUR SOLUTIONS.
--Registered Trademark--
[AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark--
AIM TAX-FREE INTERMEDIATE FUND SEEKS TO GENERATE AS HIGH A LEVEL OF TAX-EXEMPT
INCOME AS IS CONSISTENT WITH PRESERVATION OF CAPITAL.
o Unless otherwise stated, information presented is as of 3/31/04 and is
based on total net assets.
<Table>
ABOUT INDEXES USED IN THIS REPORT o A direct investment cannot be made in A description of the policies and
an index. Unless otherwise indicated, procedures that the fund uses to
o The unmanaged Lehman Municipal index results include reinvested determine how to vote proxies
Bond Index, which represents the dividends, and they do not reflect sales relating to portfolio securities is
performance of investment-grade charges. Performance of an index of available without charge, upon
municipal bonds, is compiled by funds reflects fund expenses; request, by calling 800-959-4246,
Lehman Brothers, a well-known performance of a market index does not. or on the AIM Web site,
global investment bank. AIMinvestments.com.
OTHER INFORMATION
o The unmanaged Lipper Intermediate
Municipal Debt Fund Index o The average credit quality of the
represents an average of the 30 fund's holdings as of the close of
largest intermediate-term the reporting period represents the
municipal-bond funds tracked by weighted average quality rating of
Lipper, Inc., an independent mutual the securities in the portfolio as
fund performance monitor. assigned by Nationally Recognized
Statistical Rating Organizations
o The Merrill Lynch 3-7 Year Municipal based on assessment of the credit
Index is a domestic bond index that quality of the individual
holds investment-grade municipal securities.
bonds with maturities that range
between three and seven years. o While a bond fund can play an
important role in helping stabilize a
o The unmanaged Standard & Poor's diversified portfolio, a bond fund is
Composite Index of 500 Stocks (the not risk free. Return of principal is
S&P 500--Registered Trademark-- not guaranteed because of fluctuation in
Index) is an index of common stocks the net asset value of the fund. A bond
frequently used as a general fund has the same interest rate,
measure of U.S. stock market inflation and credit risks as the
performance. underlying bonds owned by the fund.
Finally, in contrast to owning
o The fund is not managed to track individual bonds, there are ongoing fees
the performance of any particular and expenses associated with owning
index, including the indexes shares of a bond fund.
defined here, and consequently, the
performance of the fund may deviate
significantly from the performance
of the indexes.
</Table>
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE
FUND PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING
SALES CHARGES AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
NOT FDIC INSURED -- MAY LOSE VALUE -- NO BANK GUARANTEE
AIMinvestments.com
TO OUR SHAREHOLDERS
[PHOTO OF Dear Fellow Shareholder in The AIM Family of Funds
ROBERT H. --Registered Trademark--:
GRAHAM]
Despite a pause during the final month of the fiscal year
ended March 31, 2004, the major stock market indexes here
and abroad delivered positive performance for the year.
Within those indexes, however, there was broad variation in
returns. Take the S&P 500--Registered Trademark-- Index,
for example. The materials sector of that index, its best
performer, returned 46.28%. Health care, its
worst-performing sector, returned 13.08%. As is historically
the case, bond market returns were more modest, but positive
as well.
The U.S. economy appears to have turned a corner, with solid
growth in gross domestic product (GDP) throughout the fiscal
year and the first estimate of GDP growth for the first
quarter of 2004 coming in at an annualized rate of 4.2%.
Overseas, economic performance picked up during the second
half of 2003, and early in 2004 the International Monetary Fund observed that an
economic recovery appeared to be taking hold in all regions, most strongly in
emerging Asia.
Investors in the United States seem to have regained their confidence. They
added $15.84 billion to U.S. stock mutual funds in March 2004 and $7.66 billion
to bond funds. By contrast, money market funds, considered a safe haven because
of their emphasis on stability of net asset value, suffered $10.86 billion in
net outflows during the month. As the fiscal year closed, total mutual fund
assets stood at $7.63 trillion.
The durability of these trends is, of course, unpredictable, and we caution
our shareholders against thinking we will see a rerun of the markets' good
performance during the year covered by this report. That said, it is also true
that the economy appears to have the wind at its back in terms of fiscal,
monetary and tax stimulus, and corporate earnings have been strong.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry and AIM Investments have been the
subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We invite you to visit AIMinvestments.com, our
Web site, often. We will continue to post updates on these issues as information
becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations that address such important issues as
market timing and late trading. Along with the Investment Company Institute, the
industry trade group, we welcome these efforts. We believe comprehensive rule
making is necessary and is the best way to establish new industry
responsibilities designed to protect shareholders. We support practical rule
changes and structural modifications that are fair, enforceable and, most
importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
April 25, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
MANAGERS ADJUST FUND HOLDINGS IN The Bond Market Association reported
FACE OF ECONOMIC RECOVERY that municipal issuance was a record
$452 billion in calendar year 2003, up
For the fiscal year ended March 31, during the second, third, and fourth from $430 billion in 2002. Continuing
2004, AIM Tax-Free Intermediate Fund quarters of 2003; the initial estimate fiscal pressures and the resulting
provided current income, exempt from for the first quarter of 2004 was 4.2%. demand for debt financing from the
federal income taxes, positive total financial markets helped account for
return, and preservation of capital. In late June 2003, the Federal this record-setting issuance. New issue
Just as important, the fund offered Reserve (the Fed) reduced the federal volume peaked in the second quarter of
relative safety during a period of funds target rate from 1.25% to 1.00%, 2003 and then declined in the third and
economic and political uncertainty. saying that it favored a more expansive fourth quarters. The slower issuance
monetary policy because the economy had volume during the second half of the
We were particularly pleased that not exhibited sustainable growth. In year stemmed from decreased refunding
during a year in which many funds were October, the Fed reported that economic activity, as rising municipal yields
forced to reduce their dividends, the expansion had increased and consumer eroded the viability of
dividend of AIM Tax-Free Intermediate spending was generally stronger, savings-motivated refunding
Fund remained constant. although the job market remained weak. transactions.
By March, the Fed reported that economic
As of March 31, 2004, the 30-day activity expanded in January and YOUR FUND
distribution rate was 4.01% for Class A February; that consumer spending rose in
shares and 3.70% for Class A3 shares--or most areas; that commercial real estate During the year, we continued to invest
6.17% and 5.69%, respectively, on a markets remained soft but that demand the bulk of the fund's net assets in
tax-equivalent basis. Additional for housing remained strong; and that revenue bonds--especially those that
information about fund performance for employment continued to grow slowly. fund essential, rather than
the year covered by this report appears discretionary, projects. Revenue bonds
on page 3. The year was characterized by an are issued to finance public works
unusually high level of volatility, projects, and the bonds are supported
MARKET CONDITIONS particularly on the shorter end of the directly by the revenue generated by
yield curve. Disenchanted with minimal those projects. General obligation
The economy and the stock market showed returns from money market funds, some bonds, by comparison, are backed by the
signs of health for the year ended investors viewed short-term bond funds ability of their issuers to collect
March 31, 2004. U.S. gross domestic as a higher-yielding alternative. Their taxes sufficient to service their
product, the broadest measure of on-again, off-again investment decisions outstanding debt--the so-called "full
economic activity, expanded at an brought added volatility to bond markets. faith and credit" clause. We generally
annualized rate of 3.1%, 8.2%, and 4.1% find revenue bonds more appealing, since
even during economic downturns the
practical need for many basic public
</Table>
================================================================================
<Table>
TOP FIVE HOLDINGS RATINGS OF PORTFOLIO HOLDINGS
% OF
ISSUER COUPON MATURITY NET ASSETS [PIE CHART]
- ------ ------ -------- ----------
1. District of Columbia 5.50% 6/1/09 3.5 AA 19.4%
A 5.3%
2. New Jersey (State of) Transportation Not Rated/Other 1.0%
Trust Fund Authority 5.50 6/15/10 1.9 AAA 74.3%
3. Chicago (City of) 6.50 12/1/08 1.9
4. Energy Northwest 5.50 7/1/11 1.8
5. Harris (County of) Health Facilities,
Development Corp. 5.50 6/1/09 1.3
</Table>
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
================================================================================
2
<Table>
works projects (water and sewer 10 years or longer, which inherently [PHOTO OF RICHARD A. BERRY
improvements, for example) remains have a greater potential to lose value RICHARD A. Mr. Berry, Chartered
relatively consistent. Governments often should interest rates begin to rise. And BERRY] Financial Analyst,
find it difficult to raise taxes during while we maintained an average credit is co-manager of AIM
times of economic weakness, and it is quality of AA+, nearly nine percent of Tax-Free Intermediate
those tax revenues that support general funds in our Lipper category had average Fund. He joined AIM
obligation bonds. credit qualities of BBB or lower. in 1987 and has been
in the investment
In an effort to gradually reduce the The fund's 4.01% 30-day distribution industry
fund's weighted average maturity, we rate at the close of the fiscal year was since 1968. Mr. Berry has been president
sold the fund's lower-yielding, attractive when compared to the average and director of the Dallas Association
longer-maturity bonds. While the 3.30% 30-day distribution rate of the of Investment Analysts and chairman of
stability of the fund's net asset value funds in its Lipper group. the board of regents of the Financial
(NAV) can never be guaranteed, we Analysts Seminar. He received both a
believed that reducing the fund's IN CLOSING B.B.A. and an M.B.A. from Texas
weighted average maturity would help Christian University.
reduce the volatility of the fund's NAV. During the fiscal year covered by this
No one can predict with certainty future report, we were pleased to be able to
interest rate changes, but we considered provide investors with as high a level [PHOTO OF STEPHEN D. TURMAN
it prudent to gradually shorten the of tax-exempt income as was consistent STEPHEN D. Mr. Turman,
fund's duration in the face of an with the preservation of capital. We did TURMAN] Chartered Financial
anticipated economic recovery. so by investing in high-quality, Analyst, is
intermediate-term municipal securities co-manager of AIM
While the fund's total return lagged having a maturity of 10 1/2 years or Tax-Free
that of the Lipper Intermediate less. We were particularly pleased that Intermediate Fund.
Municipal Debt Fund Index for the year during a year in which many funds were He has been in the
covered by this report, we believe the forced to reduce their dividends, the investment industry
fund offered some significant advantages dividend of AIM Tax-Free Intermediate since 1983
for safety- and tax-conscious investors. Fund remained constant. and joined AIM in 1985. Mr. Turman
First, the fund held no bonds subject to received a B.B.A. in finance from The
the alternative minimum tax (AMT); nine See important fund and index University of Texas at Arlington.
percent of funds in our Lipper category disclosures inside front cover.
held AMT bonds. As a true Assisted by the Municipal Bond Team
intermediate-term fund, our portfolio
included no bonds with maturities of [RIGHT ARROW GRAPHIC]
over 10 1/2 years; 22% of funds in our
Lipper category held bonds with For a presentation of your fund's
maturities of long-term performance record, please
turn the page.
</Table>
================================================================================
<Table>
FUND PROVIDES CURRENT INCOME FUND VS. INDEXES
30-Day Taxable Equivalent TOTAL RETURNS 3/31/03-3/31/04, EXCLUDING
Distribution 30-Day Distribution 30-Day Taxable Equivalent APPLICABLE FRONT-END OR CONTINGENT
Rate Rate Sec Yield 30-Day Yield DEFERRED SALES CHARGES. IF SALES CHARGES
------------ ------------------- --------- ------------------ WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 4.01% 6.17% 1.82% 2.80%
Class A3 Shares 3.70 5.69 1.49 2.29 Class A Shares 4.04%
Taxable equivalent calculations assume the highest federal income tax rate in Class A3 Shares 3.67
effect on March 31, 2004--35%. Income may be subject to state and local taxes.
Lehman Municipal Bond Index 5.86
The fund's 30-day distribution rate Commission. The formula is based on the
reflects its most recent monthly portfolio's potential earnings from Merrill Lynch 3-7 Year
dividend distribution multiplied by 12 dividends, interest and Municipal Index 4.56
and divided by the most recent month-end yield-to-maturity or yield-to-call of
maximum offering price. The the bonds in the portfolio, net of all Lipper Intermediate Municipal
taxable-equivalent 30-day distribution expenses, calculated at maximum offering Debt Fund Index 4.54
rate is calculated in the same manner as price, and annualized. The
the 30-day distribution rate, with an taxable-equivalent 30-day yield is Source: Lipper, Inc.
adjustment for a stated, assumed tax calculated in the same manner as the
rate. 30-day SEC yield, with an adjustment for TOTAL NUMBER OF HOLDINGS * 254
a stated, assumed tax rate.
The 30-day SEC yield is calculated AVERAGE QUALITY RATING AA+
using a formula defined by the
Securities and Exchange WEIGHTED AVERAGE MATURITY 4.7 YEARS
AVERAGE DURATION 3.8 YEARS
TOTAL NET ASSETS $492.2 MILLION
</Table>
================================================================================
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
======================================================================================
RESULTS OF A $10,000 INVESTMENT
3/31/94-3/31/04
[MOUNTAIN CHART]
Past performance cannot guarantee
comparable future results. AIM TAX-FREE LIPPER INTERMEDIATE LEHMAN MERRILL LYNCH
INTERMEDIATE FUND MUNICIPAL DEBT MUNICIPAL 3-7 YEAR
Your fund's total return includes DATE CLASS A SHARES FUND INDEX BOND INDEX MUNICIPAL INDEX
reinvested dividends, applicable sales ----------- ----------------- ------------------- ---------- ---------------
charges, fund expenses, and management 3/31/1994 9900 10000 10000 10000
fees. Index results include reinvested 6/30/1994 10003 10092 10110 10139
dividends, but they do not reflect sales 9/30/1994 10068 10152 10180 10250
charges, fund expenses, or management 12/31/1994 10014 10038 10034 10181
fees. Performance shown in the chart and 3/31/1995 10411 10538 10743 10527
table does not reflect deduction of 6/30/1995 10618 10775 11002 10848
taxes a shareholder would pay on fund 9/30/1995 10823 11033 11318 11033
distributions or sale of fund shares. 12/31/1995 11037 11329 11785 11265
Performance of the indexes does not 3/31/1996 11041 11267 11644 11281
reflect the effects of taxes. 6/30/1996 11107 11317 11733 11318
9/30/1996 11261 11525 12001 11519
In evaluating this chart, please 12/31/1996 11458 11779 12307 11746
note that the chart uses a logarithmic 3/31/1997 11518 11776 12278 11735
scale along the vertical axis (the value 6/30/1997 11796 12088 12701 12037
scale). This means that each scale 9/30/1997 12054 12384 13084 12290
increment always represents the same 12/31/1997 12288 12651 13439 12507
percent change in price; in a linear 3/31/1998 12414 12772 13593 12640
chart each scale increment always 6/30/1998 12542 12928 13800 12784
represents the same absolute change in 9/30/1998 12866 13286 14224 13136
price. In this example, the scale 12/31/1998 12963 13362 14309 13251
increment between $5,000 and $10,000 is 3/31/1999 13071 13436 14436 13371
the same as that between $10,000 and 6/30/1999 12909 13211 14181 13211
$20,000. In a linear chart, the latter 9/30/1999 12995 13220 14125 13321
scale increment would be twice as large. 12/31/1999 12975 13178 14015 13338
The benefit of using a logarithmic scale 3/31/2000 13161 13411 14425 13497
is that it better illustrates 6/30/2000 13326 13573 14643 13724
performance during the fund's early 9/30/2000 13617 13857 14997 14005
years before reinvested distributions 12/31/2000 14038 14321 15653 14438
and compounding create the potential for 3/31/2001 14362 14645 16000 14845
the original investment to grow to very 6/30/2001 14454 14753 16104 15002
large numbers. Had the chart used a 9/30/2001 14828 15136 16556 15402
linear scale along its vertical axis, 12/31/2001 14667 15008 16455 15301
you would not be able to see as clearly 3/31/2002 14792 15117 16610 15364
the movements in the value of the fund 6/30/2002 15404 15652 17218 16042
and the indexes during the fund's early 9/30/2002 16017 16258 18035 16663
years. We use a logarithmic scale in 12/31/2002 16078 16261 18035 16847
financial reports of funds that have 3/31/2003 16253 16422 18252 17014
more than five years of performance 6/30/2003 16613 16784 18723 17362
history. 9/30/2003 16671 16818 18738 17518
12/31/2003 16755 16971 18994 17557
3/31/2004 16904 17167 19322 17790
Source: Lipper, Inc.
======================================================================================
=======================================
AVERAGE ANNUAL TOTAL RETURNS The inception date of Class A3 shares is and principal value will fluctuate so
10/31/02. Returns prior to that date are that you may have a gain or loss when
As of 3/31/04, including applicable hypothetical results based on returns of you sell shares.
sales charges Class A shares for the stated period at
net asset value, adjusted to reflect Class A share performance reflects
CLASS A SHARES Class A3 12b-1 fees. the maximum 1.00% sales charge. Class A
Inception (5/11/87) 5.97% shares were closed to new investors
10 Years 5.39 The performance data quoted effective 10/30/02. Class A3 shares do
5 Years 5.07 represent past performance and cannot not have a front-end or a contingent
1 Year 2.98 guarantee comparable future results; deferred sales charge; therefore,
current performance may be lower or performance quoted is at net asset
CLASS A3 SHARES higher. Please visit AIMinvestments.com value. The performance of the fund's
10 Years 5.12% for the most recent month-end share classes will differ due to
5 Years 4.89 performance. Performance figures reflect different sales charge structures and
1 Year 3.67 reinvested distributions, changes in net class expenses.
asset value and the effect of the
======================================= maximum applicable sales charge unless Had the advisor not waived fees
otherwise stated. Investment return and/or reimbursed expenses in the past,
performance would have been lower.
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
================================================================================
4
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2004
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-99.10%
ALABAMA-1.82%
Alabama (State of) Special
Care Facilities Financing
Authority (Birmingham
Charity Obligated Group);
Hospital Series 1997 D RB
4.95%, 11/01/07(b)(c) NRR Aaa $ 740 $ 797,661
- -------------------------------------------------------------------
Birmingham (City of);
Refunding Unlimited Tax
Series 2001 B GO Wts.
5.25%, 07/01/10(d) AAA Aaa 1,950 2,218,066
- -------------------------------------------------------------------
Jefferson (County of);
School Limited Tax Series
2000 GO Wts.
5.05%, 02/15/09(d) AAA Aaa 1,000 1,117,470
- -------------------------------------------------------------------
Unlimited Tax Series 2001
A GO Wts.
5.00%, 04/01/10(d) AAA Aaa 2,925 3,272,402
- -------------------------------------------------------------------
Lauderdale (County of) &
Florence (City of) Health
Care Authority (Coffee
Health Group Project);
Series 1999 A RB
5.00%, 07/01/07(d) AAA Aaa 1,000 1,094,590
- -------------------------------------------------------------------
Series 2000 A RB
5.50%, 07/01/08(d) AAA Aaa 385 433,976
===================================================================
8,934,165
===================================================================
ALASKA-0.72%
Alaska (State of) Housing
Finance Corp.; Mortgage
Series 1997 A-1 RB
4.90%, 12/01/07(d) AAA Aaa 380 400,224
- -------------------------------------------------------------------
Anchorage (City of);
Correctional Facilities
Lease Series 2000 RB
5.13%, 02/01/09(d) AAA Aaa 1,000 1,119,000
- -------------------------------------------------------------------
Unlimited Tax Series 1994
GO
5.50%, 07/01/04(b)(c) AAA Aaa 1,950 2,010,235
===================================================================
3,529,459
===================================================================
AMERICAN SAMOA-0.61%
American Samoa (Territory
of); Refunding Unlimited
Tax Series 2000 GO
6.00%, 09/01/06(d) A -- 1,585 1,715,239
- -------------------------------------------------------------------
6.00%, 09/01/07(d) A -- 1,150 1,282,974
===================================================================
2,998,213
===================================================================
ARIZONA-2.18%
Arizona (State of)
Transportation Board;
Refunding Highway Sub.
Series 1993 A RB
6.00%, 07/01/08 AA Aa2 800 924,120
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
<Caption>
ARIZONA-(CONTINUED)
Maricopa (County of)
Elementary School District
#40 (Glendale Project of
2003); Unlimited Tax
Series 2004 A GO
2.00%, 07/01/06(d) AAA -- $1,250 $ 1,263,700
- -------------------------------------------------------------------
Maricopa (County of) Unified
School District #11
(Peoria Project of 1991);
Unlimited Tax Series 1995
GO
5.50%, 07/01/05(b)(c) AAA Aaa 1,365 1,453,548
- -------------------------------------------------------------------
Maricopa (County of) Unified
School District #4 (Mesa
Project of 1995);
Unlimited Tax Series 1998
E GO
5.00%, 07/01/09(d) AAA Aaa 1,900 2,092,261
- -------------------------------------------------------------------
Navajo (County of) Unified
School District #6
(Heber-Overgaard);
Unlimited Tax Series 1997
A GO
5.00%, 07/01/07(d) AAA Aaa 450 485,460
- -------------------------------------------------------------------
Phoenix (City of) Civic
Improvement Corp.;
Refunding Wastewater
System Jr. Lien Series
2001 RB
5.25%, 07/01/11(d) AAA Aaa 3,000 3,442,440
- -------------------------------------------------------------------
Yuma (City of) Industrial
Development Authority
(Yuma Regional Medical
Center); Refunding
Hospital Series 1997 RB
5.70%, 08/01/06(d) AAA Aaa 1,000 1,093,070
===================================================================
10,754,599
===================================================================
ARKANSAS-1.54%
Arkansas (State of)
Development Finance
Authority; Corrections
Facilities Series 1996 RB
6.25%, 10/01/06(d) AAA Aaa 1,800 2,003,418
- -------------------------------------------------------------------
Fort Smith (City of); Sales
& Use Tax Series 2001 A RB
4.40%, 12/01/09 AA- -- 2,000 2,180,440
- -------------------------------------------------------------------
Little Rock (City of) Health
Facilities Board (Baptist
Medical Center); Refunding
Hospital Series 1991 RB
6.70%, 11/01/04(d) AAA Aaa 375 386,197
- -------------------------------------------------------------------
Little Rock (City of) School
District; Limited Tax
Series 2001 C GO
5.00%, 02/01/10(d) -- Aaa 1,695 1,896,891
- -------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
ARKANSAS-(CONTINUED)
Sebastian (County of)
Community Jr. College
District; Refunding &
Improvement Limited Tax
Series 1997 GO
5.20%, 04/01/07(b) NRR Aaa $1,000 $ 1,101,270
===================================================================
7,568,216
===================================================================
CALIFORNIA-0.11%
San Francisco (City & County
of) Parking Authority;
Parking Meter Series 1994
RB
6.75%, 06/01/05(d) AAA Aaa 500 532,281
===================================================================
COLORADO-0.68%
Boulder (County of) Open
Space Capital Improvement
Trust Fund; Series 1998 RB
5.25%, 12/15/09 AA- -- 1,000 1,118,360
- -------------------------------------------------------------------
Colorado (State of)
Department of
Transportation; Series
2000 RAN
6.00%, 06/15/06(d) AAA Aaa 1,000 1,096,760
- -------------------------------------------------------------------
Northwest Parkway Public
Highway Authority; Sr.
Series 2001 A RB
5.00%, 06/15/11(d) AAA Aaa 1,000 1,126,450
===================================================================
3,341,570
===================================================================
CONNECTICUT-0.68%
Connecticut (State of)
Resource Recovery
Authority (Bridgeport
RESCO Co., L.P. Project);
Refunding Series 1999 RB
5.13%, 01/01/09(d) AAA Aaa 1,000 1,117,060
- -------------------------------------------------------------------
New Haven (City of);
Unlimited Tax Series 1997
GO
6.00%, 02/15/06(d) AAA Aaa 2,050 2,224,188
===================================================================
3,341,248
===================================================================
DELAWARE-0.44%
Delaware (State of) Economic
Development Authority
(Delmarva Power & Light
Co.); Refunding Facilities
Series 2000 C RB
5.50%, 07/01/10(c) BBB Baa1 2,045 2,159,561
===================================================================
DISTRICT OF COLUMBIA-6.56%
District of Columbia
(Abraham & Laura Lisner
Home for Aged Women); VRD
Series 1992 RB (LOC-Bank
of America NT & SA)
1.05%, 04/13/04(c)(e)(f) -- VMIG-1 1,468 1,468,000
- -------------------------------------------------------------------
District of Columbia
(American Association for
the Advancement of
Science); Series 1997 RB
5.00%, 01/01/05(d) AAA Aaa 800 823,424
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
DISTRICT OF COLUMBIA-(CONTINUED)
District of Columbia
(Gonzaga College High
School); Series 1999 RB
5.25%, 07/01/09(d) AAA Aaa $ 510 $ 575,239
- -------------------------------------------------------------------
District of Columbia
(Medlantic Healthcare
Group); Refunding Hospital
Series 1993 A RB
5.50%, 08/15/06(b) AAA Aaa 500 547,440
- -------------------------------------------------------------------
Series 1996 A RB
6.00%, 08/15/06(b) AAA Aaa 1,550 1,714,997
- -------------------------------------------------------------------
Series 1997 A RB
6.00%, 08/15/07(b) AAA Aaa 500 569,760
- -------------------------------------------------------------------
District of Columbia;
Refunding Unlimited Tax
Series 1993 B-1 GO
5.50%, 06/01/09(d) AAA Aaa 1,250 1,425,750
- -------------------------------------------------------------------
Series 1993 B-2 GO
5.50%, 06/01/07(d) AAA Aaa 3,000 3,328,200
- -------------------------------------------------------------------
Series 1999 B GO
5.50%, 06/01/10(d) AAA Aaa 1,415 1,624,420
- -------------------------------------------------------------------
District of Columbia;
Unlimited Tax Series 1999
B GO
5.50%, 06/01/09(b) AAA Aaa 950 1,091,977
- -------------------------------------------------------------------
District of Columbia;
Unrefunded Unlimited Tax
Series 1999 B GO
5.50%, 06/01/09(d) AAA Aaa 15,275 17,422,665
- -------------------------------------------------------------------
Washington Convention Center
Authority; Sr. Lien
Dedicated Tax Series 1998
RB
5.25%, 10/01/09(d) AAA Aaa 1,500 1,682,775
===================================================================
32,274,647
===================================================================
FLORIDA-2.41%
Broward (County of)
(Wheelabrator South
Broward, Inc.); Refunding
Resource Recovery Series
2001 A RB
5.00%, 12/01/07 AA- A3 2,800 3,070,760
- -------------------------------------------------------------------
5.50%, 12/01/08 AA- A3 1,700 1,911,616
- -------------------------------------------------------------------
Florida (State of) Board of
Education; Lottery Series
2000 B RB
5.75%, 07/01/10(d) AAA Aaa 1,000 1,170,870
- -------------------------------------------------------------------
Palm Beach (County of)
Airport System; Refunding
Series 2001 RB
5.50%, 10/01/09(d) AAA Aaa 1,000 1,150,760
- -------------------------------------------------------------------
Palm Beach (County of) Solid
Waste Authority; Refunding
Series 1997 A RB
5.50%, 10/01/06(d) AAA Aaa 3,000 3,279,720
- -------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
FLORIDA-(CONTINUED)
Village Center Community
Development District;
Refunding Recreational
Series 1998 A RB
5.50%, 11/01/10(d) AAA Aaa $1,105 $ 1,286,540
===================================================================
11,870,266
===================================================================
GEORGIA-1.16%
Dalton (City of); Utilities
Series 1999 RB
5.75%, 01/01/10(d) AAA Aaa 1,015 1,176,761
- -------------------------------------------------------------------
Fulton (County of)
Development Authority
(Georgia Tech Foundation
Facilities Inc.); Series
2002 A RB
5.00%, 11/01/06 AA+ Aa1 1,500 1,628,790
- -------------------------------------------------------------------
Georgia (State of);
Unlimited Tax Series 1992
B GO
6.30%, 03/01/09 AAA Aaa 1,425 1,684,322
- -------------------------------------------------------------------
6.30%, 03/01/10 AAA Aaa 1,000 1,199,500
===================================================================
5,689,373
===================================================================
HAWAII-0.49%
Hawaii (State of); Unlimited
Tax Series 1993 CA GO
5.75%, 01/01/10(d) AAA Aa3 1,000 1,158,220
- -------------------------------------------------------------------
Honolulu (City & County of);
Unlimited Tax Series 1994
B GO
6.00%, 06/01/04(b)(c) AAA Aaa 1,230 1,251,992
===================================================================
2,410,212
===================================================================
IDAHO-0.04%
Idaho (State of) Housing
Agency; Single Family
Mortgage Sub. Series 1994
D-1 RB (CEP-FHA, VA, FmHA)
5.90%, 07/01/06 -- Aa2 170 176,729
===================================================================
ILLINOIS-8.50%
Chicago (City of) (Central
Loop Redevelopment); Tax
Increment Allocation Sub.
Series 2000 A RB
6.50%, 12/01/08(d) A -- 8,000 9,155,440
- -------------------------------------------------------------------
Chicago (City of); Limited
Tax Series 1997 GO
6.00%, 01/01/06(b) AAA Aaa 350 377,556
- -------------------------------------------------------------------
Chicago (City of) Midway
Airport; Series 1996 A RB
5.30%, 01/01/08(d) AAA Aaa 1,000 1,090,780
- -------------------------------------------------------------------
Chicago (City of) Park
District; Refunding
Unlimited Tax Series 1995
GO
6.00%, 01/01/07(d) AAA Aaa 2,000 2,221,740
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
ILLINOIS-(CONTINUED)
Chicago (City of) School
Finance Authority (School
Assistance); Refunding
Unlimited Tax Series 2004
A GO
5.00%, 06/01/06(d) -- Aaa $1,500 $ 1,609,590
- -------------------------------------------------------------------
Chicago (City of) Unrefunded
Limited Tax Series 1997 GO
6.00%, 01/01/06(d) AAA Aaa 150 161,837
- -------------------------------------------------------------------
Cook & Will (Counties of)
School District #194;
Limited Tax
Series 2004 GO
1.50%, 12/01/04(d) AAA Aaa 570 571,853
- -------------------------------------------------------------------
1.50%, 12/01/05(d) AAA Aaa 620 621,922
- -------------------------------------------------------------------
1.75%, 12/01/06(d) AAA Aaa 630 632,608
- -------------------------------------------------------------------
2.25%, 12/01/07(d) AAA Aaa 640 648,320
- -------------------------------------------------------------------
Hoffman Estates (Economic
Development Project Area);
Refunding Tax Increment
Series 1997 RB
5.00%, 11/15/06(d) AAA Aaa 2,500 2,558,725
- -------------------------------------------------------------------
Hoffman Estates (Park Place
Apartments Project);
Refunding Multifamily
Housing Series 1996 RB
(CEP-Federal National
Mortgage Association)
5.75%, 06/01/06(c) AAA -- 1,400 1,416,912
- -------------------------------------------------------------------
Illinois (State of)
(Department of Central
Management Services);
Series 1999 COP
4.90%, 07/01/08(d) AAA Aaa 1,000 1,105,680
- -------------------------------------------------------------------
Illinois (State of)
Development Finance
Authority (Evanston
Northwestern Healthcare
Corp.); VRD Series 2001 C
RB (LOC-
Bank One N.A.)
1.02%, 05/01/31(e)(f) A-1 VMIG-1 8,100 8,100,000
- -------------------------------------------------------------------
Illinois (State of) Health
Facilities Authority
(Children's Memorial
Hospital); Series 1999 A
RB
5.50%, 08/15/07(d) AAA Aaa 1,580 1,759,946
- -------------------------------------------------------------------
Illinois (State of) Health
Facilities Authority
(Edward Hospital Obligated
Group); Series 2001 A RB
5.00%, 02/15/09(d) AAA Aaa 1,000 1,108,900
- -------------------------------------------------------------------
Illinois (State of) Health
Facilities Authority
(Highland Park Hospital);
Series 1991 B RB
5.55%, 10/01/06(b) AAA Aaa 500 549,030
- -------------------------------------------------------------------
Illinois (State of) Health
Facilities Authority (The
Carle Foundation); Series
1998 A RB
5.25%, 07/01/09(d) AAA Aaa 1,000 1,123,220
- -------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
ILLINOIS-(CONTINUED)
Illinois (State of) Regional
Transportation Authority;
Series 1994 B RB
6.30%, 06/01/04(b)(c) AAA Aaa $1,000 $ 1,028,330
- -------------------------------------------------------------------
Illinois (State of);
Refunding First Unlimited
Tax Series 2001 GO
5.25%, 10/01/11(d) AAA Aaa 1,790 2,050,588
- -------------------------------------------------------------------
Madison & Saint Clair
(Counties of) School
District #10 (Collinsville
School Building);
Unlimited Tax Series 2001
GO
5.00%, 02/01/11(d) AAA Aaa 1,150 1,285,631
- -------------------------------------------------------------------
McHenry (County of) Crystal
Lake Community
Consolidated School
District #47; Unlimited
Tax Series 1999 GO
5.13%, 02/01/10(d) -- Aaa 1,250 1,385,550
- -------------------------------------------------------------------
Warrenville (City of); Tax
Increment Series 2000 RB
5.25%, 05/01/07(d) AAA Aaa 1,170 1,287,152
===================================================================
41,851,310
===================================================================
INDIANA-1.51%
Indiana (State of) Health
Facility Financing
Authority (Daughters of
Charity National Health
Systems Inc.);
Series 1997 D RB
5.00%, 11/01/07(b)(c) NRR Aaa 2,980 3,231,840
- -------------------------------------------------------------------
Indiana (State of)
Transportation Finance
Authority; Unrefunded
Highway Series 1993 A RB
5.50%, 06/01/07(d) AAA Aaa 855 949,649
- -------------------------------------------------------------------
Indianapolis (City of) Local
Public Improvement Bond
Bank; Series 1999 D RB
5.10%, 01/01/09 AAA Aaa 425 473,675
- -------------------------------------------------------------------
Richland-Bean Blossom School
Building Corp.; First
Mortgage Series 2001 RB
5.00%, 07/15/10(b) AAA Aaa 1,045 1,172,636
- -------------------------------------------------------------------
Zionsville (City of)
Community Schools Building
Corp.; First Mortgage
Series 2002 RB
5.00%, 07/15/11(d) AAA Aaa 1,420 1,592,544
===================================================================
7,420,344
===================================================================
KANSAS-1.24%
Johnson (County of) Water
District #1; Series 2001
RB
5.00%, 06/01/11 AAA Aaa 1,770 2,003,675
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
KANSAS-(CONTINUED)
Wyandotte (County of) &
Kansas City (City of)
Unified Government
(Redevelopment
Project-Area B); Special
Obligation Series 2001 RB
5.00%, 12/01/09(d) AAA Aaa $1,080 $ 1,220,929
- -------------------------------------------------------------------
5.00%, 12/01/10(d) AAA Aaa 750 850,020
- -------------------------------------------------------------------
Wyandotte (County of) School
District #500; Unlimited
Tax Series 2001 GO
5.50%, 09/01/11(d) AAA Aaa 1,750 2,032,240
===================================================================
6,106,864
===================================================================
KENTUCKY-0.24%
Kentucky (State of) Turnpike
Authority (Revitalization
Project); Refunding
Economic Development Road
Series 2001 A RB
5.50%, 07/01/11(d) AAA Aaa 1,000 1,159,420
===================================================================
LOUISIANA-1.97%
Louisiana (State of) Energy
& Power Authority (Power
Project); Refunding Series
2000 RB
5.75%, 01/01/11(d) AAA Aaa 2,500 2,911,550
- -------------------------------------------------------------------
Louisiana (State of);
Unlimited Tax Series 1997
A GO
6.00%, 04/15/07(d) AAA Aaa 5,000 5,617,650
- -------------------------------------------------------------------
New Orleans (City of);
Certificates of
Indebtedness Series 2000
RB
5.50%, 12/01/09(d) AAA Aaa 1,000 1,154,990
===================================================================
9,684,190
===================================================================
MASSACHUSETTS-2.32%
Massachusetts (State of);
Consumer Lien Limited Tax
Series 2000 A GO
5.75%, 02/01/09 AA- Aa2 5,000 5,721,500
- -------------------------------------------------------------------
Refunding Limited Tax
Series 1997 A GO
5.75%, 08/01/08(d) AAA Aaa 5,000 5,710,100
===================================================================
11,431,600
===================================================================
MICHIGAN-3.73%
Detroit (City of);
Refunding Unlimited Tax
Series 1995 B GO
6.25%, 04/01/09(d) AAA Aaa 4,065 4,313,900
- -------------------------------------------------------------------
Series 1997 B GO
5.38%, 04/01/10(d) AAA Aaa 1,630 1,841,541
- -------------------------------------------------------------------
Unlimited Tax
Series 2001 A-1 GO
5.50%, 04/01/09(d) AAA Aaa 1,500 1,712,850
- -------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
MICHIGAN-(CONTINUED)
Hartland (City of)
Consolidated School
District; Refunding
Unlimited Tax Series 2001
GO (CEP-Michigan School
Bond Loan Program)
5.50%, 05/01/11 AA+ Aa1 $1,000 $ 1,160,090
- -------------------------------------------------------------------
Michigan (State of) Hospital
Finance Authority
(Ascension Health Credit);
Series 1999 B RB
5.20%, 11/15/05(c) AA Aa2 4,000 4,243,240
- -------------------------------------------------------------------
Michigan (State of) Job
Development Authority
(General Motors Corp.);
Series 1984 RB
5.55%, 04/01/09 BBB Baa1 1,975 1,979,404
- -------------------------------------------------------------------
Michigan (State of)
Strategic Fund (Detroit
Edison Co.); Refunding
Limited Obligation Series
1995 CC RB
4.85%, 09/01/11(c)(d) -- Aaa 1,000 1,113,580
- -------------------------------------------------------------------
Taylor (City of); Series
2001 COP
5.00%, 02/01/11(d) AAA Aaa 495 554,999
- -------------------------------------------------------------------
Troy (City of) Downtown
Development Authority;
Refunding & Development
Tax Allocation Series 2001
RB
5.00%, 11/01/10(d) AAA Aaa 1,265 1,426,123
===================================================================
18,345,727
===================================================================
MINNESOTA-1.17%
Minneapolis (City of)
Special School District
#1; Unlimited Tax Series
1997 GO (CEP-Minnesota
School District
Enhancement Program)
5.00%, 02/01/10 AA+ Aa2 1,000 1,058,570
- -------------------------------------------------------------------
Osseo (City of) Independent
School District #279;
Refunding Unlimited Tax
Series 2001 B GO (CEP-
Minnesota School District
Enhancement Program)
5.00%, 02/01/11 -- Aa2 1,000 1,108,890
- -------------------------------------------------------------------
Saint Cloud (City of) (Saint
Cloud Hospital Obligated
Group); Health Care Series
2000 A RB
5.50%, 05/01/06(d) -- Aaa 600 646,098
- -------------------------------------------------------------------
Western Minnesota Municipal
Power Agency; Refunding
Series 2001 A RB
5.50%, 01/01/10(d) -- Aaa 1,245 1,431,987
- -------------------------------------------------------------------
5.50%, 01/01/11(d) -- Aaa 1,300 1,500,330
===================================================================
5,745,875
===================================================================
MISSISSIPPI-0.83%
Rankin (County of) School
District; Unlimited Tax
Series 2001 GO
5.00%, 10/01/11(d) AAA Aaa 3,625 4,064,133
===================================================================
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
MISSOURI-0.80%
Missouri (State of) Health &
Educational Facilities
Authority (Freeman Health
Systems Project); Health
Facilities Series 1998 RB
4.85%, 02/15/07(d) A -- $1,000 $ 1,066,180
- -------------------------------------------------------------------
5.00%, 02/15/08(d) A -- 515 555,000
- -------------------------------------------------------------------
Missouri (State of) Health &
Educational Facilities
Authority (Saint Luke's
Episcopal-Presbyterian
Hospital); Health
Facilities Series 2001 RB
5.25%, 12/01/09(d) AAA Aaa 1,000 1,138,500
- -------------------------------------------------------------------
Missouri (State of) Health &
Educational Facilities
Authority (Webster
University); Series 2001
RB
5.00%, 04/01/11(d) -- Aaa 1,075 1,201,743
===================================================================
3,961,423
===================================================================
NEVADA-0.34%
Nevada (State of); Capital
Improvement & Cultural
Affairs Limited Tax Series
1999 A GO
5.00%, 02/01/10 AA Aa2 1,500 1,662,390
===================================================================
NEW JERSEY-2.07%
New Jersey (State of)
Transportation Trust Fund
Authority (Transportation
System); Series 1999 A RB
5.50%, 06/15/10 AA- Aa3 8,020 9,189,236
- -------------------------------------------------------------------
Tobacco Settlement Financing
Corp.; Series 2002
Asset-Backed RB
5.00%, 06/01/09 BBB Baa2 1,000 1,008,070
===================================================================
10,197,306
===================================================================
NEW YORK-7.00%
Monroe-Woodbury Central
School District; Refunding
Unlimited Tax Series 2004
A GO
4.00%, 05/15/06(d) AAA Aaa 1,000 1,051,960
- -------------------------------------------------------------------
Nassau (County of); General
Improvements Unlimited Tax
Series 1997 V GO
5.15%, 03/01/07(d) AAA Aaa 2,500 2,737,500
- -------------------------------------------------------------------
Improvements Unlimited Tax
Series 2000 E GO
5.25%, 03/01/05(d) AAA Aaa 3,000 3,111,300
- -------------------------------------------------------------------
New York (City of)
Metropolitan
Transportation Authority
(Triborough); Series 1999
A COP
5.00%, 01/01/08(d) AAA Aaa 1,000 1,101,070
- -------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
NEW YORK-(CONTINUED)
New York (City of);
Refunding Unlimited Tax
Series 1996 D GO
5.60%, 11/01/05 A A2 $5,000 $ 5,320,500
- -------------------------------------------------------------------
Unlimited Tax Series 1996
G GO
5.90%, 02/01/05 A A2 1,150 1,195,713
- -------------------------------------------------------------------
New York (State of)
Dormitory Authority
(Frances Schervier
Obligated Group); Series
1997 RB
5.50%, 07/01/10(d) AAA Aaa 1,205 1,384,798
- -------------------------------------------------------------------
New York (State of)
Dormitory Authority
(Mental Health Services);
Series 1997 A RB
6.00%, 02/15/05(b) NRR NRR 450 469,359
- -------------------------------------------------------------------
6.00%, 02/15/07(b)(c) NRR NRR 5 5,699
- -------------------------------------------------------------------
Unrefunded Series 1997 A
RB
6.00%, 02/15/05 AA- A3 550 572,539
- -------------------------------------------------------------------
6.00%, 08/15/07(b) NRR NRR 1,770 1,982,435
- -------------------------------------------------------------------
New York (State of)
Dormitory Authority (Pace
University); Series 1997
RB
6.00%, 07/01/07(d) AAA Aaa 1,275 1,440,992
- -------------------------------------------------------------------
New York (State of) Local
Government Assistance
Corp.; Refunding Series
1996 A RB
5.13%, 04/01/10(d) AAA Aaa 5,000 5,490,550
- -------------------------------------------------------------------
New York (State of) Thruway
Authority;
Series 1997 D RB
5.40%, 01/01/10 AA- Aa3 5,000 5,522,700
- -------------------------------------------------------------------
Series 2004 A BAN
2.25%, 10/06/05 SP-1+ MIG-1 3,000 3,044,940
===================================================================
34,432,055
===================================================================
NORTH CAROLINA-3.71%
Charlotte (City of);
Refunding Unlimited Tax
Series 1998 GO
5.25%, 02/01/10 AAA Aaa 5,000 5,611,750
- -------------------------------------------------------------------
North Carolina (State of)
Eastern Municipal Power
Agency; Refunding Series
1993 B RB
7.00%, 01/01/08(d) AAA Aaa 1,000 1,170,550
- -------------------------------------------------------------------
North Carolina (State of)
Medical Care Commission
(Cleveland Regional
Medical Center Project);
Health Care Facilities VRD
Series 2001 RB (LOC-Bank
of America N.A.)
1.05%, 01/01/18(e)(f)(g) -- -- 138 138,000
- -------------------------------------------------------------------
North Carolina (State of)
Municipal Power Agency #1
(Catawba); Electric Series
1999 A RB
6.00%, 01/01/07(d) AAA Aaa 4,330 4,814,960
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
NORTH CAROLINA-(CONTINUED)
North Carolina (State of);
Public Improvements
Unlimited Tax Series 1999
A GO
5.25%, 03/01/10 AAA Aa1 $5,000 $ 5,630,900
- -------------------------------------------------------------------
Winston-Salem (City of);
Series 2001 C COP
4.75%, 06/01/11 AA+ Aa2 795 885,050
===================================================================
18,251,210
===================================================================
NORTH DAKOTA-0.39%
Burleigh (County of)
(Medcenter One, Inc.);
Refunding Health Care
Series 1999 RB
5.25%, 05/01/09(d) AAA Aaa 1,695 1,906,265
===================================================================
OHIO-1.32%
Greene (County of) Water
System; Series 1996 A RB
5.45%, 12/01/06(d) AAA Aaa 585 643,477
- -------------------------------------------------------------------
Ohio (State of) (Elementary
& Secondary Education
Capital Facilities);
Special Obligation Series
1997 A RB
5.10%, 12/01/05 AA+ Aa2 1,500 1,593,030
- -------------------------------------------------------------------
Ohio (State of) (Higher
Education Capital
Facilities); Series 2001
II-A RB
5.25%, 12/01/06 AA Aa2 2,500 2,736,275
- -------------------------------------------------------------------
Portage (County of)
(Robinson Memorial
Hospital); Hospital Series
1999 RB
5.15%, 11/15/08(d) AAA Aaa 465 521,139
- -------------------------------------------------------------------
Summit (County of) Refunding
Limited Tax Series 2004 A
GO
2.00%, 12/01/06 AA Aa2 1,000 1,009,050
===================================================================
6,502,971
===================================================================
OKLAHOMA-1.96%
Claremore (City of) Public
Works Authority; Refunding
Capital Improvement Series
2000 RB
6.00%, 06/01/05(d) -- Aaa 2,285 2,412,617
- -------------------------------------------------------------------
Grady (County of) Industrial
Authority; Correctional
Facilities Lease Series
1999 RB
5.38%, 11/01/09(d) AAA Aaa 360 413,316
- -------------------------------------------------------------------
Grand River Dam Authority;
Refunding Series 1993 RB
5.50%, 06/01/09(d) AAA Aaa 2,000 2,297,860
- -------------------------------------------------------------------
Mustang (City of)
Improvement Authority;
Utility Series 1999 RB
5.25%, 10/01/09(d) -- Aaa 1,130 1,287,838
- -------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
OKLAHOMA-(CONTINUED)
Norman (City of) Regional
Hospital Authority;
Refunding Hospital Series
1996 A RB
5.30%, 09/01/07(d) AAA Aaa $1,090 $ 1,203,567
- -------------------------------------------------------------------
Oklahoma (State of)
Development Finance
Authority (Oklahoma
Hospital Association);
Pooled Health Facilities
Series 2000 A RB
5.25%, 06/01/06(d) AAA Aaa 575 619,407
- -------------------------------------------------------------------
5.25%, 06/01/08(d) AAA Aaa 640 715,206
- -------------------------------------------------------------------
Okmulgee (County of)
Governmental Building
Authority; First Mortgage
Sales Tax Series 2000 RB
5.60%, 03/01/10(d) -- Aaa 615 695,682
===================================================================
9,645,493
===================================================================
OREGON-1.60%
Grand Ronde Community
Confederated Tribes;
Governmental Facilities &
Infrastructure Unlimited
Tax Series 1997 GO
5.00%, 12/01/07 (Acquired
12/22/97; Cost
$1,145,000)(h) AAA -- 1,145 1,270,183
- -------------------------------------------------------------------
Josephine (County of) School
District #7 (Grants Pass);
Refunding Unlimited Tax
Series 2004 GO (CEP-Oregon
Bond Guaranty Program)
3.00%, 06/15/06 AAA Aaa 1,315 1,357,698
- -------------------------------------------------------------------
Multnomah & Clackamas
(Counties of)
Gresham-Barlow School
District #10JT; Refunding
Unlimited Tax Series 1998
A GO
5.00%, 01/01/07(d) AAA Aaa 1,245 1,353,066
- -------------------------------------------------------------------
Multnomah (County of);
Limited Tax Series 2000 A
GO
5.00%, 04/01/10 -- Aa2 1,000 1,121,700
- -------------------------------------------------------------------
Portland (City of) Community
College District;
Unlimited Tax Series 2001
B GO
5.25%, 06/01/11 AA Aa2 2,000 2,292,900
- -------------------------------------------------------------------
Portland (City of) Sewer
System; Series 1994 A RB
5.55%, 06/01/04 A+ A1 500 503,415
===================================================================
7,898,962
===================================================================
PENNSYLVANIA-1.31%
Lehigh (County of) General
Purpose Authority
(KidsPeace Corp.); Series
1998 RB
5.70%, 11/01/09(d) A -- 1,000 1,117,370
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
PENNSYLVANIA-(CONTINUED)
Pennsylvania (State of)
Higher Educational
Facilities Authority;
Series 2003 X RB
5.00%, 06/15/06(d) -- Aaa $1,000 $ 1,074,360
- -------------------------------------------------------------------
Pennsylvania (State of);
First Unlimited Tax Series
2000 GO
5.50%, 01/15/08(d) AAA Aaa 1,000 1,126,320
- -------------------------------------------------------------------
Philadelphia (City of)
School District; Refunding
Unlimited Tax Series 1999
D GO
5.50%, 03/01/08(d) AAA Aaa 2,000 2,248,060
- -------------------------------------------------------------------
State Public School Building
Authority (Chester Upland
School District Project);
Series 2001 RB
4.80%, 11/15/10(d) AAA Aaa 785 876,123
===================================================================
6,442,233
===================================================================
PUERTO RICO-0.11%
Children's Trust Fund;
Tobacco Settlement Series
2000 RB
5.00%, 07/01/08(b) AAA NRR 500 558,285
===================================================================
RHODE ISLAND-0.19%
Woonsocket (City of);
Unlimited Tax Series 2000
GO
5.25%, 10/01/10(d) -- Aaa 840 958,129
===================================================================
SOUTH CAROLINA-2.52%
Berkeley (County of) School
District (Berkeley School
Facilities Group Inc.);
Series 1995 COP
5.05%, 02/01/07(b) AAA Aaa 1,835 1,966,716
- -------------------------------------------------------------------
Piedmont (City of) Municipal
Power Agency; Refunding
Electric Series 1996 B RB
5.25%, 01/01/08(d) AAA Aaa 4,500 4,944,060
- -------------------------------------------------------------------
South Carolina (State of)
Public Service Authority;
Series 1999 A RB
5.50%, 01/01/10(d) AAA Aaa 1,000 1,147,320
- -------------------------------------------------------------------
South Carolina (State of)
Transportation
Infrastructure Bank;
Series 1998 A RB
5.00%, 10/01/04(d) AAA Aaa 1,795 1,830,110
- -------------------------------------------------------------------
Series 1999 A RB
5.50%, 10/01/09(d) AAA Aaa 1,180 1,359,856
- -------------------------------------------------------------------
South Carolina (State of);
Capital Improvements
Unlimited Tax Series 2001
B GO
5.50%, 04/01/11 AAA Aaa 1,000 1,164,780
===================================================================
12,412,842
===================================================================
</Table>
F-7
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
SOUTH DAKOTA-0.66%
South Dakota (State of)
Health & Educational
Facilities Authority
(McKennan Hospital);
Refunding Series 1996 RB
5.40%, 07/01/06(d) AAA Aaa $1,680 $ 1,816,332
- -------------------------------------------------------------------
South Dakota (State of)
Health & Educational
Facilities Authority
(Rapid City Regional
Hospital); Series 2001 RB
5.00%, 09/01/09(d) AAA Aaa 1,290 1,437,576
===================================================================
3,253,908
===================================================================
TENNESSEE-3.71%
Johnson City (City of)
Health & Educational
Facilities Board (Mountain
States Health); Refunding
First Mortgage Hospital
Series 2000 A RB
5.50%, 07/01/05(d) AAA Aaa 1,975 2,078,075
- -------------------------------------------------------------------
Knoxville (City of);
Electric Series 2001 U RB
5.00%, 07/01/11 AA Aa3 1,195 1,328,577
- -------------------------------------------------------------------
Memphis (City of) Sanitation
Sewer System; Series 2000
RB
5.35%, 05/01/09 AA+ Aa2 525 589,496
- -------------------------------------------------------------------
Nashville (Metropolitan
Government of) & Davidson
(County of) Health &
Educational Facilities
Board (Meharry Medical
College); Series 1979 RB
(CEP-Dept. of Health,
Education & Welfare)
7.88%, 12/01/04(b) NRR Aaa 155 158,990
- -------------------------------------------------------------------
Nashville (Metropolitan
Government of) & Davidson
(County of) Health &
Educational Facilities
Board (Meharry Medical
College Project);
Refunding VRD Series 1998
RB (LOC-Bank of America
N.A.)
1.05%, 08/01/18(e)(f)(g) -- -- 7,450 7,450,000
- -------------------------------------------------------------------
Nashville (Metropolitan
Government of) & Davidson
(County of) Health &
Educational Facilities
Board (Welch Bend
Apartments); Multifamily
Housing Series 1996 A RB
(CEP-Federal National
Mortgage Association)
5.50%, 01/01/07(c) AAA -- 500 525,925
- -------------------------------------------------------------------
Rutherford (County of);
Refunding Public
Improvements Unlimited Tax
Series 2001 GO
5.00%, 04/01/11 AA Aa2 3,485 3,912,156
- -------------------------------------------------------------------
Tennergy Corp.; Gas Series
1999 RB
4.13%, 06/01/09(d) AAA Aaa 1,000 1,070,120
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
<Caption>
TENNESSEE-(CONTINUED)
Tennessee (State of) School
Bond Authority; Higher
Educational Facilities
Second Program Series 2002
A RB
5.00%, 05/01/11(d) AAA Aaa $1,000 $ 1,125,220
===================================================================
18,238,559
===================================================================
TEXAS-17.00%
Amarillo (City of) Health
Facilities Corp. (Baptist
Saint Anthony's Hospital
Corp.); Series 1998 RB
5.50%, 01/01/10(d) -- Aaa 1,275 1,448,311
- -------------------------------------------------------------------
Arlington (City of)
Independent School
District; Unlimited Tax
Series 2000 GO (CEP-Texas
Permanent School Fund)
5.25%, 02/15/08 -- Aaa 1,000 1,114,240
- -------------------------------------------------------------------
Austin (City of); Limited
Tax Certificates Series
2001 GO
5.00%, 09/01/11 AA+ Aa2 1,900 2,134,517
- -------------------------------------------------------------------
Brownsville (City of);
Limited Tax Certificates
Series 2001 GO
5.25%, 02/15/10(d) AAA Aaa 1,055 1,196,834
- -------------------------------------------------------------------
Canadian River Municipal
Water Authority
(Conjunctive Use
Groundwater Project);
Refunding Contract Series
1999 RB
5.00%, 02/15/10(d) AAA Aaa 2,655 2,923,713
- -------------------------------------------------------------------
Dallas (City of) Waterworks
& Sewer System; Refunding
Series 1999 RB
5.50%, 10/01/09 AA+ Aa2 1,500 1,727,805
- -------------------------------------------------------------------
Garland (City of); Limited
Tax Certificates Series
2001 GO
5.25%, 02/15/11(d) AAA Aaa 2,435 2,770,762
- -------------------------------------------------------------------
Harris (County of) Health
Facilities Development
Corp. (CHRISTUS Health);
Series 1999 A RB
5.38%, 07/01/08(d) AAA Aaa 1,000 1,105,580
- -------------------------------------------------------------------
Harris (County of) Health
Facilities Development
Corp. (Memorial Hermann
Hospital System Project);
Hospital Series 1998 RB
5.50%, 06/01/09(d) AAA Aaa 5,500 6,261,860
- -------------------------------------------------------------------
Harris (County of) Health
Facilities Development
Corp. (Texas Children's
Hospital Project);
Hospital Series 1999 A RB
5.00%, 10/01/09 AA Aa2 1,920 2,100,787
- -------------------------------------------------------------------
Harris (County of) Houston
Sports Authority;
Refunding Sr. Lien Series
2001 A RB
5.50%, 11/15/09(d) AAA Aaa 1,670 1,920,350
- -------------------------------------------------------------------
</Table>
F-8
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
TEXAS-(CONTINUED)
Houston (City of) Convention
& Entertainment Facilities
Department; Hotel &
Occupancy Tax
Series 2001 B RB
5.25%, 09/01/10(d) AAA Aaa $2,865 $ 3,254,124
- -------------------------------------------------------------------
5.25%, 09/01/11(d) AAA Aaa 2,360 2,681,668
- -------------------------------------------------------------------
5.50%, 09/01/11(d) AAA Aaa 2,460 2,835,617
- -------------------------------------------------------------------
Refunding Hotel &
Occupancy Tax
Series 2001 A RB
5.50%, 09/01/10(d) AAA Aaa 3,000 3,451,020
- -------------------------------------------------------------------
5.50%, 09/01/11(d) AAA Aaa 4,100 4,726,029
- -------------------------------------------------------------------
Houston (City of)
Independent School
District (Public Property
Financing Project);
Contractual Limited Tax
Series 2000 GO
5.00%, 07/15/06 AA Aa3 2,000 2,150,060
- -------------------------------------------------------------------
Houston (City of); Refunding
Public Improvements
Limited Tax Series 2000 GO
5.50%, 03/01/09(d) AAA Aaa 1,000 1,140,150
- -------------------------------------------------------------------
Katy (City of) Independent
School District; Unlimited
Tax Series 1999 A GO
(CEP-Texas Permanent
School Fund)
5.20%, 02/15/10 AAA Aaa 1,285 1,433,495
- -------------------------------------------------------------------
La Joya (City of)
Independent School
District; Unlimited Tax
Series 1998 GO (CEP-Texas
Permanent School Fund)
5.38%, 02/15/10 AAA Aaa 1,535 1,696,421
- -------------------------------------------------------------------
Lower Colorado River
Authority; Refunding
Series 1999 B RB
6.00%, 05/15/10(d) AAA Aaa 1,470 1,719,827
- -------------------------------------------------------------------
Lubbock (City of) Health
Facilities Development
Corp. (Methodist
Hospital); Hospital Series
1993 B RB
5.40%, 12/01/05(b) AAA Aaa 500 535,170
- -------------------------------------------------------------------
Lubbock (City of); Limited
Tax Certificates Series
1999 GO
5.00%, 02/15/10 AA- Aa3 680 749,802
- -------------------------------------------------------------------
McKinney (City of); Limited
Tax Series 2000 GO
5.25%, 08/15/09(d) AAA Aaa 475 540,146
- -------------------------------------------------------------------
5.25%, 08/15/10(d) AAA Aaa 500 563,225
- -------------------------------------------------------------------
Waterworks & Sewer
Series 2000 RB
5.25%, 03/15/09(d) AAA Aaa 685 771,755
- -------------------------------------------------------------------
5.25%, 03/15/10(d) AAA Aaa 725 809,666
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
TEXAS-(CONTINUED)
North Texas Municipal Water
District; Regional Water
System Series 2001 RB
5.00%, 09/01/11(d) AAA Aaa $1,040 $ 1,172,766
- -------------------------------------------------------------------
Water System
Series 2001 RB
5.00%, 06/01/12(d) AAA Aaa 825 916,212
- -------------------------------------------------------------------
Plano (City of); Limited Tax
Series 2000 GO
5.25%, 09/01/06 AAA Aaa 600 651,318
- -------------------------------------------------------------------
5.13%, 09/01/07 AAA Aaa 535 591,443
- -------------------------------------------------------------------
San Antonio (City of);
Electric & Gas Series 1998
A RB
5.25%, 02/01/09(b)(c) AAA NRR 3,575 4,076,859
- -------------------------------------------------------------------
San Antonio (City of);
Refunding Limited Tax
Series 1998 A GO
5.00%, 02/01/11 AA+ Aa2 1,500 1,653,525
- -------------------------------------------------------------------
San Antonio (City of);
Unrefunded Electric & Gas
Series 1994 RB
5.00%, 02/01/12(b) NRR NRR 2,375 2,659,929
- -------------------------------------------------------------------
Series 1998 A RB
5.25%, 02/01/10 AA+ Aa1 5,540 6,228,567
- -------------------------------------------------------------------
Southlake (City of); Limited
Tax Increment Certificates
Series 2000 E GO
5.00%, 02/15/11(d) AAA Aaa 635 694,734
- -------------------------------------------------------------------
Southlake (City of);
Waterworks & Sewer Limited
Tax Certificates
Series 2000 A GO
5.40%, 02/15/09(d) AAA Aaa 250 283,598
- -------------------------------------------------------------------
5.45%, 02/15/10(d) AAA Aaa 235 264,819
- -------------------------------------------------------------------
Tarrant (County of) Jr.
College District; Limited
Tax Series 1994 GO
5.05%, 02/15/10 AAA Aa1 1,425 1,544,415
- -------------------------------------------------------------------
Texas (State of) Municipal
Power Agency; Refunding
Series 1994 RB
5.00%, 09/01/11(d) AAA Aaa 1,675 1,701,130
- -------------------------------------------------------------------
Texas (State of) Turnpike
Authority (Dallas North
Tollway-Addison Airport
Toll Tunnel Project);
Series 1994 RB
6.30%, 01/01/05(d) AAA Aaa 500 518,235
- -------------------------------------------------------------------
Texas A&M University
Financing System; Series
2001 B RB
5.38%, 05/15/09 AA+ Aa1 1,260 1,434,712
- -------------------------------------------------------------------
Texas Tech University
Financing System;
Refunding & Improvement
Series 1999 6 RB
5.25%, 02/15/11(d) AAA Aaa 5,000 5,545,750
===================================================================
83,700,946
===================================================================
</Table>
F-9
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
UTAH-1.91%
Granite School District
Municipal Building
Authority; Lease Series
2004 RB
2.00%, 03/01/05 -- Aa3 $1,250 $ 1,260,788
- -------------------------------------------------------------------
Salt Lake (County of) (IHC
Health Services Inc.);
Hospital Series 2001 RB
5.50%, 05/15/08(d) AAA Aaa 2,000 2,243,780
- -------------------------------------------------------------------
5.50%, 05/15/09(d) AAA Aaa 1,000 1,137,420
- -------------------------------------------------------------------
Salt Lake City (City of);
Unlimited Tax Series 1999
GO
5.25%, 06/15/09 -- Aaa 900 1,024,065
- -------------------------------------------------------------------
Spanish Fork (City of);
Electric Series 2000 RB
5.00%, 08/15/09(d) -- Aaa 630 704,857
- -------------------------------------------------------------------
5.00%, 08/15/10(d) -- Aaa 660 739,556
- -------------------------------------------------------------------
Tooele (County of) School
District; Unlimited Tax
Series 2001 GO (CEP-Utah
School Bond Guaranty)
4.50%, 06/01/11 AAA Aaa 1,075 1,174,491
- -------------------------------------------------------------------
Utah (State of) Associated
Municipal Power Systems
(Hunter Project);
Refunding Series 1994 RB
5.00%, 07/01/10(d) AAA Aaa 1,000 1,029,700
- -------------------------------------------------------------------
Utah (State of) Housing
Finance Agency; Single
Family Housing Mortgage
Series 1999 E-1-I RB
(CEP-FHA, VA)
5.05%, 07/01/07 AAA Aaa 65 68,260
===================================================================
9,382,917
===================================================================
VIRGINIA-1.17%
Fairfax (County of); Public
Improvement Unlimited Tax
Series 1997 A GO
(CEP-Virginia State Aid
Withholding Programs)
5.00%, 06/01/07 AAA Aaa 1,000 1,060,660
- -------------------------------------------------------------------
Norfolk (City of)
Redevelopment & Housing
Authority (Tidewater
Community College Campus);
Educational Facilities
Series 1995 RB
5.30%, 11/01/04(b) NRR NRR 535 548,247
- -------------------------------------------------------------------
5.40%, 11/01/05(b) NRR NRR 500 531,875
- -------------------------------------------------------------------
Norton (City of) Industrial
Development Authority
(Norton Community
Hospital); Refunding &
Improvement Hospital
Series 2001 RB
5.13%, 12/01/10(d) A -- 1,315 1,431,877
- -------------------------------------------------------------------
Peninsula Ports Authority
(Riverside Health System
Project); Refunding Health
System Series 1998 RB
5.00%, 07/01/06 AA Aa2 1,000 1,064,430
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
<Caption>
VIRGINIA-(CONTINUED)
Virginia (State of) Public
School Authority;
Refunding School Financing
Series 1997 I RB
5.25%, 08/01/07 AA+ Aa1 $1,000 $ 1,110,060
===================================================================
5,747,149
===================================================================
WASHINGTON-8.11%
Energy Northwest (Project
#3); Refunding Electric
Series 2001 A RB
5.50%, 07/01/10(d) AAA Aaa 2,000 2,299,640
- -------------------------------------------------------------------
5.50%, 07/01/11(d) AAA Aaa 7,500 8,648,250
- -------------------------------------------------------------------
Mason (County of) School
District #309 (Shelton);
Unlimited Tax Series 2001
GO
5.00%, 12/01/09(d) -- Aaa 675 759,294
- -------------------------------------------------------------------
Seattle (City of); Refunding
Municipal Light & Power
Improvements Series 2001
RB
5.25%, 03/01/11(d) AAA Aaa 3,000 3,404,100
- -------------------------------------------------------------------
Snohomish (County of) School
District #16 (Arlington);
Unlimited Tax Series 2000
GO
5.40%, 12/01/08(d) -- Aaa 915 1,036,494
- -------------------------------------------------------------------
Snohomish (County of);
Limited Tax Series 2001 GO
5.25%, 12/01/11 AA Aa3 2,685 3,063,827
- -------------------------------------------------------------------
Spokane (City of) Regional
Solid Waste Management
System; Refunding Series
2001 RB
5.00%, 12/01/06(d) AAA Aaa 1,140 1,237,561
- -------------------------------------------------------------------
Spokane (City of); Unlimited
Tax Series 1999 B GO
5.40%, 01/01/10 BBB A2 2,075 2,291,568
- -------------------------------------------------------------------
Washington (State of)
(Department of Ecology);
Refunding Series 2001 COP
4.75%, 04/01/11(d) AAA Aaa 5,310 5,776,430
- -------------------------------------------------------------------
Washington (State of) Public
Power Supply System
(Nuclear Project #1);
Refunding Series 1996 C RB
6.00%, 07/01/09(d) AAA Aaa 5,000 5,824,700
- -------------------------------------------------------------------
Washington (State of) Public
Power Supply System
(Nuclear Project #2);
Refunding Series 1997 A RB
6.00%, 07/01/07(b) AAA Aaa 1,000 1,134,580
- -------------------------------------------------------------------
Refunding Series 1997 B RB
5.50%, 07/01/06 AA- Aaa 1,100 1,193,192
- -------------------------------------------------------------------
Washington (State of);
Refunding Unlimited Tax
Series 1999 R-2000A GO
5.50%, 01/01/08 AA Aa1 1,135 1,269,554
- -------------------------------------------------------------------
</Table>
F-10
<Table>
<Caption>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
- -------------------------------------------------------------------
WASHINGTON-(CONTINUED)
Series 2001 R-A GO
5.00%, 09/01/10 AA Aa1 $1,745 $ 1,959,932
===================================================================
39,899,122
===================================================================
WISCONSIN-2.31%
Fond du Lac (City of) School
District; Refunding
Unlimited Tax Series 2000
GO
5.25%, 04/01/10(b)(c) NRR Aaa 1,000 1,141,920
- -------------------------------------------------------------------
Two Rivers (City of) Public
School District; Refunding
Unlimited Tax Series 2000
GO
5.50%, 03/01/08(d) -- Aaa 680 762,987
- -------------------------------------------------------------------
Wisconsin (State of) Health
& Educational Facilities
Authority (Charity
Obligated Group); Hospital
Series 1997 D RB
4.90%, 11/01/05(b)(c) NRR Aaa 1,785 1,866,575
- -------------------------------------------------------------------
</Table>
<Table>
RATINGS(a) PAR MARKET
S&P MOODY'S (000) VALUE
<Caption>
- -------------------------------------------------------------------
WISCONSIN-(CONTINUED)
Wisconsin (State of) Health
& Educational Facilities
Authority (Marshfield
Clinic); Series 1997 RB
5.20%, 02/15/07(d) AAA Aaa $2,210 $ 2,409,519
- -------------------------------------------------------------------
Wisconsin (State of);
Refunding Unlimited Tax
Series 1993 2 GO
5.13%, 11/01/11 AA- Aa3 2,000 2,267,100
- -------------------------------------------------------------------
Wisconsin (State of);
Unlimited Tax Series 1999
C GO
5.75%, 05/01/10 AA- Aa3 2,500 2,909,150
===================================================================
11,357,251
===================================================================
TOTAL INVESTMENTS-99.10%
(Cost $449,476,650) 487,799,418
===================================================================
OTHER ASSETS LESS
LIABILITIES-0.90% 4,415,112
===================================================================
NET ASSETS-100.00% $492,214,530
___________________________________________________________________
===================================================================
</Table>
Investment Abbreviations:
<Table>
BAN - Bond Anticipation Note
CEP - Credit Enhancement Provider
COP - Certificate of Participation
FHA - Federal Housing Administration
FmHA - Farmers Home Administration
GO - General Obligation Bonds
Jr. - Junior
LOC - Letter of Credit
</Table>
<Table>
NRR - Not Re-Rated
RAN - Revenue Anticipation Notes
RB - Revenue Bonds
Sr. - Senior
Sub - Subordinated
VA - Department of Veterans Affairs
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"), except as indicated in note (g) below.
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 Independent Auditors.
(b) Advance refunded; secured by an escrow fund of U.S. Treasury obligations.
(c) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(d) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., American Capital
Access Holdings Ltd., Financial Guaranty Insurance Co., Financial Security
Assurance Inc., or MBIA Insurance Corp.
(e) Demand security; payable upon demand by the Fund at specified time intervals
no greater than thirteen months. Interest rate is redetermined weekly. Rate
shown is the rate in effect on 03/31/04.
(f) Principal and interest payments are guaranteed by the letter of credit
agreement.
(g) Security is not rated by S&P or by Moody's; however it is rated by Fitch
IBCA ("Fitch") of F1+.
(h) 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 this security. The
market value of this security at 03/31/04 represented 0.26% of the Fund's
net assets. Unless otherwise indicated, this security is not considered to
be illiquid.
See accompanying notes which are an integral part of the financial statements.
F-11
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $449,476,650) $ 487,799,418
- -------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,701,917
- -------------------------------------------------------------------------------
Interest 6,215,107
- -------------------------------------------------------------------------------
Investment for deferred compensation and retirement plans 59,917
- -------------------------------------------------------------------------------
Other assets 48,014
===============================================================================
Total assets 495,824,373
_______________________________________________________________________________
===============================================================================
LIABILITIES:
Payables for:
Investments purchased 2,276,567
- -------------------------------------------------------------------------------
Fund shares reacquired 653,213
- -------------------------------------------------------------------------------
Dividends 528,128
- -------------------------------------------------------------------------------
Deferred compensation and retirement plans 76,307
- -------------------------------------------------------------------------------
Accrued distribution fees -- Class A3 29,251
- -------------------------------------------------------------------------------
Accrued transfer agent fees 28,146
- -------------------------------------------------------------------------------
Accrued operating expenses 18,231
===============================================================================
Total liabilities 3,609,843
===============================================================================
Net assets applicable to shares outstanding $ 492,214,530
_______________________________________________________________________________
===============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 453,483,038
- -------------------------------------------------------------------------------
Undistributed net investment income 2,114,018
- -------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (1,705,294)
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities 38,322,768
===============================================================================
$ 492,214,530
_______________________________________________________________________________
===============================================================================
NET ASSETS:
Class A $ 390,902,918
_______________________________________________________________________________
===============================================================================
Class A3 $ 101,311,612
_______________________________________________________________________________
===============================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED
NUMBER OF SHARES AUTHORIZED:
Class A 33,437,094
_______________________________________________________________________________
===============================================================================
Class A3 8,668,401
_______________________________________________________________________________
===============================================================================
Class A:
Net asset value per share $ 11.69
- -------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $11.69 divided by 99.00%) $ 11.81
_______________________________________________________________________________
===============================================================================
Class A3:
Net asset value and offering price per share $ 11.69
_______________________________________________________________________________
===============================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-12
STATEMENT OF OPERATIONS
For the year ended March 31, 2004
<Table>
INVESTMENT INCOME:
Interest $22,515,649
=========================================================================
EXPENSES:
Advisory fees 1,529,052
- -------------------------------------------------------------------------
Administrative services fees 127,673
- -------------------------------------------------------------------------
Custodian fees 20,756
- -------------------------------------------------------------------------
Distribution fees -- Class A3 218,930
- -------------------------------------------------------------------------
Transfer agent fees 197,621
- -------------------------------------------------------------------------
Trustees' fees 18,456
- -------------------------------------------------------------------------
Other 242,176
=========================================================================
Total expenses 2,354,664
=========================================================================
Less: Expense offset arrangements (5,821)
- -------------------------------------------------------------------------
Net expenses 2,348,843
=========================================================================
Net investment income 20,166,806
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 4,632,582
=========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (4,921,148)
=========================================================================
Net gain (loss) from investment securities (288,566)
=========================================================================
Net increase in net assets resulting from operations $19,878,240
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-13
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 20,166,806 $ 24,650,866
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities 4,632,582 1,662,421
============================================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (4,921,148) 31,472,570
============================================================================================
Net increase in net assets resulting from operations 19,878,240 57,785,857
============================================================================================
Distributions to shareholders from net investment income:
Class A (18,180,437) (22,634,818)
- --------------------------------------------------------------------------------------------
Class A3 (2,284,936) (173,077)
============================================================================================
Decrease in net assets resulting from distributions (20,465,373) (22,807,895)
============================================================================================
Share transactions-net:
Class A (148,381,078) (174,155,103)
- --------------------------------------------------------------------------------------------
Class A3 72,183,578 29,375,850
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (76,197,500) (144,779,253)
============================================================================================
Net increase (decrease) in net assets (76,784,633) (109,801,291)
============================================================================================
NET ASSETS:
Beginning of year 568,999,163 678,800,454
============================================================================================
End of year (including undistributed net investment income
of $2,114,018 and $2,412,585 for 2004 and 2003,
respectively) $ 492,214,530 $ 568,999,163
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-14
NOTES TO FINANCIAL STATEMENTS
March 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Tax-Free Intermediate Fund (the "Fund") is a series portfolio of AIM
Tax-Exempt 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 three
separate portfolios, each authorized to issue an unlimited number of shares of
beneficial interest. The Fund currently consists of 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 generate as high a level of tax-exempt income as is consistent with
preservation of capital.
Under the Trust's organizational documents, the Fund's officers and trustees
are indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts.
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. Generally accepted accounting principles
require adjustments to be made to the net assets of the Fund at period end, and
as such, the net asset value for shareholder transactions may be different than
the net asset value reported in these financial statements. 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. Some of the factors which may be
considered in determining fair value are fundamental analytical data
relating to the investment; the nature and duration of any restrictions on
transferability or disposition; trading in similar securities by the same
issuer or comparable companies; relevant political, economic or issuer
specific news; and other relevant factors under the circumstances.
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, 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 -- 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
Subchapter M 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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
In addition, the Fund intends to invest in such municipal securities to
allow it to qualify to pay to shareholders "exempt interest dividends", as
defined in the Internal Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO 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
F-15
agreement, the Fund pays an advisory fee to AIM at the following annual rates,
based on the average daily net assets of the Fund:
<Table>
<Caption>
AVERAGE NET ASSETS ANNUAL RATE
- ---------------------------------------------------------
First $500 million 0.30%
- ---------------------------------------------------------
Over $500 million up to and including $1
billion 0.25%
- ---------------------------------------------------------
Over $1 billion 0.20%
_________________________________________________________
=========================================================
</Table>
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 March 31, 2004, AIM was paid
$127,673 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended March 31, 2004, AISI retained $90,678 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
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Class A3 shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A3 shares. Of this amount, up to 0.25%
of the average daily net assets of the Class A3 shares may be paid to furnish
continuing personal shareholder services to customers who purchase and own Class
A3 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 Plan, for the year ended March
31, 2004, the Class A3 shares paid $218,930.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") 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. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended March 31, 2004, AIM Distributors advised the Fund that it retained $14,229
in front-end sales commissions from the sale of Class A shares and $6,216 from
Class A shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from balances in Demand Deposit Accounts (DDA) used by
the transfer agency for clearing shareholder transactions and custodian credits
resulting from periodic overnight cash balances at the custodian. For the year
ended March 31, 2004, the Fund received reductions in transfer agency fees from
AISI (an affiliate of AIM) of $5,821 under an expense offset arrangement, which
resulted in a reduction of the Fund's total expenses of $5,821.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust 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 and INVESCO Funds in which their deferral
accounts shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2004, the Fund paid legal fees of $4,735 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds and the INVESCO 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. Under certain
circumstances, a loan will be secured by collateral. To the extent that the loan
is required to be secured by collateral, the collateral is marked to market
daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000 or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended March 31, 2004, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
F-16
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------
Distributions paid from ordinary
income -- tax exempt $20,465,373 $22,807,895
________________________________________________________________
================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income -- tax exempt $ 2,183,947
- -----------------------------------------------------------
Unrealized appreciation -- investments 38,322,768
- -----------------------------------------------------------
Temporary book/tax differences (69,929)
- -----------------------------------------------------------
Capital loss carryforward (1,705,294)
- -----------------------------------------------------------
Shares of beneficial interest 453,483,038
===========================================================
Total net assets $492,214,530
___________________________________________________________
===========================================================
</Table>
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of deferral of trustee compensation and
trustee retirement plan expenses.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
(CONTINUED)
The Fund utilized $4,632,582 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ---------------------------------------------------------------------------------
March 31, 2009 $1,489,706
- ---------------------------------------------------------------------------------
March 31, 2010 215,588
=================================================================================
Total capital loss carryforward $1,705,294
_________________________________________________________________________________
=================================================================================
The ability to use capital loss carryforwards may be limited under the Internal
Revenue Code and related regulations.
</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 year ended
March 31, 2004 was $28,377,480 and $115,204,452, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ---------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 38,372,927
- ---------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (50,159)
=================================================================================
Net unrealized appreciation of investment securities $ 38,322,768
_________________________________________________________________________________
=================================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
NOTE 8--SHARE INFORMATION
The Fund currently consists of two classes of shares: Class A shares and Class
A3 shares. Class A shares were sold with a front-end sales charge. Class A3
shares are sold at net asset value. Under some circumstances, Class A shares are
subject to CDSC. At the close of business on October 30, 2002, Class A shares
were closed to new investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,092,223 $ 36,103,682 12,314,191 $ 141,292,574
- --------------------------------------------------------------------------------------------------------------------------
Class A3* 10,413,258 122,026,744 3,435,681 40,205,006
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,035,527 12,119,242 1,306,573 15,101,742
- --------------------------------------------------------------------------------------------------------------------------
Class A3* 139,598 1,632,789 10,661 124,606
==========================================================================================================================
Reacquired:
Class A (16,799,104) (196,604,002) (28,886,931) (330,549,419)
- --------------------------------------------------------------------------------------------------------------------------
Class A3* (4,390,111) (51,475,955) (940,686) (10,953,762)
==========================================================================================================================
(6,508,609) $ (76,197,500) (12,760,511) $(144,779,253)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class A3 shares commenced sales on October 31, 2002.
F-17
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
-----------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.70 $ 11.06 $ 11.17 $ 10.71 $ 11.13
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.47(a) 0.48 0.45 0.49 0.48
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01) 0.60 (0.12) 0.46 (0.41)
=========================================================================================================================
Total from investment operations 0.46 1.08 0.33 0.95 0.07
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.47) (0.44) (0.44) (0.49) (0.48)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.01)
=========================================================================================================================
Total distributions (0.47) (0.44) (0.44) (0.49) (0.49)
=========================================================================================================================
Net asset value, end of period $ 11.69 $ 11.70 $ 11.06 $ 11.17 $ 10.71
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 4.04% 9.86% 2.99% 9.11% 0.70%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $390,903 $539,679 $678,800 $608,393 $353,130
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 0.42%(c) 0.38% 0.38% 0.41% 0.42%
=========================================================================================================================
Ratio of net investment income to average net assets 3.98%(c) 4.10% 4.00% 4.48% 4.45%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 6% 7% 58% 40% 50%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $449,069,208.
<Table>
<Caption>
CLASS A3
---------------------------------------
OCTOBER 31, 2002
YEAR ENDED (DATE SALES
MARCH 31, COMMENCED) TO
2004 MARCH 31, 2003
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.70 $ 11.59
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.43(a) 0.18
- -----------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) (0.01) 0.10
=====================================================================================================
Total from investment operations 0.42 0.28
=====================================================================================================
Less dividends from net investment income (0.43) (0.17)
=====================================================================================================
Net asset value, end of period $ 11.69 $ 11.70
_____________________________________________________________________________________________________
=====================================================================================================
Total return(b) 3.67% 2.47%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $101,312 $29,320
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets 0.77%(c) 0.73%(d)
=====================================================================================================
Ratio of net investment income to average net assets 3.63%(c) 3.75%(d)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(e) 6% 7%
_____________________________________________________________________________________________________
=====================================================================================================
</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) Ratios are based on average daily net assets of $62,551,427.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-18
NOTE 10--LEGAL PROCEEDINGS PENDING
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. AIM succeeded IFG as the investment
advisor to the INVESCO Funds other than INVESCO Variable Investment Funds, Inc.
("IVIF") on November 25, 2003, and succeeded IFG as the investment advisor to
IVIF on April 30, 2004.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to a wide range of issues, including issues of
"market timing" and "late trading." Both AIM and IFG are the subject of a number
of such inquiries, as described below.
Regulatory Actions and Inquiries Concerning IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham also currently holds the positions of
Chief Operating Officer and Senior Vice President of A I M Management Group Inc.
("AIM Management"), the parent of AIM, and the position of Senior Vice President
of AIM. As of April 23, 2004, Mr. Cunningham was granted a voluntary
administrative leave of absence with pay. In addition, on December 2, 2003, the
State of Colorado filed civil proceedings against IFG. Neither the Fund nor any
of the other AIM or INVESCO Funds has been named as a defendant in any of these
proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints made substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief; civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and other related issues
concerning the INVESCO Funds. These regulators include the Florida Department of
Financial Services, the Commissioner of Securities for the State of Georgia, the
Office of the State Auditor for the State of West Virginia, the Office of the
Secretary of State for West Virginia, the Colorado Securities Division and the
Bureau of Securities of the State of New Jersey. IFG has also received more
limited inquiries from the United States Department of Labor ("DOL"), the NASD,
Inc. ("NASD"), the SEC and the United States Attorney's Office for the Southern
District of New York concerning certain specific INVESCO Funds, entities and/or
individuals. IFG is providing full cooperation with respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and other related issues
concerning the AIM Funds. AIM has received requests for information and
documents concerning these and related matters from the SEC, the Massachusetts
Secretary of the Commonwealth, the Office of the State Auditor for the State of
West Virginia and the Department of Banking for the State of Connecticut. In
addition, AIM has received subpoenas concerning these and related matters from
the NYAG, the United States Attorney's Office for the District of Massachusetts,
the Commissioner of Securities for the State of Georgia, the Office of the
Secretary of State for West Virginia and the Bureau of Securities of the State
of New Jersey. AIM has also received more limited inquiries from the DOL, the
NASD, the SEC and the United States Attorney's Office for the Southern District
of New York concerning certain specific AIM Funds, entities and/or individuals.
AIM is providing full cooperation with respect to these inquiries.
Response of AMVESCAP
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP found, in its ongoing review of these matters,
that shareholders were not always effectively protected from the potential
adverse impact of market timing and illegal late trading through intermediaries.
These findings were based, in part, on an extensive economic analysis by outside
experts who have been retained by AMVESCAP to examine the impact of these
activities. In light of these findings, AMVESCAP has publicly stated that any
AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities
will receive full restitution. AMVESCAP has informed regulators of these
findings. In addition, AMVESCAP has retained separate outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry. At the direction of the trustees of the AIM and INVESCO Funds,
AMVESCAP will pay all of the expenses incurred by the AIM and INVESCO Funds
related to market timing, including expenses incurred in connection with the
pending regulatory complaints against IFG alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM.
For the period ended March 31, 2004, AMVESCAP has assumed $26,657 of expenses
incurred by the Fund in connection with these matters, including legal, audit,
shareholder servicing, communication and trustee expenses.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, including
but not limited to A I M Capital Management, Inc., AIM Funds Management Inc.,
INVESCO Global Asset Management (N.A.), Inc., INVESCO Institutional (N.A.), Inc.
("IINA") and INVESCO Senior Secured Management, Inc., from serving as an
investment advisor to any investment company registered under the Investment
Company Act of 1940 (a "registered investment company"), including the Fund. The
Fund has been informed by
F-19
NOTE 10--LEGAL PROCEEDINGS (CONTINUED)
AIM that, if AIM is so barred, AIM will seek exemptive relief from the SEC to
permit it to continue to serve as the Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted. Any settlement with the
regulators could also include terms which would bar Mr. Cunningham from serving
as an officer or director of any registered investment company.
Private Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain INVESCO Funds, certain AIM Funds, IFG, AIM, AIM
Management, AMVESCAP, certain related entities and certain of their officers,
including Mr. Cunningham) making allegations substantially similar to the
allegations in the regulatory complaints against IFG described above. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violation of various provisions of the Federal and state securities laws;
(ii) violation of various provisions of the Employee Retirement Income Security
Act ("ERISA"); (iii) breach of fiduciary duty; and/or (iv) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as compensatory damages; restitution; rescission; accounting for
wrongfully gotten gains, profits and compensation; injunctive relief;
disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled
that all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. Some of the cases against IFG
and the other AMVESCAP defendants have already been transferred to the District
of Maryland in accordance with the Panel's directive. AIM and IFG anticipate
that in time most or all of the actions pending against them and the other
AMVESCAP defendants alleging market timing and/or late trading will be
transferred to the multidistrict litigation.
Other Private Actions
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Certain other civil class action lawsuits have been filed against various
parties (including, depending on the lawsuit, certain INVESCO Funds, certain AIM
Funds, IFG and AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) breach of duty; and (iii) common law
negligence and gross negligence. These lawsuits have been filed in both Federal
and state courts and seek such remedies as compensatory and punitive damages;
interest; and attorneys' fees and costs.
Additional lawsuits or regulatory actions arising out of the circumstances
above and presenting similar allegations and requests for relief may be served
or filed against the Fund, IFG, AIM, AIM Management, IINA, AIM Distributors,
INVESCO Distributors, AMVESCAP and related entities and individuals in the
future.
As a result of the above developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Tax-Free Intermediate Fund
and the Board of Trustees of AIM Tax-Exempt Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Tax-Free Intermediate Fund (a portfolio of AIM Tax-Exempt Funds), including the
schedule of investments, as of March 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four 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 the year
ended March 31, 2000 were audited by other auditors whose report dated May 1,
2000, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. Our procedures included confirmation of
securities owned as of March 31, 2004, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Tax-Free Intermediate Fund as of March 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
May 17, 2004
F-21
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Tax-Free Intermediate Fund, an
investment portfolio of AIM Tax-Exempt Funds, a Delaware statutory trust, was
held on October 21, 2003. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph.D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 106,909,944 465,963
Frank S. Bayley.............................. 106,916,840 459,067
James T. Bunch............................... 106,923,423 452,484
Bruce L. Crockett............................ 106,922,853 453,054
Albert R. Dowden............................. 106,918,120 457,787
Edward K. Dunn, Jr. ......................... 106,917,764 458,143
Jack M. Fields............................... 106,911,143 464,764
Carl Frischling.............................. 106,908,116 467,791
Robert H. Graham............................. 106,922,853 453,054
Gerald J. Lewis.............................. 106,906,715 469,192
Prema Mathai-Davis........................... 106,917,630 458,277
Lewis F. Pennock............................. 106,918,783 457,124
Ruth H. Quigley.............................. 106,907,470 468,437
Louis S. Sklar............................... 106,917,893 458,014
Larry Soll, Ph.D. ........................... 106,914,215 461,692
Mark H. Williamson........................... 106,923,423 452,484
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Tax-Exempt Funds.
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of April 30, 2004
The address of each trustee and officer of AIM Tax-Exempt Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 112
portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 111 portfolios in the AIM and INVESCO Funds
complex. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); Director and
President Vice Chairman, AMVESCAP PLC and Chairman, 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), AIM Investment 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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), and
Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed Products;
Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile 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 Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS (continued)
As of April 30, 2004
The address of each trustee and officer of AIM Tax-Exempt Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 112
portfolios in the AIM Funds and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 111 portfolios in the AIM and INVESCO Funds
complex. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California)
Trustee
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations, Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Vice President,
Officer A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and 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
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2004 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money Market Research and
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.
Vice President and Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing Director and Chief
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Director and Executive Vice President, A I M Management
Vice President Group, Inc., Director and Senior Vice President, A I M
Advisors, Inc., and Director, Chairman, President, Director
of Investments, Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.
- -------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President,
Secretary and Chief Legal
Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney, Suite 1200
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment Services, Inc. The Bank of New York
Andrews & Ingersoll, LLP Frankel LLP P.O. Box 4739 100 Church Street
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 New York, NY 10286-0001
Philadelphia, PA 19103-7599 New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end as to the federal tax status of dividends paid by the
Fund during its fiscal year ended March 31, 2004.
AIM Tax-Free Intermediate Fund paid ordinary dividends in the amount of $0.474
per Class A share and $0.432 per Class A3 share during its tax year ended March
31, 2004. Of this amount, 100% qualified as tax-exempt interest dividends for
federal income tax purposes.
For the purpose of preparing your annual federal income tax returns, however,
you should report the amounts as reflected on the appropriate Statement of
Tax-Exempt Income.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(6) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(7)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund AIM ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
* Domestic equity and income fund
</Table>
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
THOROUGHLY BEFORE INVESTING.
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) Effective April 30, 2003, AIM
Worldwide Spectrum Fund was renamed AIM Global Value Fund. (7) Effective
November 24, 2003, INVESCO International Blue Chip Value Fund was renamed
INVESCO International Core Equity Fund.
If used after June 20, 2004, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $148 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $381 billion in assets
under management. Data as of March 31, 2004.
<Table>
Mutual Retirement Annuities College Separately Offshore Alternative Cash
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
[AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark--
YOUR GOALS. OUR SOLUTIONS.
--Registered Trademark--
AIMinvestments.com TFI-AR-1
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Registrant had adopted a
code of ethics (the "Code") that applies to the Registrant's principal executive
office ("PEO") and principal financial officer ("PFO"). There were no amendments
to the Code during the period covered by the report. The Registrant did not
grant any waivers, including implicit waivers, from any provisions of the Code
to the PEO or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the registrant has at least one audit
committee financial expert serving on its Audit Committee. The Audit Committee
financial expert is Prema Mathai-Davis. Ms. Mathai-Davis is "independent" within
the meaning of that term used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY E&Y RELATED TO THE REGISTRANT
E&Y billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees
Billed Applicable
to Non-Audit Percentage of Fees
Services Provided Billed Applicable to
Fees Billed for for fiscal year end Non-Audit Services
Services Rendered 2004 Pursuant to Fees Billed for Provided in 2003
to the Registrant Waiver of Services Rendered to Pursuant to Waiver
for fiscal year Pre-Approval the Registrant for of Pre-Approval
end 2004 Requirement(1)(2) fiscal year end 2003 Requirement(1)(2)
----------------- ------------------- -------------------- --------------------
Audit Fees $77,852 N/A $56,730 N/A
Audit-Related Fees(3) 5,900 N/A 0 N/A
Tax Fees(4) 8,147 N/A 5,227 N/A
All Other Fees 0 N/A 0 N/A
------- -------
Total Fees $91,899 N/A $61,957 N/A
E&Y billed the Registrant aggregate non-audit fees of $14,047 for the fiscal
year ended 2004, and $5,227 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- ------------------
(1) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(2) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
billed to the Registrant during a fiscal year; and (iii) such services
are promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(3) Audit-Related Fees for the fiscal year ended March 31, 2004 includes
fees billed for completing agreed-upon procedures related to fund
mergers.
(4) Tax Fees for the fiscal year ended March 31, 2004 includes fees billed
for reviewing tax returns and consultation services. Tax Fees for the
fiscal year ended March 31, 2003 includes fees billed for reviewing tax
returns.
FEES BILLED BY E&Y RELATED TO AIM AND AIM AFFILIATES
E&Y billed AIM and AIM Affiliates aggregate fees for pre-approved
non-audit services rendered to AIM and AIM Affiliates for the last two fiscal
years as follows:
<Table>
<Caption>
Fees Billed for
Non-Audit Services Fees Billed for
Rendered to AIM Percentage of Fees Non-Audit Services Percentage of Fees
and AIM Affiliates Billed Applicable to Rendered to AIM and Billed Applicable to
for fiscal year Non-Audit Services AIM Affiliates for Non-Audit Services
end 2004 That Were Provided for fiscal fiscal year end 2003 Provided for fiscal
Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver
by the Registrant's of Pre-Approval by the Registrant's of Pre-Approval
Audit Committee(1) Requirement(2)(3) Audit Committee(1) Requirement(2)(3)
------------------ ----------------- ------------------ -----------------
Audit-Related Fees(4) $196,777 0% N/A N/A
Tax Fees $ 0 0% N/A N/A
All Other Fees $ 0 0% N/A N/A
--------
Total Fees(5) $196,777 0% N/A N/A
</Table>
- ------------------
(1) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the fees billed for
non-audit services shown in this column only represents fees for
pre-approved non-audit services rendered after May 6, 2003, to AIM and
AIM Affiliates.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(3) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
billed to the Registrant during a fiscal year; and (iii) such services
are promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(4) Audit-Related Fees for the fiscal year ended March 31, 2004 includes
fees billed for services to test and report on the controls and
operations of an affiliated transfer agent.
(5) Including the fees for services not required to be pre-approved by the
registrant's audit committee, E&Y billed AIM and AIM Affiliates
aggregate non-audit fees of $220,095 for the fiscal year ended 2004,
and $222,476 for the fiscal year ended 2003, for non-audit services
rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of such
non-audit services that were rendered to AIM, and any entity
controlling, controlled by or under common control with AIM that
provides ongoing services to the Registrant ("AIM Affiliates"), that
were not required to be pre-approved pursuant to SEC regulations is
compatible with maintaining E&Y's independence. The Audit Committee
determined that the provision of such services is compatible with E&Y
maintaining independence with respect the Registrant.
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
AMENDED NOVEMBER 6, 2003
I. STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Registrantees (the "Board") are
responsible for the appointment, compensation and oversight of the work of
independent accountants (an "Auditor"). As part of this responsibility and to
assure that the Auditor's independence is not impaired, the Audit Committee
pre-approves the audit and non-audit services provided to the Funds by the
Auditor, as well as all non-audit services provided by the Auditor to the Funds'
investment adviser and to affiliates of the adviser that provide ongoing
services to the Funds ("Service Affiliates") if the services directly impact the
Funds' operations or financial reporting. The SEC Rules also specify the types
of services that an Auditor may not provide to its audit client. The following
policies and procedures comply with the requirements for pre-approval and
provide a mechanism by which management of the Funds may request and secure
pre-approval of audit and non-audit services in an orderly manner with minimal
disruption to normal business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committee ("general pre-approval") or require
the specific pre-approval of the Audit Committee ("specific pre-approval"). As
set forth in these policies and procedures, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee. Additionally, any proposed services exceeding general
pre-approved cost levels or established amounts will also require specific
pre-approval by the Audit Committee.
The Audit Committee will annually review and pre-approve the services that may
be provided by the Auditor without obtaining specific pre-approval from the
Audit Committee. The term of any general pre-approval runs from the date of such
pre-approval through September 30th of the following year, unless the Audit
Committee considers a different period and states otherwise. The Audit Committee
will add to or subtract from the list of general pre-approved services from time
to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committee in fulfilling its responsibilities.
II. DELEGATION
The Audit Committee may from time to time delegate pre-approval authority to one
or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next-scheduled meeting.
III. AUDIT SERVICES
The annual audit services engagement terms and fees will be subject to specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures such as tax provision work that is required
to be performed by the independent auditor to be able to form an opinion on the
Funds' financial statements. The Audit Committee will obtain, review and
consider sufficient information concerning the proposed Auditor to make a
reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committee may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial statements with SEC registration statements, periodic reports and
other documents filed with the SEC or other documents issued in connection with
securities offerings.
IV. GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committee may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Committee believes that the provision of the service will not impair the
independence of the Auditor, is
consistent with the SEC's Rules on auditor independence, and otherwise conforms
to the Audit Committee's general principles and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
ALL OTHER SERVICES
The Audit Committee may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
V. SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committee may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committee believes that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
VI. PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval fee levels or established amounts for services to be provided by
the Auditor under general pre-approval policies will be set annually by the
Audit Committee. Any proposed services exceeding these levels or amounts will
require specific pre-approval by the Audit Committee. The Audit Committee will
always factor in the overall relationship of fees for audit and non-audit
services in determining whether to pre-approve any such services.
VII. PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committee for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees where possible and such other information as the Audit
Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committee will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed at the
next regularly scheduled Audit Committee meeting of any such services rendered
by the Auditor.
Each request to provide services that require specific approval by the Audit
Committee shall be submitted to the Audit Committee jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committee for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment Company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committee has designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client
o Financial information systems design and implementation
o Appraisal or valuation services, fairness opinions, or contribution-in-kind
reports
o Actuarial services
o Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board determines by
regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASES.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant adopted Shareholder Communication Procedures (the
"Procedures") on December 10, 2003. The Procedures are intended to
set forth the process by which shareholders of the Registrant may
send communications to the Board. If a shareholder sends a
recommendation of a nominee to the Board or to an
individual trustee, such communication would be covered by the
Procedures; provided, however, that shareholder proposals submitted
pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and communications made in connection with
such proposals are not subject to the Procedures.
Pursuant to the Procedures, shareholders should send their
communications to Ivy B. McLemore, First Vice President Corporate
Communications. Communications made to Mr. McLemore may be
communicated by telephone, e-mail or regular mail to the following
address: (713) 214-1904, ivy.mclemore@aiminvestments.com, A I M
Management Group Inc., 11 Greenway Plaza, Suite 100, Houston, TX
77046. All shareholder communications received by Mr. McLemore
shall be promptly forwarded to the individual trustee of the
Registrant to whom they were addressed or to the full Board, as
applicable. Copies of all shareholder communications will also be
distributed to the Chairs of each of the Registrant's Audit
Committee, Governance Committee, Investments Committee and
Valuation Committee, to counsel for the Registrant and to counsel
for the independent trustees of the Registrant. Counsel for the
Registrant, upon receipt of their copy of a shareholder
communication, shall work with such Chairs and counsel for the
independent trustees to determine whether such shareholder
communication should be distributed to any trustees to whom it was
not sent and whether and in what manner the trustees should
respond to such shareholder communication. Responses, if any, to
shareholder communications shall be coordinated by counsel for the
Registrant, working with the Chairs and counsel for the
independent trustees.
ITEM 10. CONTROLS AND PROCEDURES.
(a) As of March 22, 2004, an evaluation was performed under the supervision
and with the participation of the officers of the Registrant, including
the Principal Executive Officer ("PEO") and Principal Financial Officer
("PFO"), to assess the effectiveness of the Registrant's disclosure
controls and procedures, as that term is defined in Rule 30a-3(c) under
the Investment Company Act of 1940 (the "Act"), as amended. Based on
that evaluation, the Registrant's officers, including the PEO and PFO,
concluded that, as of March 22, 2004, the Registrant's disclosure
controls and procedures were reasonably designed so as to ensure: (1)
that information required to be disclosed by the Registrant on Form
N-CSR is recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the Securities and Exchange
Commission; and (2) that material information relating to the
Registrant is made known to the PEO and PFO as appropriate to allow
timely decisions regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the Registrant's last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
11(a)(1) Code of Ethics
11(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the Investment
Company Act of 1940.
11(a)(3) Not applicable.
11(b) Certification of principal executive officer and principal
financial officer as required by Rule 30a-2(b) of the Investment
Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Registrant: AIM Tax-Exempt Funds
-----------------------------
By: /s/ ROBERT H. GRAHAM
---------------------------------
Robert H. Graham
Principal Executive Officer
Date: June 3, 2004
---------------------------------
By: /s/ SIDNEY M. DILGREN
---------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date : June 3, 2004
---------------------------------
EXHIBIT INDEX
11(a)(1) Code of Ethics.
11(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
11(a)(3) Not applicable.
11(b) Certification of principal executive officer and principal financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.